Q4 2019 Earnings Call
Good day and welcome to the TEGNA fourth quarter and full year 2019 earnings call. This call is being recorded our speaker for today will be Dave Lucci, President and Chief Executive Officer, and Victoria Harker, Chief Financial Officer at this time I'd like to turn the call over to John Joni Davis Senior.
Vice President of capital market and Investor Relations. Please go ahead.
Thank you Charlie good morning, welcome into our fourth quarter.
19 full year earnings calls and webcast today, our president and CEO, Dave looting and our CFO Victoria Harker.
If you check with financial performance or results after that we'll open the call up for questions.
Hopefully if any opportunity to review this mornings press release.
Not yet seen a copy of the release, it's available at checking that dotcom and before we get started I'd like to remind you that this conference call and webcast includes forward looking statements and our actual results may differ factors that may cause them to defer or online in RCC 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.
With that let me turn the call over to Dave.
Thank you John and good morning, everyone.
As you sort of earnings released this morning, TEGNA ended the year with significant momentum across the business as we execute against our five pillars of value creation.
As a reminder, these are one being a best in class operator, too aggressive yet disciplined pursuit of M&A opportunities three innovation and expansion into adjacent businesses for maintaining a strong balance sheet and rapidly de levering and five commitments or free cash flow generation and balanced cap.
Capital allocation.
The results, we announced today, we enforce our continued progress on each of these five pillars as well as the strength of all our key long term growth drivers.
As we enter 2020 with a strong momentum we are on track for a record year, which is reflected in our bullish first quarter, but what's your first border and full year guidance beyond just this year, we have increased conviction of how our strategy will drive long term growth and shareholder value as Victoria will discuss in greater detail in her remarks, our preliminary outlook for 2000.
21 shows how well position we are to continue to generate tremendous financial performance as we move forward. We remain open to all avenues for creating shareholder value well always staying laser focused on execution of our near and long term strategy.
2019 was a pivotal year for our company as we executed on both organic and inorganic growth, we met or exceeded all of our fee key financial guidance metrics for the year, but the fourth quarter. TEGNA is total revenue was $694 million up 8% year over year.
Revenue growth was driven by strong growth in subscription revenues and advertising and marketing services betting benefiting also from the first full quarter of our recent acquisitions this more than offset the expected production and political advertising compared to 2018.
Subscription revenue continues to contribute contribute to our growth as the distribution agreements. We just completed in the fourth quarter, we priced half of our subscriber based combined with expected repricing of an additional 35% of subs in 2020.
This equates to 85% of subs, having been repricing by the end of this year, increasing the predictability of our future cash flows and supporting our ability to secure top of market retrans rates for our portfolio a big four affiliates.
A final comment on the fourth quarter and that is that our advertising and marketing services revenues continued to grow with solid demand from traditional advertisers and added dollars for new advertisers as we continue to diversify our advertiser base. This improved trend provides a solid underpinning to advertising as political begins to pick up steam.
We'll go into more detail on our financial results later.
M&A remains a core element of our strategy and we completed $1.5 billion of strategic acquisitions in 2019 at attractive multiples, which were immediately accretive to free cash flow and are expected to be accretive DBS within nine months well ahead of schedule.
Through these acquisitions, we have continued to deliberately expand our reach into markets that will benefit disproportionately from political spending and even years and further reinforce our ability to achieve top of market big for subscriber rates that I referenced earlier.
Our disciplined approach to acquiring new assets generated significant value without impacting our flexibility to acquire additional stations in the years ahead.
Our recent acquisitions or expected to provide approximate annualized revenues of $500 million adjusted EBITDA of 200 million and free cash flow of 100 million on a two year average basis, all while only only using three points at headroom under the Fccs household ownership cap.
Our strong free cash flow enables us to rapidly de lever falling transactions, while continuing to pay and attractive quarterly dividend.
This active management of our balance sheet includes the recent completion of two debt refinancings, taking advantage of low rates to reduce interest expense and improve our financial flexibility. We plan to de lever to approximately 4.0 times by the end of this year, enabling stagnant continue to play a key role as an industry consolidator in the years ahead.
We maintain a disciplined approach to M&A acquiring high quality broadcast assets as well as compelling adjacent businesses.
We seek to acquire assets that are synergistic and expected to be accretive to earnings and free cash flow wallet producing attractive returns.
We are well positioned to take advantage of additional consolidation and continually analyze opportunities to create shareholder value.
The strength of our balance sheet ample headroom under the ownership cap and a reputation as a partner of choice to independent broadcasters, all position us well for future M&A opportunities.
I noted earlier, how the continued growth of our sub revenues helped us achieve such strong results for the quarter and full year.
TEGNA has been successful in generating these durable revenues in recent years and as our guidance reflects we expect another strong year ahead as result of our success in the current subscriber fee repricing cycle, we expect to generate at least mid twentys percentage growth in 2020 in terms of subscriber revenues and after renewing our CBS and.
Fox affiliate agreements in 2019, we entered the year with financial clarity of our big four relationships into 2021 and beyond.
On the political front, we are more confident than ever of our expectations expectations. As the 2020 election spending cycle is off as you can probably imagine to a very strong start.
Our portfolio has been stern strategically constructed to take advantage of increasing even year political spending with new stations in many high spend battleground states.
Couple of what primiano capability to address OTI TV, whereas in an outside of tech the markets. A tool we did not have for the last presidential year, we're well positioned for 2020 and future election cycles, we had a record fourth quarter for an odd numbered year in political and we have seen an earlier than anticipated level of spending this quarter.
Further increasing our confidence that we will generate more than $300 million and high margin political advertising this year.
[noise] with strong momentum in both political and subscription revenues. We continue to expect the combination of these two revenue streams to make up approximately half of our total to your revenue beginning with this 2019 and 22 year cycle and an increasing percentage thereafter, a key element of our durable strategy to drive shareholder value.
In any environment.
Now I'd like to share a couple updates on our strategic content program initiatives in the fourth quarter. We continued to see growth in recognition for our high quality content and initiatives across our portfolio. A couple of examples TECNIS vault Studios launched a five episode podcast series titled Amy should be 40. Another example of how the studio has leveraged loan.
We will TEGNA stations archive news libraries to create impactful informative and entertaining true crime genre content for new distribution pass.
Producing and distributing high quality news and information is a responsibility we take very very seriously, which is why in January we announced that we have committed to training all of our journalists across the 39% of this country. We serve to combat. This information so key in this.
Each of social media.
We will identify false information and help consumers distinguish between what's back and whats fiction and their social and digital feeds.
In summary, I'd like to highlight several key milestones that we achieved since the beginning of 2019.
We announced in close acquisitions, reaching 1.5 billion that are immediately accretive to free cash flow and expected to be EPS accretive within my nine months of the clothes and acceleration from the previous announced 12 months.
We successfully reached multiple key distribution agreements repricing half of our sub base at top of market Big four retrans rates.
Standing agreements for multiyear terms and providing predictability of future cash flows we created an integrated in house National Salesforce embracing automation for a more come for the more commoditized size of the business and creating a capability for more high touch solutions for our national clients.
And finally, we further strengthened our balance sheet and added financial flexibility by issuing $2.1 billion of senior notes and amending and extending our $1.5 billion revolving credit facility. All on very favorable terms to the Repricings. We did in September of 2019, and just just this past January 2020.
Our commitment to executing on our long term strategy and the specific actions we've taken to do so over the past few years are generating strong results for our shareholders.
We look forward to the abundance of opportunities we see this year to execute against our strategic framework, including the remainders remaining subscriber repricing.
The summer Olympic games on our large NBC portfolio stations and anticipated record political revenues across our entire portfolio.
We are more enthused than ever about our strong positioning for the future with a clear strategy in the financial flexibility to continue building shareholder value for many years beyond.
Ill now pass the call over the Victoria to cover our financial results in more details Victoria. Thanks, Dave Good morning, everyone and thanks for joining us.
As Dave mentioned, we're excited about all of our station strong operational execution again, this quarter well their legacy stations as well as those the acquired in three highly accretive transactions, we closed late last year.
Before I cover our consolidated financial results I'd like to review a few special items. Thank you.
For the quarter. These include non cash charges of $16 million, which were partially offset by two 3 million dollar gains.
One for reimbursement for FCC spectrum, Repacking and the other for a write off of a previous investment.
In addition, we cover incurred severance and closing costs of $7 million related to our recent acquisition.
And incremental $6 million and activism defense advisor fees.
Now onto the fourth quarter consolidated financial results.
Keep in mind that my comments today are mainly focused on taking his performance on a consolidated non-GAAP basis.
Michael Your line of sight into the financial drivers of our business trends and operational results.
Also as a reminder, our fourth quarter results. This year are not comparable to the same quarter last year.
As a result of nearly $140 million political advertising revenue in 2018.
This is also the first full quarter of contribution from our recent acquisitions most of which closed in late third quarter.
You'll find our reported data and all prior period comps in our press release.
As you saw in our release total company revenue for the fourth quarter was up 8% year over year, beating our prior guidance range of I'd mid single digits.
This is driven by our new acquisitions of course, as well as strong growth in subscription revenues political advertising and the continuing strength of advertising and marketing services offerings through the year, all of which I'll talk about in more detail in a minute.
Total revenue for the quarter was up fully 33% over last year, excluding the impact of political advertising.
This performance also exceeded our prior guidance of high Twentys percent growth.
But the full year 2019, total revenue increased 4% to $2.3 billion driven again by the continued strength of subscription revenue growing momentum and advertising marketing services as well as roughly one quarter's contribution from our new acquisitions.
This is partially offset by the near absence and political revenue in 2019 and off cycle here compared to $234 million and political advertising in 28 team.
In terms of the sub categories of revenue for the quarter.
Subscription revenue increased 20% for the year also exceeding prior guidance up high teens.
It's worth noting again as Dave said with half of our subscriber base repriced during the fourth quarter combined with another 35% hedge price this year.
The 85% of our subscribers will be repriced by the end of 2020.
These reprice subs at the top of market rate produced strong annuity like cash flows, giving us on stability and predictability of future cash flows.
Advertising marketing services finished the year up 11% driven by the strong performance or acquisitions in 2019, as well as our legacy station, reflecting growth in most categories all year.
Partially offset by the loss of Olympics revenue.
Now onto expenses.
Our operating expenses for the fourth quarter were 27% higher on a year free basis inline with our prior guidance range of up mid to try 20.
This is driven predominantly by new acquisition and higher programming fees associated with higher subscription revenue.
Excluding acquisitions programming expenses and continued investment and revenue initiatives operating expense was down 1%.
As a reminder programming fees include reverse compensation compensation paid to networks.
As a result.
As reported adjusted fourth quarter, EBITDA was $229 million producing a very healthy 33% margin again this year.
Well the full year 2019 operating expense was up 13% also primarily driven by acquisitions and higher programming fees associated with higher subscription revenue.
Excluding programming costs, an incremental expenses related to acquisitions and investments.
Operating expenses were down 4% for the year, reflecting our ongoing efficiency efforts.
As a result.
Earlier 2019, adjusted EBITDA was $708 million down 9% from the prior year isn't your absence of 234 million high margin political AD revenue in 2018.
[noise], we generated $111 million or free cash flow in fourth quarter and $376 million for the full year.
For the 2018 2019, two year period, our free cash flow as a percent of revenue was 19.1%.
Head of our recent guidance range of 18% to 19% of revenue and well ahead of the 17% to 18% range initially provided.
As a reminder, we also recently increased our guidance range for the 2019 2022 year period.
19% to 20% as well.
For the ongoing strength of the business across the board.
We expect the two year period 2020 to 2021 free cash flow as a percentage of revenue to be in a 19% to 20% range as well.
As previously discussed we continue to use our free cash flow and $1.5 billion revolving line of credit for investments such as new products initiatives as well as to fund acquisitions and reduce higher coupon debt.
We also continuously focus on reducing the cost and financing our business.
As you've likely read on January nine TEGNA successfully completed a billion dollar offerings senior notes with the same covenants as our prior debt structure.
At boring Fiveeight.
And it burned by these rate due in 2028, historically low interest rate.
Net proceeds were used to repay approximately $650 million of our October 2023 bonds.
$310 million of our July 2020 bonds.
We now have approximately $900 million drawn under our revolver, finishing the quarter with total debt of $4.2 billion.
Now turning to first quarter and full year 2020 guidance.
In an effort to help forecast our near term results were again, providing several key quarter head financial guidance metrics.
For the first quarter.
We expect first quarter total company revenue to be up low to mid Thirtys.
When excluding political revenue, we expect revenue growth to be in that mid twentys.
Driven by the same factors previously discussed.
From my first quarter expense perspective, we forecast as reported first quarter operating expense to increase in a low to mid thirtys driven by our new acquisition.
Acquisitions.
Higher programming fees and investments in content digital.
Excluding programming expenses are forecast to be up in the high 20% range. The majority of which is driven by new acquisition.
In terms of our full year 2020 guidance on a reported basis. We've also further refined our prior outlook as well.
On a full year 2020 basis, we expect subscription revenue to be up mid twenties.
Based on sub trends and the timing of anti PD renewals.
As you May have read spectrum was our first major agreements successfully closed in the fourth quarter of 2019, which began a processor, which 50% of our subscribers were repricing that corridor with another 35% scheduled to be reprice by the end of 2020.
This is proof positive our ability to work collaboratively with her and PPD partners to complete very successful agreements, which drive strong revenue and free cash flow, both now and well into the future.
And as Dave mentioned after renewing our CBS and Fox affiliate agreements in 2019, we answer to your with clear visibility into the strength of our big core relationships into 2021 and well beyond.
[noise] beyond this growth in 2020 full year EBITDA and free cash flow will also continue to reflect year over year expense improvements, resulting from a significant cost reduction initiatives that have been underway for the past 24 month.
These efforts include.
Implementation of shared service support centers for all back office and transaction processing functions.
[noise] burden of our companywide financial system consolidation, which will be completed in second quarter of this year.
And automation of sales support master control as well as traffic streaming and monitoring function.
As a reminder, here's an overview of our updated key 2020 guidance elements.
Corporate expenses expected to be in the range of $41 million to $43 million.
Depreciation is projected to be in the range of $66 million to $69 million slightly below our prior estimates.
Amortization is pressure projected to be in the range of $73 million to $75 million.
Interest expense reduced due the benefit of our refinancing is now expected to be in the range of $220 million to $225 million.
We expect capital expenditures to be in the range of $62 million to $66 million.
Which includes non recurring capex of approximately $20 million to $24 million.
And just to unpack that further this is comprised of repacking as well as $15 million of nonrecurring Capex for development work in key project.
Such as our new Master control traffic streaming and monitoring platform as well as our ERP implementation, both of which are well underway.
The consolidation and monetization at least that's assistance allows us to not only continue to reduce significant operating costs in the future, but also to seamlessly integrate new acquisitions at little to no incremental cost.
The effective tax rate is expected to be in the range of 23.5% to 24.5%.
[noise] and be honest as we've previously disclosed we're currently planning no additional share repurchases and until we de lever later this year.
As you know TEGNA follows a disciplined capital allocation framework that balances our desire to enhance our gross profit profile.
Three strategic accretive acquisitions with her commitment to a strong balance sheet.
Organic growth and returning capital to shareholders through dividends and de levering.
Capital allocation decisions are always tightly aligned with maximizing shareholder value.
And we dynamically allocate capital the options that offer the highest returns as we and our board regularly analyze all opportunities to generate long term value.
As Dave noted, we were very active participants and industry consolidation in 2019.
$1.5 billion in transactions, we close last year were acquired at or below market trading multiples of approximately 7.8 times for 6.7 times on a tax adjusted basis.
As a result as reflected in our outlook.
These transactions are expected to provide annualized revenue of approximately $500 million adjusted EBITDA of $200 million and free cash flow of $100 million on a two year average basis.
And we only used three points of our national Catherine room to achieve this.
Also all of these transactions were immediately free cash flow accretive and are well on track to be EPS accretive within nine months of close several months earlier than anticipated.
This reflects our strong capacity to leverage opportunities are both financial and strategic fit.
As we previously discussed we have ample capacity ended the cap to execute on our strategy did the efficiency of our buying power and continue to actively pursue assets that are fit for us within current industry regulatory constraints.
As a result of our recently completed acquisition.
Leveraged temporarily increase at the end of fourth quarter to 4.9 times.
Accelerate political free cash flow is currently being used to reduce that debt.
Increasing that leveraged approximately four times later this year.
Beyond the $1 billion refinancing we've already retired an incremental $50 million in debt this quarter already.
Providing increased firepower and further positioning us to benefit as a long term consolidator.
Now just the strength of our ongoing business performance into perspective.
Well, there's a lot of understandable exuberance within the broadcast sector due to 2020 political advertising here TEGNA were even more excited about the future of our business beyond this year as a result at the smart capital allocation decisions, we've made over the past three years.
Our investments and strategically and financially transformative M&A as well as operational excellence, providing us with enormous operating leverage which is clearly reflected in the throughput of our business going forward.
To that end, let me give you some early insight into several key 2021 financial metrics.
Keep in mind that while we remain actively engaged in exploring further consolidation opportunities.
This preliminary glimpse into 2021, there's not any assume any additional M&A.
For more than our current 300 million dollar political revenue guidance floor for Twentys funny.
[noise] for 2021, we're very confident in mid to high Twentys revenue growth in 21, compared to 2019, driven by our newly ready renegotiated top of market Retrans rates.
Certainly free of acquisitions and ongoing premium growth.
And well the strength of these drivers not only creates great cyclical audio revenue growth comparisons.
What's even more remarkable is this.
Given the strength of projected 2021 subscription and Amex revenue performance.
We forecast is that these revenues will all but offset 2020 political revenues.
As a result, political and subscription revenue combined let's see 50% of total revenue on a two year 2020 to 2021 basis.
Providing for even stronger cash flow trends improve visibility into future results in a more recession proof businesses than ever.
[noise] Likewise 2021, EBITDA margins are expected to be in line with 2019 margins driven by the strength of subscription revenue growth and ammo.
As well as roughly $25 million incremental cost savings from the expense initiatives already under way [noise].
This will also drive free cash flow generation for the 2020 2021 period to 19% to 20% of revenue as well.
That's a pretty awesome metric to Lilly, reflecting the benefit of increased operating leverage we built into this business and the monolithic impacts of or Retrans agreements that have flowed from our ongoing operational performance.
To give this further context as we previously discussed by the start of 2021.
Leverage we back to our pre acquisition levels of four times are below given our accelerated de levering during 2020.
This provides for significant firepower to continue to invest in our business initiatives repurchase shares and opportunistically pursue eat equally strong new acquisition opportunities.
And on that front.
Just as a reminder, we currently enjoy seven points under the FCC ownership cap or 14 points below the cap with you a chip discount and have more than sufficient capacity to continue to invest in M&A efficiently and a creatively.
As we've done over the past three years.
So just to calibrate the math for you I Pathetically 750 million dollar acquisition in 2020.
With similar financial characteristics to our most recent deals.
Including a buyer multiple at roughly a time would act at approximately $300 million in revenue and $100 million an annualized adjusted EBITDA. So 2020 2021.
Without constraining, our remaining cap space or debt capacity in anyway.
And.
All of our platforms system and organizational streamlining work done today's allows us to integrate any new acquisition with speed and ease.
A little to no cost even during the transition as shown in the fourth quarter of 29 team.
[noise] in summary.
Both our 2020 guidance and 2021 key metrics reflect the transformation of our business over the past three years through operational excellence and our ability to acquire and integrate financially and strategically strong assets into our existing portfolio.
Well be on political these drivers and an outsized impact on the strength and predictability of TEGNA shareholder wealth creation into the future.
Before we open up for questions I'd like to turn it over today. Thank you Victoria before we begin the Q1 day I want to refer you to our January 21st letter to shareholders, which addresses a number of topics, including standard general a topic, we will not be discussing today for today's queuing I. We ask that you keep questions to the company's performance and outlook.
Well that will take your questions operator. Thank you if he would like to ask a question. Please signal by pressing star one on your telephone keypad. It's are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again, Please press star one.
Sounds good question.
Well take our first question for Vaseline herself from Cannonball research.
Thank you good morning, I have a couple of first do you mind, giving us an update on how AD sales are pacing in key categories. So far this quarter and then the second question I had is on the successful renewals that you that you had so could you. Please give us a little more detail on the drivers over this.
First step up and then how do these new deals compared to your historical deals in terms of duration because.
Escalators, and second or third years, and and things like that anything that you think would be useful for us to dimensionalize. This.
Sure. Good morning facility, Yeah, let's start with on AD pacing advertisers pacings, well, we've continued to see sequential incremental improvement from quarter to quarter now for four quarters.
And in the first quarter and keep in mind for US we have one of the biggest deltas on the superbowl year to year because it was on Fox last for CBS last year for which we have a sizable number stations and Fox This year for which we don't have a lot of household. So that's about a 6 million dollar an incremental bogey year to year, but even not adjusting for Super Bowl our pace.
It looks pretty good automotive is up for the first time in awhile for us and that's driven impart by premium which is really expanded our advertiser base in auto.
A median telecom is up very nicely home improvements up travel and tourism is up a lot.
Medical dental optical up nicely banking and finance up entertainment up auto aftermarket up retail slightly down a in low single digits.
And services category continues as about flattish for us, but that's because we had a couple.
Large whale, we'll call them advertisers last year that aren't in this quarter, but we actually continue to expand that basin, there and that continues to be a very strong category. So we're we're pacing up even adjusted for the Super Bowl.
I actually went and when you adjust for the Super.
Super Bowl, we're pacing even better.
But it we're very pleased with the outlook on advertising as it relates to the renewals of our subs to your questions. If I think I've got them. All so the first year step ups are significant I'll leave it at that I think just as a bit of commentary for we have a very not just a very.
Concentrated portfolio a big four stations, what I mean by that is very few cws their mind networks, but they're also very strong large market Big force at a lot of them as we referenced in my script, we been added more stations like that through M&A the benefits of stations like a cape and be in San Diego and THR in and you know.
Apple Us and BNS and Columbus are very strong stations that are very important the NIM bbds. So we come to those negotiations from appropriate position of strength.
That's the first or step ups you ask about are very very strong second and third year stair step ups so into double digits.
Duration of the deals very but we we basically we intentionally don't do very long deals because the market continues to move appropriately at our direction because there's still as I've talked about in previous calls still a gap between the viewership a big four affiliates are generally yeah.
And the overall.
No the overall HM cable marketplace in general.
Thank you.
Well take our next question from Alexia Quadrani with JP Morgan.
Hi, this is going to asking for like the I'm sitting here because the plant in Texas.
You know before 10 leverage that you laid out.
How do you see the pipeline for potential M&A at that point other still large station groups that are available for deals or do you take a at that point you might have to look at a you know more smaller targets.
Well go to answer the question this way, we are and where there's.
We know all the players in the industry and we are opportunistic on deals that make sense for our portfolio under the financial metrics that and disciplined inventory and I have outlined today on other calls so it's not it's not a large or small criteria. We can do.
Both.
Well all all under the methodology, we've talked before if you think about our space under the ownership cap, we want to maximize EBITDA.
Given every point, we have underneath the ownership apparatchiks, which as a toy. It also mentioned academically. If we bought all you HF stations will be 14%. So really it's that criteria. That's the most important criteria along with location network affiliation all those types of all those types of criteria.
Okay, and then maybe a little early to ask this question, but given the NFL.
May go into negotiations for television rights. This year is this something that is coming up in your discussions at this point would either network partners or distributors.
[noise], we do talk about it with our network partners very much so all the time and.
You didn't ask me the question, but I'll give the answer to of course, you Didnt ask me I do believe the NFL will stay strongly on broadcasting I think at the end of the day the erosion of cable.
Subs has more than ever shown the benefit the NFL gets from being on the broadest possible distribution mechanism and while I'm no doubt that the digital players will probably be brought into negotiations as leverage.
Feel highly confident that in the end.
We'll end up with a very strong portfolio of NFL games are on aren't there maybe some shifts between networks. There maybe some changes in the structure, but given our portfolio at our network affiliations I'm very confident.
The NFL will be a big part of our future go way going forward, which is a good thing.
Okay. Thank you.
Well take our next question from Dan Kurnos with benchmark company.
Great. Thanks, good morning.
Dave, but pretty healthy look at Q1 here, obviously political rather topical maybe if you can either frame up either directionally are specifically, how you're thinking about political in Q1, and I know a given history are unlikely to be pigeon holed into giving us a number other than the floor for the full year, but at least.
Let's think about you know sort of the variability that Bloomberg is bringing to the race and maybe order of magnitude on a pro forma basis that you could achieve this year.
Yeah, I mean, I'm you know as for the full year no change to our guide Dan as you know at this point obviously it is.
It is going to be a very robust first quarter, but I do need to remind you what's still going to end up being true as it as an every other.
Even year election cycle is it will all the total revenue will be completely back half loaded.
To the end of the third and especially into the fourth so I actually think you may see a little bit of a pull through forward from second quarter to first this year because so many primaries have moved up many of our states moved from the second quarter. The first quarter. So between Super Tuesday, and you know Super Tuesday alone half of our markets are participating.
In that and then the up in the room read the remainder of March a whole rest of most of our other markets will be participating. So I think you'll see first quarter will be more robust than in years passed on a percentage basis, but also on a true just a true level spending basis, I mean, even without Bloomberg.
You know I think first quarter would be very very strong.
And so Bloomberg obviously has been additive to the primary I think if you could think about Bloomberg going forward, if bloomberg stays in the race or let's imagine Bloomberg became the candidate the one thing to keep in context is I think things would still end up near the same because Bloomberg would have a lot wanting to spend on his own but I don't think he'd be getting money from small donors rights.
So the we need to be so he wouldn't have I don't think the same impact on the general election that he is having on the primary season that does that answer your question Dan.
Yeah, No. That's that's really helpful. And then thanks for all the color guys on 2021, just a housekeeping quickly Victoria can you just give us a sense of when you gave the margin number was that on an as reported or or pro forma basis flat with 19 and I'm assuming the growth that you gave was as reported and for Dave.
Weve, just obviously you have NBC coming up in 2021 can you just help us frame sort of your view on net retrans. Thanks.
In terms of pro forma in terms of the margin is pro forma but as reported is is largely in the same neighborhoods. So did not materially different.
And on NBC, Dan, Yes, what all everything we model for 21 and Corpus encompasses the a the new negotiation will have with NBC and you know we have a very good idea where that will end up and reminder, nbcs, 42% of ourselves below reprice, 85% of are paying subs.
By the end of next year and look we'll we'll we'll certainly have some you know our revenues are going up on retread. So so we'll.
Their revenues will go up too, but the shares a different discussion right I think so the bottom the bottom line is net Reg Retrans will continue to grow very nicely.
Got it thanks for all the color guys appreciate it.
Well take our next question from Steven Cahall with Wells Fargo.
Thank you I'm a couple of questions on your subscription revenue I was wondering if first do you could discuss maybe the shift from traditional MPPD used to virtual MPPD is is that negative or neutral or positive to your subscription revenue growth longer term and what kind of sub declines have you baked into the mid twentys per.
Sent a subscription revenue growth that you've got this year and just as it relates to it are you seeing an increase in viewership intro T.A. assets and you mentioned seeing auto driven on Permian. So I'm as we do see a bit more of a pickup in cord cutting and a shift to more of these alternative distribution models are you seeing kind.
A backend benefit from your other businesses. Thanks.
Okay, I'll start with subs slow so you know subset been down low to mid single digits Art Finance team has done a awesome job over the last two years on modeling literally by month, where subs are going to end up and I'm talking about net subscribers right.
True losses, and traditional offset by positives and virtual virtual it's not a one for one replacement I think you know numbers out there about remark drilling around half.
It is sort of the current rate I actually somewhat optimistic not predicting but a little bit optimistic that that conversion rate will.
Continue to improves I think the early.
Users in the early cord cutters were probably the least loyal television viewers, but now I think as older older viewers at a more think becomes more common place more easier.
Kids come home at Thanksgiving and explain the mom and dad, how to do it et cetera, et cetera that I think you're going to see now the cord cutting on go forward basis being more traditional viewers, who will seek out a another virtual a virtual NBP need to make sure they have their local channels as the surface.
So were you know that that low to mid single digits is what we're modeling with some very moderate acceleration for the year. So we've got very realistic numbers built into our model as it relates to OTI, a you're right. So when when homes OTI a viewership is increasing I don't think Thats completely act.
It really captured by Nielsen those kind of a lag there.
But you're absolutely right when a home goes to OTI a by definition it has less channels and they're all broadcast right. So the so the first the share of viewing I know tah homes increases for us when that happens.
[laughter] greater than maybe a quick follow up I was wondering if you could maybe give us the cadence of your programming expense growth for the year. Thanks very much.
Alright give us submitted on that if you what Steve.
Sure.
Because you're talking about the pace of growth from 19 to 20.
Oh, you just maybe would like the quarter's look like in 2020 in terms of what programming expense or reverse compensation expense looks like through that period [laughter], yeah, they're not they're not going to vary they're not going to very much at all they'll be related to the topline and because we don't we aren't going to be renegotiating other sub.
Until the back half a year.
The won't be much variability on that until after the sub subs of renewals are being almost all in the fourth quarter. So that's that's the only time, we probably see any significant.
Change in that number.
Great. Thank you.
We'll take our next question from Jim Goss with Barrington Research.
Thanks, I've got a few also.
One related to a political.
With with your emphasis Texas here dominance of that market normally I would tend to think of.
Is that much exposure to one state isn't necessarily advisable, but maybe it's warranted by the political opportunity as a the tides tend to turn in that state I Wonder if you talk about that and then also sort of net political but the Olympic bump in the third quarter. This year along with the early surgeon political.
After the conventions nice balance out the Q3 Q4, a little bit more than it would do you think.
As it those are started or okay. Let me take those yeah. Jim Good morning, Let me take those an order so Texas has not historically been a huge political spending space state, especially in general because its.
Been so Republican historically, but that did change some with the Senate race in 18 and now this year first of all starting with the primaries. Obviously every state that as a primary matters right for delegates and Texas has moved you know is now the company exact date, there was Super Tuesday States. So we've seen significant spending in Texas.
On the primary as for the General I. We are we're not modeling that it will be a contested election for presidential and the general but.
There's some significant how seat racism big markets for us if some Republicans have left there seat and are not running so theres, some and how spending will have contested house races. We'll have a lot of spending and we have a lot of those races in Texas and to that 0.1 of the one of the strategies behind heading up and.
Texas from the beginning going back to when we bought below and 13 is that on the obvious changing of the demographics of Texas will make it a purple state.
And by all accounts it will be by 24. So by 2024, we think presidential spending and that state could be.
Very large and you're right with 80 exposure to 87% of the state will take advantage a disproportionately on the Olympics, Jim I think you know yeah. The Olympics recall realize though that is even though the Olympics are nice bump for us we're not as heavied up on NBC as we once we're through our acquisitions, we were more diversified than we.
Once were so forever for every NBC station, where dollars get out and especially in large markets on CBS NBC stations, Mark money gets taken out of the market. So it's a negative so there's there's kind of oh, it's not a wash, but the incremental gets watered down a little bit on a percentage basis, so no I it and to your.
Question about evening out the quarters frankly, a lot of the Olympic inventory will get used for political.
Right, because obviously, it's a very high profile place for political advertisers to be so that kind of muddies the water a little bit so yeah, it might even out a little bit it does on on summer Olympic years, a little bit the third fourth quarter dealt of its still the amounts of political on a on a on a real basis in fourth quarter.
We will still completely subs consume.
Both political Olympics in the third.
Okay and to the thank you for that and the to the extent that a you've been talking about your capacity and capability to acquire additional properties.
Well this help in terms of scale are there any more significant synergies or benefits to began from additional acquisition. Aside from those specific properties, you could potentially acquire and since nexstars gotten bigger into larger markets, though they would need real changes.
To acquire aggressively does that change the.
The mix in terms or the competitive situation and that acquisition.
Opportunity.
Yes. Your second question no next nexstars being in some larger markets doesn't have any impact on our M&A strategy. Your opportunities you know I think look as it would a couple of comments about scale, we don't need additional scale to achieve a lot of what we.
Need to achieve right, but scale does matter and we obviously given our scale our scale already and the all of the backend efficiencies that we brings to any acquisitions as well as how they can help all of wrote the so so acquisitions.
Continue to be a good opportunity for us to continue to rise value, but where no. We're a no need to do one at any moment in time, we're going to be we're gonna be disciplined to pick up the right opportunities at the right time, we do not we do not wonder no pressure to.
To do something to to hit our numbers were fine, but obviously as our record is shown opportunistic M&A at the right crisis in the right assets works very well for us and our shareholders.
Okay, and lastly, with regard to the FCC go out fully is probably the key meaningful opportunity. It was clear economic benefits. We have the election undergoing underway of course or do you need to move quickly before elections or is there anything that could be done deprived anything along.
At this stage and does that dynamic change a lot. This Democrats takeover.
Yes, no Greg Good question, Jeff So on the issue of the Wap leaves or end market consolidation of too big for us that's not actually a political issue right. That's not an FCC problem. It's a court problem right. It's the Philadelphia Corp.
So those judges had been tough on the FCC out a number of things historically and that's the FCC was on our side on that so that I think that issue is sidelined for awhile, although I think at a certain point in time.
And I get the ownership cap in a minute, but both topics you are starting to see younger staffers. Both on the Hill then at the FCC starting to realize okay. This may be nuts right. These outdated rules on broadcasters and what actually brought that that before it was.
When the D.O.J. actually went a little bit backwards on their definitions of the video marketplace and even held a public hearing about it and you know all the participants in the hearing broadcasting cable the digital World. All agreed that the video marketplace is now fungible. So the both the DJ and the FCC, our operating more than yours.
Okay with an outdated definition of the video marketplace I have some confidence overtime that will take care of itself I think the ownership cap probably would there is no changes prior to the election and you know I'm not.
I think the frankly, there's uncertainty both ways, yeah, you're right if a Democrat once the white house, probably extends the time in which the cap may get lifted although I think again common sense will prevail.
But I'm not entirely clear what a trump reelection would look like.
As to who.
You know a president Trump would put into run the FCC. So.
You know.
Hard hard to predict on all that but I think in our case, what's really worth noting is we've got 14 points under the cap. When you consider review you HF and there's ways. We can do some shuffling to be able to do that so we don't need the rules to change or in the near term to have upside.
Alright, thanks very much appreciate it.
Thank you Jim.
Your next question from Kyle Evans with Stephens.
Hey, good morning, Thanks for taking my questions, you've already touched a little bit about on the NBC renewal at the beginning of next year, but could you back up and just kind of characterize network relations right now.
CBS and Fox, we're seeing some scary things in 16, and 17 and little bit in noise around the peacock streaming moving lignite forward just kind of step back until it's kind of where we are as you go into your renewals with the networks and 20 120 to 23.
Yeah, well look we've already we've already renewed CBS and Fox. So that's behind US right. So we're out several years with both of them and the answer is relations are a little different with different with each network.
But the one that matters the most of us as NBC and we have a very strong relationship with NBC. So.
They are important to us but were important to them. When you look at the delivery of our stations on an aggregate basis and how it actually lifts there overall anti rating index.
And we value them enormously we think there's still night football is the best sports asset and.
In the entire TV ecosystem, because the way they produce it in the way they've executed against it. So we feel very good about our particular.
Aggregate relationship with the networks, and especially given that NBC is the most important to us and we have a strong relationship.
Our second largest provider CBS as well.
[noise] great. Yeah. It was not that long ago that everybody was running around afraid of low cast as the new existential threat you know that that was originally aereo.
It seems like that is absolutely filling up the map could you give us if you're going to updated views on although cast or any other kind of pending threat to the to the broadcast ecosystem.
You know, it's I guess my answer to that question Carla's Havent, even thought about it lately [laughter] I mean, I think they just as we predicted early on you know just.
So we were talking in preparation for the call you know in my time at the broadcast space. The number of theoretical existential threats that turned out to be nothing whether it was you know the retransmission consent regime was going to go away or aereo or low cast and many many others and.
Last I heard they're just they're dialing for dollars for donations, but they have been a non factor to our business and I don't see we see no scenario, where they're going to become one.
Great well crappy products, usually go away last question.
Market size differences in Retrans, some trends or something.
Talked a little bit about in the past I'm wondering if you had any updated thoughts on what you're seeing in your large versus your small markets on sub counts. Thank you.
Yeah for our portfolio, that's but that's that's pretty much evened out that gap that does that distinction we saw between.
Large and small as sort of evened out not not really quite there as much. The difference is really between MVP days as you've probably heard from others I mean, there's a significant difference between.
We'll just say generally.
A large cable companies and large satellite company.
Great. Thanks for the uptick.
Well take our last question from Doug Arthur with Huber Research.
Yeah. Thanks.
Victoria I may have missed this in the release has been a lot going on this morning, but is it the acquisitions is it's fair to say they added somewhere between 100 at a 105 million or revenue in the quarters is that a ballpark number.
We're not we didn't break it out on a pro forma basis and I got to get back to as we've actually got them all integrated within our financial system today, but I think its instances.
But ballpark I think he thought in terms of we actually what it was going to do proof in terms of 2020 additive and a two year basis revenue is about 500 million and EBITDA. The south is creating a million. So I think thats, even that's pretty clear number in terms of annualized for 2020.
We have no more questions in the queue at this time.
[noise] alright.
Thank you for take the time to listen to our call today to get to conclude we're thrilled with the execution against our organic and M&A strategies and excited by the opportunities ahead. This year and beyond if you have additional questions were one unable to cover today. Please reach out to John Janedis at 7038736 to two thank you again and have a.
Okay.
This concludes today's call. Thank you for your participation you may now disconnect.
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