Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the script fourth quarter earnings Conference call. At this point all participant lines Arnaud listen only mode. However, the will meet opportunity for your questions if you'd like to ask a question on the call today. Please press one than zero at any time.
If you need any assistance during the call. Please press Star then zero on an operator will assist you offline as a reminder, today's call is being recorded I'll turn the call no or Miss Carolyn Micheli head of Investor Relations. Please go ahead.
Thanks, John Good morning, everyone and thanks for joining us for a discussion of the E.W. Scripps company's fourth quarter 2019 result.
Mind or that our conference call and webcast include forward looking statements and actual results may differ doctors that may cause them to defer are outlined in our FCC filing.
You can do that scripts dot com for more information you also can sign up to receive emails anytime we disclosed financial information and you can listen to an audio replay of this call. There the link to the replay will be up this afternoon and available for a week.
We'll hear first this morning from Chief Financial Officer, Lisa Knutson, then local media President, Brian Lawlor National Media easy P., Lora Tomlin, and from President and CEO, Adam Symson also in the room as controller and treasurer deadline.
Yep.
Good morning, everyone today scripts closes the books on a very successful 2019, a year when we more than doubled our TV station portfolio improved our operating performance in industry position and significantly grew revenue at our National media. This occurred on January 1st for the first time, we began capturing the value from.
All of our Comcast helpful and now we are looking with enthusiasm at the many opportunities we see for our growth this year.
Brian Lawlor and Laura Tom will provide more 2020 color and just a moment, but first I will review the highlights of our strong fourth quarter financial result, which once again beat expectations across the board.
And just a reminder, I will discuss our result, as though we had owned all of our recently acquired stations since January Onest 2018.
In today's press release, you can find a result on both an as reported basis and on an adjusted combined basis.
Now, let's talk about our strong performance to complete 2019.
And our local media division on an adjusted combined or same station basis revenue was $330 million down 21% from fourth quarter of 2018, when we had $114 million and political AD revenue.
Core advertising was up about 5% on an adjusted combined basis retransmission revenue with nearly $111 million political advertising with $15 million in the fourth quarter.
<unk> expenses for local media were down more than 5% inline with our guidance.
Now, let's talk about the rest of the company's results on an as reported basis. The National Media Division had a very strong fourth quarter easily surpassing the 100 million dollar mark to hit $113 million of revenue well above our guidance.
Okay, Newsy, Ginger and Triton all contributed to the over performance.
National media expenses were a bit higher than expected for a number of reasons, including cost tied to the higher revenue and adjustments to the amortization pattern at some of our programming assets without those adjustments National media segment profit would have come in around $10 million.
Shared services and corporate expenses were just under $14 million in the fourth quarter.
The company's Q4 income from continuing operations with nearly $11 million or 13 cents per share pretax cost for the current quarter included $5 million of acquisition and related integration cost as well as restructuring cost those onetime cost decreased income by nearly $4 million now.
Net of taxes that works out to four cents per share. So we would have reported income 17 cents per share if you exclude the impact of the non core items.
Interest expense was $27 million compared to $9 million in the fourth quarter of 2018. The increase is due to the issuance of our 765 million dollar term loan B last may and $500 million that senior unsecured notes in July to find our local broadcast portfolio expansion.
Our capital expenditures totaled $19 million for the fourth quarter and $61 million for the year before year figure includes $17 million for the FCC repack for which we expect to be fully reimbursed by the federal government.
Turning to capital allocation, the company made $4 million and dividend payments in the quarter and $16 million for the fourth year.
We also have a new share repurchase authorization for two years and $100 million.
On December 31st cash totaled $33 million, well total debt was $1.95 billion.
Now I'd like to go through our guidance for the first quarter.
In today's press release and on this call, we're providing local media revenue and expense guidance on an adjusted combined basis for the first quarter, we expect local media revenue to be up in the low teens percent in comparison to Q1 of 2019.
We expect local media expenses to be up in the low teens as well however, excluding the increase in programming cost expenses would be up mid single digits.
Turning to National Media, we expect revenue of between 105, and a $110 million and expenses of about $100 million. We expect continued margin expansion in the National Media Division this year.
The shared services and corporate line is expected to come in Adam around $19 million for the first quarter due to the annual cycle of benefits and compensation items. It will return to a lower run rate in the second quarter.
Finally, we expect to report higher Capex in the first quarter than we will the rest of the year, that's due mainly to and proprietary software system at the former trivial stations that we are replacing in order to yield synergies now here's Brian to discuss our local media result.
Thanks, Lisa good morning, everybody, well, we havent, even hit Super Tuesday, yet, but we're well into the 2020 election.
Got a presidential incumbent campaigning and primary stage, a dark horse billionaire advertising is way up the polls and uncontested Congress with much to be lost or gain by both parties. The American people have a lot to keep up with over the next day months.
Scripts is one of the best position broadcasters to serve as a medium for this political messaging.
Especially after doubling the size of our portfolio and gaining more highly ranked stations in key markets. We've already begun the plane instrumental role in this democratic process.
Scripts has a strong presence in a number of expected presidential swing states, including Arizona.
BARDA, Michigan, Nevada, and Wisconsin.
The early fundraising levels give us reasonably these states will have well financed races as we enter the back half of 2020.
We also on top stations in states with three of the most competitive U.S. Senate races, Arizona, Colorado in Michigan and.
And we have a toss up governor's race in Montana, where our cluster of five number one stations receives a high percentage of the political advertising dollars.
We will host 35 competitive U.S. house races in our markets, including New York City, Detroit, Phoenix, and our two Virginia stations in Norfolk, and Richmond, We also expect strong issue spending at our three California stations.
Given the strong start to the 2020 election cycle combined with the expertise inefficiency of scripts owned dedicated political sales office, we now expect a record level of political AD revenue at nearly $200 million.
Turning to core advertising, our third quarter momentum continued through the fourth quarter. We finished Q4 up nearly 5%.
Strong categories include services retail home improvement and travel and leisure all up double digits.
Our rapidly growing home improvement category was up well over 20%.
Our sales execution and the health of our local economies continue to drive this strength.
Scripts is proud to be a high quality and trustworthiness partner to local businesses, who must reach our audiences in order to grow.
Retransmission revenues another strong story for scripts as we turn the page to 2020.
As of January 1st we are now receiving our long awaited retransmission revenue from Comcast.
And we'll reset several other key cap contracts in the first half of this year.
When those are complete we will have reset the rates on more than 60% of our pay TV households. This year, then we'll look forward to another 18% renewing next year.
Turning to the Kate's networks, we're extremely pleased with the excellent finished the year fourth quarter revenue from five Kate's networks was up 30% over the fourth quarter of 2018 their best quarterly performance since we acquired them.
For the full year Kate's revenue was up 22%.
Strong ratings growth and viewership across the networks in particular bounce core TV and great have driven significant growth in advertising revenue.
2020, it's expected to be another great year for the Kate's networks the growth on core TV will be fueled by more distribution and lower larger audiences, starting with two big events. The Harvey Weinstein trial, which just concluded this week and the core TV original series OJ 25, which will continue beyond the first quarter.
Yeah.
The fourth quarter, Mark two full years that we've owned cadence and as we've been telling you the business continues to exceed our expectations.
And now here's Laura.
Thanks, Brian Good morning, everyone those of us in the National Media Division are proud to have delivered well over $100 million in quarterly revenue in Q4, and nearly $400 million for the year.
They're meaningful milestones as we further expand profit margins. This year. We're also on track to exceed our previous revenue guidance of $500 million and 2021.
It is significant that all four of our big National Media businesses made strong contributions to our 2019 annual growth.
At 22% stature at 42% Newsy at 75% and try in which we acquired in late 2018 at 16% on an apples to apples basis.
All four of these businesses are leaders in fast growing market places they are increasingly improving scripts enterprise value as they capitalize on media consumers changing behaviors.
Let's start with Stitcher, where the sales team delivered its largest sales quarter ever in the fourth quarter.
This performance was due to a combination of sales effectiveness on hit shows and increasing advertiser demand.
Over the last year did your has sold more ads than anyone else in the 400, most popular podcast.
In addition to and sales performance did your is well positioned with its end to end prior to that fast growing and competitive industry.
This concludes our expansive portfolio of content that we create and now hit shows in a variety of the most popular Jonathan podcast.
Including comedy Andrew crime.
We combine that portfolio with another expansive list of popular podcasts, we represent any advertising marketplace.
As I mentioned Skechers advertising sales business is the gold standard in the podcast industry.
And of course, we reach audiences through multiple listening platforms that theres mobile App smart assistance and connected cars.
These platforms provide us an additional AD sales opportunity as well as listening data to inform our strategy.
Theres holistic approach puts it on a path to continue its revenue growth and a 40% plus range.
Our National News network Newsy continues to resonate with audiences because of its objective contextual approach to the big stories facing the nation Newsy and on track to crossing the profitability later this year.
Just as we have statewide.
We've long said our plan like to develop museum turn important voice and the National news landscape for younger audiences and a growth and profit contributor for the company and that's exactly what we've been doing so many of new these competitors have fallen by the wayside.
Turning to Triton, we saw our newest national media business achieved multiple milestones in 2019.
Right and this metric rank or tool provides insight into the top performing streaming audio station the networks.
It's news continues to grow in Europe, the Middle East Africa, helping to expand Triton International revenue.
Triton also has received certification from the interactive advertising Bureau that will allow it to become the measurement standard for the podcast industry. In fact tightened debut the first podcast ratings report for Australia in Latin America last year.
This quarter Triton will release podcast reports in the us in the Netherlands.
These reports will provide buyers with the trusted third party podcast measurement they need to make informed decisions around podcast advertising.
Titan has laid the foundation to established itself as the currency for podcast measurement worldwide.
This is the same path triton to to become the leader and digital audio streaming measurement.
Triton's financial results have continued to exceed our expectations as that capitalizes on road digital audio industry.
Now here's Adam Thank you Laura good morning, everybody. Those of you have been with US for some time no. We at the company has really been looking forward to 2020.
This is a year, we knew we would make meaningful strides in margin growth and free cash flow generation.
In two months in because of the work we completed in 2019 to reposition the company the year is setting up very nicely.
From a retransmission revenue perspective, we are now happily on the other side of our Comcast step up next up you should expect us to fully capture fair value for the distribution of our signals to another 40% of our pay TV households.
Those will move to new market rates by mid year, creating a strong run rate as we move into the back half of 2020.
As Brian said political advertising revenue also is shaping up to be massive for us. This year presidential candidates are spending in ways. They haven't spent before earlier and more broadly and to build their brands before they ask for votes, one thing that hasnt change, though the majority of their money is.
Being spent on television.
They know broadcast TV is by far the most powerful way to reach any influence America.
Because of the strong start to the year, we have increased our outlook for 2020 political ad revenue.
All in all we expect twentytwenty to be a tremendous year for scripts as free cash flow generation.
While the politicians impacts are confident and their use of broadcast television as the best advertising platform. We also recognized that our audiences have put their trust and scripts as news operations to help them sort facts from fiction during what promises to be a contentious and confusing political season.
I'm proud to say that scripts newsrooms are recognized as among the best news sources because of our unrelenting dedication to high quality objective news coverage.
As a news organization scripts has a corporate social responsibility to help audiences understand their world. So we recently partnered with the nonprofit non partisan news literacy project to hold the first annual National News literacy week.
The public awareness campaign with designed to educate Americans to distinguish between sources of trustworthy news and sources of this information.
We will continue this educational work as we move through the year, because it's important to our business and critical for our democracy.
Now, let me take a moment to talk about scripts and podcasting, we were early and podcasting when we acquired Midroll back in 2015, and I certainly remember plenty of conference calls like this one when we were trying to explain what a podcast was and how we made money and now we're pleased to see that podcasting is good.
A lot more attention from investors all along the way we've been building a podcasting juggernaut.
I recognize the growth in our podcasting operations, sometimes gets lost in the scale of our local television business. So let me remind you that for the last several years, we've been writing high on the back of our execution and the podcast marketplaces expansion to deliver consistent revenue growth north of 40% ended.
Hi is 90%.
You just heard Lora described how a moment ago, our SaaS business Triton has positioned itself to become the measurement standard in podcasting as it is with other digital audio.
I'm pleased to see more and more investors taking notice of the value scripts has been building and this fast growing and emerging marketplace.
Likewise scripts was ahead in recognizing an opportunity to create shareholder value from a resurgence in over the year broadcasting when we acquired and then expanded the case networks, whereas once upon a time over the year broadcasting was a platform reserved for folks who couldn't afford TV pay TV.
Today, it's a totally different story.
And while everyone has been so focused on the variety of internet options for TV over the year has been growing right alongside OTI.
What's old is new again and broadcast linear television is seen by younger audiences as the perfect pairing to subscription services and virtual and tpds their plugging in digital antennas and tuning into free over the year television.
Once again executing our growth plans alongside more Americans choosing to use over the year has powered our five OTI a networks the case networks to 22% growth last year.
You'll recall that growth rate is higher than the expectations, we had for the business when we acquired it.
The combination of our local television portfolio and our five kids networks uniquely positions scripts to take advantage of the over the year Renaissance in the media marketplace.
And our company, we look to capitalize on opportunities that stem from consumer change and profit from disruption.
Stature in Triton alongside Kate's, a new C are important contributors to this company's growth.
As you can see from today's results our National Division is expanding its margins as revenue generation surpasses expense, that's the way to build strong and enduring businesses and that's the way scripts organically creates new shareholder value.
Grips has successfully repositioned itself to thrive in the ever evolving media landscape through the prudent deployment of capital our focus on executing for near term results and our commitment to the mission of informing and entertaining our audiences.
Together with our shareholders, we will reap the benefits of those moves this year and well into the future.
And now operator, we're ready for questions.
Certainly and ladies and gentlemen, if you wish to ask your question. Please press one than zero on your telephone keypad. You mean withdraw your question at any time by repeating the one Joe command.
We are using any speakerphone, please pick up the handset before press in the numbers. Once again, if you have a question maybe press one than zero at this time.
And for school line of Dan Kurnos with benchmark. Please go ahead.
Great. Thanks, good morning, very nice quarter guys.
Just a a couple obviously.
Brian probably the you know that the focus has been on net retrans a lot lately given some of the noise in the space. So just to the extent that you can talk about what you're seeing or expecting maybe this year on the sub front and if theres any change to kind of your outlook for net Retrans and then just some timing questions I think the bigger step.
Of the first half occurs in Q1, and then it's a little bit smaller from Q2 to Q3, if I have that right and just remind us I think you also get the benefit going into next year of some of the CW dis synergies, if thats correct and maybe magnitude would be helpful. Thanks.
Morning, Dan through a lot at me there. So let's start first of all just I know, it's a little odd that we didnt give guidance on the retrans, but as we said.
40% of our subscribers are up for renewal in the first half of the year and we're right in the process now of negotiating for a large portion of those subs. So we don't tickets in our best interest or quite frankly, the shareholders' best interest for us to.
Give a lot of guidance at this point.
Give us a couple of months and we'll have a lot more insight on what this looks like.
And Dan that that would also obviously translate into net retrans as well. So yes, I think in terms of just the cadence you asked is more in the first quarter, yes more of the 40% comes up in first quarter.
And so we're actively negotiating those now I think you also asked just about sub counts and I think.
What we're seeing is very much in line with our peers, what they've been reporting all week down low to mid single digits on a net basis year over year fourth quarter actually softened and was a bit better we saw very nice uptick in the virtualized.
In Q4.
And for the year virtual drew up over 40% last year. So we still think that there is some shift happening, but we do see maybe than that declines softening.
I think there yet one more just just one more piece just I think just to remind us I think you ghost also get the benefit going into 21 of of writing some of the CW dis synergies is that accurate and is there any way to kind of frame that up.
That is accurate I think we will wait too.
Give a little more detail again since those are caught up in these negotiations as well.
Great. Thanks for handling all that Brian appreciate it.
Thanks.
And our next questions from Michael Kupinski with Noble capital. Please go ahead.
Yes, Thank you and congratulations on your quarter.
Obviously, there was a significant step up in revenue growth Capes and I was wondering if you can just give us a sense of how much core TV contributed to that in the quarter and maybe if you can just maybe somehow qualify the growth that you saw from the whites being trial, maybe give us some sense of that.
Hey, good morning, Mike It's Brian.
Core TV as you know launched on May eight when we launch we had about 63% of the country in over the AD distribution another 25% on cable, but I think the more meaningful step up was really October 20, Eightth and that's when the Tribune stations came on with US that got us into New York and LNG in Chicago.
Right. After that we went live on Pluto TV. So I think the distribution of court was building through fourth quarter and typically the distribution moves ahead of the revenues so.
Yes, the revenue settling in right, where we thought it would right now and it's growing every week grows a little bit more we clearly got a great.
Uptick as a result of the Weinstein trial, a lot of interest I was very proud of our coverage hopefully some of you got to see it with studio in New York right across from the Court House, we had great visibility and branding there and so I think it was another step to establish court TV.
Through a very high profile event so.
Core TV is exactly where we hoped it would be and we're really excited.
On what the potential is as we go through this year and beyond its becoming a big.
It's returning I should say to a big national credible news brand.
And Brian can you just tell me I know that you make your making investments for core TV, but have margins were kate's increase since you owned it.
They have yes, Mike.
And then can you give me a sense of the guide on the first quarter local media revenue how much of political is reflected in that number.
Yes.
It's hard to look we're having a really good first quarter.
We've already surpassed 15 million in political for the quarter and we still have some super Tuesday to write much of the business is getting booked week to week Bloomberg books has business week to week.
As soon as we get through Super Tuesday, then we have two big weeks after that because March 10th we have three primary is but Michigan is in their March 17th is a big day for US, Arizona, Florida, Ohio. So all of those are states, where we have multiple stations there big expensive markets. So.
Obviously, we expect to build and grow beyond the 15 as it relates to what all that look like for the quarter. It really.
Our job is to maximize revenue the more we write the more impact. It has encore core is off to a really nice start to the quarter, but the two are really working in tandem and I think at the end the they will maximize our revenue I think we'll have a good core performance of a very good political performance.
And then just on Newsy.
Saw the accelerated sequential growth in the quarter can you give us some color where that growth is coming from is it coming from cable distribution or or other advertising. So for can you just kind of give us a sense there.
Hi, Mike its Laura.
The growth that Newsy has really still being driven by LTT.
The more and more consumers and our audience growth growth on those platforms. So thats the primary driver and as we've said before it's going to take some time to build audience on cable and and that revenue will grow over time.
Gotcha and then my last question to step up in shared services and corporate to 19 million can you give us a sense. So we are as we look at you said that the it's going to step down a little bit but is the 18% growth year over year.
What we're expecting for the subsequent quarters or kind of give us a sense on what that runway will look like in the second quarter going forward.
Hey, Mike if we said so as I mentioned in Q1 expenses are up due to really are larger footprint and some of the cycle of benefits that happen you you've been around us a longtime Q1 tends to pop up but that run rate.
Teen percent will moderate over the remaining quarters, so that certainly won't be our run rate growth going forward.
Gotcha. Thank you that's all I have.
Next we'll go to Steven Kale with Wells Fargo. Please go ahead.
Thanks, Let me first I'm going to try to pin you down on net retrans as well can you give us maybe any better color on what your reverse retrans cadence or renewal cycle looks like for the year.
Hey, Steven its Lisa as Brian said, we have typically not disclosed our net retrans.
Based on our large percentage of steps resetting to new rates in 2020, our growth in net Retrans dollars will certainly outpace our peers.
And Steve and one other one other important note because you had talked about the renewal cycle, we do not have any renewals with a with networks. This year, we're all locked in.
Okay great.
And that Adam on buyback and leverage so you announced the share authorization I think given the stock sometime in the past sometimes the stock has underperformed when maybe investors that you weren't committed enough to de leveraging.
Just help us think about kind of the water line that you look for in terms of when you get active in the market for repurchasing versus when you might want to look to pay down debt.
Yes, Stephen its lease again.
And in fact, our current authorization was set to act that expires March 1st that we and.
As announced on put in new authorization in place, while we're not currently buying back shares where instead focused on delivering that what we've said over the last several quarters. We really do believe it's prudent to have an authorization in place in the event that circumstances change.
So as as we have to discuss Delevering I think is.
Really had a priority of ours and share buybacks at will hopefully begin again.
Get to the point of Delevering.
And then maybe I missed it but did you.
Addressed your free cash flow guidance or your prior free cash flow guidance and given that you gave because it sounds like you upgraded the political guidance. So just wondering if we should think about that has a drop through to that prior to 25 to 250.
Yes, so we're feeling confident in our free cash flow generation for 2020 on our previous free cash flow guide with a range of 225 to 250 and that really took into account some upside and downside scenarios. So.
We're as I said confident in our free cash flow generation for 2020.
And then last one for me and then I'll, let somebody else talk but how do you just think about realizing more value from your audio assets given some of the transaction multiples we've seen in the peers.
Hey, Steven its Adam.
Yeah, I mean, weve, what we've talked about over the years, the modest investments that we're making into our national media businesses, including our digital audio businesses that we believe are creating shareholder value.
And the company, obviously has a long history of creating and then on leasing shareholder value oftentimes through transactions at this moment, we're focused on organically growing those businesses in yielding value for within within the company.
Great. Thank you.
Thanks Steven.
Next we'll go to Kyle Evans with Stephens. Please go ahead.
Thanks.
Ryan you build out from underneath that political guide.
20 pretty pretty well.
Can you talk a little bit about what you're seeing in pacing. So far what's your outlook is for the rest of 2020 on core pacing and then.
Kind of some view on auto is underneath.
Sure Kyle.
Well first of all I think.
I mentioned political is off to a good start for the quarter. So as core obviously you can see we had top of the industry core and third top of the industry core and fourth we're off to a really good start as well.
The political though the way it's coming in.
Nevada, we had significant political there was some displacement there and now we're seeing it in some Super Tuesday States. So we're expecting core for the first half a year to be very healthy I think depending on what happens with the selection and who the candidates are.
We expect that there'll be some displacements, we work through the year.
But I think we'll be kind of managing that as we work through it and.
Seizing the opportunity whether its core dollars or its political dollars, but core is off to a good start that just as it was the back half of last year and so.
It's still the end of February we got some points to write for March, but I think six of our five of our top seven categories, where again up in January so.
In February so we feel good about.
The core strength as well as far as auto was concerned it was down low single digits was probably its best quarter over the year last year in fourth quarter.
Came out of the gate flat in January and we're still writing Dollarsa February and March but it doesn't appear to be down the way it had been as we entered 2018.
Just a drill down a little bit for you. It really comes down to the the factory dollars. The dealer groups in Q4 were actually up for us the combined foreign and domestic individual dealers were up for us. So it's really the domestic and foreign factory that is down double digits that that is dragging down.
The entire category, but we do see that softening a little bit and so im not going to tell you auto was going to be up this year, but and a lot of that would probably be due to displacement, but it does appear to be a more stable category.
Great.
Thanks for issuing a political guide and I know theres lots of.
Moving parts. There can you can you talk a little bit about the puts and takes on that roughly 200 million number versus 16 cycle on the pro forma basis.
Yes look it doesn't look anything like 16, our pro forma 16 was 135 million to just give you a comparison I just mentioned that we didn't fit so far we've already past 15 million in Q1 in Q1 of 2016, we had I think was 3 million.
Well, we had 3 million in 2018, so where we're well ahead of pace on that.
Obviously presidential is going to drive part of it but we also expect Senate we have.
As we handicap things it looks like there's.
Maybe six competitive Senate races around the country and we probably have the three largest in Arizona, Colorado in Michigan.
So I think we're well positioned to end the states that we have are probably more expensive stage. So I think a lot of the Pac money, that's going to move around percent. It will wind up in our markets and those are states that we have multiple stations in.
The gubernatorial side, we have an open Montana raise we're already seeing the lead Republican spending money across the state and then as I mentioned.
The house.
It's going to be very competitive this year I mentioned, we have a lot of races, 45 races that are going to be competitive.
We've got Tossups and I don't know maybe about 20.
We're already seeing early spending in San Diego, which is the first market, where we're seeing some house money. So I don't think it all comes down to one thing I don't think it's just going to be presidential I think we have a great footprint for presidential and depending on the candidates. The states of the swing States may vary a little bit but the end. The day I think we know where the Senate money is going to come from we know with a gun.
In our money's going to come from and we have a real good feel that the houses can be spread through much of our portfolio.
Great maybe we can switch over to the.
National business.
Programming and licensing fees John.
I'm, assuming then has to do with the core TV launch Lisa you also mentioned that there is.
Participation.
Maybe.
In that number as well how should we think about that number in 2020 and how should we face is there any seasonality to that.
So I'll answer the first part.
Part of your question and Laura May chime in on the 2020 piece to periodically we reassess our programming amortization to ensure alignment of the expense recognition really Jim.
Normal course of business kinds of things and and obviously wanting to make sure that the expected economics will be recognized for the usage of the program. So that's what that onetime.
Adjustment that you sell come through in first quarter that that bump that expense a bit.
And on the distribution side, you know we've made investments in the last year in court TV well continue to make investments.
Im furthering that that Frank.
For the entire case network.
Got you hear newsy is tracking towards profitability.
Any way you might hazard, a guess it kind of what the terminal margin on that business might look like.
Now I think if you look at our results from last year, we continue to pursue margin expansion as a division I really the most important metric that we continue to track is revenue that we do need to continue to invest to capture the growth in the faster growing market places look each of these businesses are growing revenue at different rates.
And we continue to take a disciplined approach.
From an investment perspective, I'd say in the long term, we would expect as a division for margins to settle at around 20%.
Great any on for Brian and I will get underway.
40% renewals in the first half of this year.
I was kind of.
End of two view and.
I know you don't want to talk too much about the renewals because you're in process on negotiation.
Kind of characterize the structure that is at launch a little ones too big ones some combo that thanks.
Yes, Hey College, Brian.
The renewals more than half of the 40 million subs come up at the end the first quarter.
We have.
I'd say several large deals that make up the 40%.
None of them are small so they're all meaningful and important negotiations.
But half half at the end of Q.
More than half more than half okay.
Thank you so much.
Next we'll go to crank Kubrick with Huber Research partners. Please go ahead.
Yes ill just start with a follow on to the question can you just heard your what about the phasing of the.
Sub renewals for the second half of the year. Please how should we think about that just update us on that please.
So all of our sub renewals will happen in the first half Greg. So you don't know there's none in the second after so that's correct.
Okay and just.
What about just for next year, the the Retrans subs is there anything.
I was that phase for next year, if you have that.
Yeah, we have 18% of our subs are up next year I don't have in front of me when exactly those come out this afternoon.
We can get that to you later okay.
Okay very good.
Cost guidance for television broadcasting for the first quarter up.
Low teens here.
Year over year basis pro forma.
Exactly is driving that maybe you can talk what the network comp.
What is driving that's that's higher than we would've thought yeah, and it's higher than usual and it really is because of a couple of onetime thing. So obviously as you mentioned the network cost.
It was a significant part of it and I think Lisa called out. The fact that if you backed that out we're up about mid singles, which is still higher than our normal run rate a couple of things. There. We've made a major commitment to expand news and some of the television stations. We just bought so we're launching a news brand in Miami and so there's.
And investment there to get that up and running we're adding a news we're expanding news in Phoenix onto the new station that we just acquired there so there's excess.
Expansion cost there as well and we just expanded our morning newscast in New York as well as one or two other markets.
That we're adding some weekend newscast and all so we do think news as part of the scripts brand. It's what I think local communities count on for Us most.
Can capture as much of the political opportunity if you're not in.
The news business, so we're expanding news and so it could be as a cost associated with that beyond that so beginning of the year. So HSH seed money. This is the first time that you know the Tribune stations. The other stations. We acquired are getting seated at the beginning of the year and then it's just normal benefits merit.
Some additional headcount associated with our news expansion, so I think that.
Uh huh.
Breaks down why the extra cost in Q1.
It sounds like Brian, though the biggest jump is network costs I mean, I wasn't aware of.
If any significant contract affiliate contract renewals at at year end to account for US. It's just more escalator clauses or what exactly is going on there.
No.
Yes, we did negotiate quite a few contracts last year. So we negotiated a new contract for all of our Foxs in the back half of last year.
We negotiated a new agreement with CBS for I think.
You know four or five of our markets at the same time, when we acquired the Tribune television stations.
[music].
We had one renewal on a b C from a Cordillera station, we renewed so all of that would've been new and incremental over this time last year.
But in terms of was that all done at yearend, you're suggesting so it didnt it was all done.
Well.
It was all done in the second half of the year.
And probably some of it in the fourth quarter I'm, sorry, I guess I'm trying to get out here is why your TV costs up so much forget year over year up low teens and why is it up so much sequentially versus the fourth quarter.
Well again, I think it really gets back to what I just spoke about relative although.
Investments and margin expansion.
I'm sorry, Brian is those network comp jump you did not see that then in the fourth quarter, but youre seeing in the first quarter I guess the message well I think we saw some of it in fourth quarter, plus ABSSSI would have stepped up on a new calendar year and that's the largest part of our portfolio.
But I would also point out Craig that all the list of investments that we're making were all part of the strategy that we use when we decided to deploy capital and get into the second stations in some of these markets and all of the investments to expand news onto these new stations are all.
Our all investments that are key ROI positive investments for the company.
Right I guess my last question on this topic I guess it sounds like just.
Cost growth for the remaining part of the year should probably moderate given.
You just sort of went through is that fair statement that's correct.
Okay and then.
The sort of the unknowable out there, but I'm just curious on this krona virus issue out there or is it sounds like you did the core advertising. So for this quarter is going quite well, Brian both here in the national side as well, but are you hearing much at all done any hesitation from.
Your advertisers are around this issue here that you might hear it hit hit an air pocket on TV advertising and also on the National size will impact there was that just totally unknowable at this point, we will people's thoughts are.
I will tell you what we're hearing we're not hearing anything like that we haven't heard of any stumbles or air pockets.
The potential for an outbreak of Copel 19 in the us.
Is another example of why we take our commitment to news and information so seriously Craig, particularly in the case with our local journalism I mean, I think our audiences will turn to us for the information they need and in fact, the local officials are going to increasingly rely on us to execute what we see as our public service responsibilities I think our dedication.
Into delivering on that commitment with the same level of professionalism and discipline.
These scenarios demand of us is key.
It's obviously, especially the reason why we already have plans in place.
We have and will takes all the necessary steps to ensure the health and safety of our employees, while maintaining business continuity across the company, we havent seen or heard anything that gives us pause with respect to.
Results or guidance and we're just ready to execute our mission.
Craig It's Brian I, just wanted to add you know obviously, we're all watching the market. The last couple of days and I think thats reacting to technology companies Airlines all those others that are going to be adversely affected those are not our advertisers. They are not advertising in local markets. Two thirds of our our advertising comes from our local businesses, our local service categories.
Retailers travel and leisure.
And so.
I recognized by the market's reacting the way it is but as it relates to our local advertisers.
Don't see there.
Impact at this point.
Great. Thank you very much.
Thanks, Craig.
Next we'll go to David Cohen with Midwood capital. Please go ahead.
Great quarter, everyone actually my question has been answered thank you.
Thanks, David.
And we'll go to David Steinhart with Lightspeed partners. Please go ahead.
Hey, so congrats on.
Sure.
Forward it looks like you're continuing to grow.
The National media business.
Along with revenue.
If you can provide.
Hi.
We are one might get leverage in terms of the expense.
But you're building.
Just.
I know they're trying to.
Foster growth through additional content, but it'd be helpful just to understand where the expenses.
[noise] growing.
Yes, David This is Adam the key the Q strategy. There has to continue focusing on margin expansion. We believe that we are well positioned for the revenue to continue on its fast growth and we're obviously very disciplined about the kind of.
The kind of it expenses, we throw back into the business the probably the and I'll give you as a perfect example, our decision to to launch Court TV. We obviously took some of the profit from the case networks and reinvested them early last year and and last year in order to launch a core TV.
We even through that we saw 22% revenue growth.
And the continued margin expansion with a with the National media business and I think it's a good example of the way we look to organically fuel.
Revenue growth and our expectations for growing margins.
Yes.
Okay.
So in addition can you talk too.
Repurchase authorization that you guys just mailing how how should we think about 100 million dollar repurchase authorization in terms of capital allocation given that you want to get your your debt levels too.
Normal normal levels by the end of 2000.
Hey, David please.
The what we just announced was on.
As a new authorization because the previous authorization was expiring in.
We believe it's prudent to have an authorization in place at all time, so that that.
Was really the impetus for that.
Based on our current view, we would expect to leverage to be around the mid four times by the end of 2020.
And that's our priority.
Well, we're focused on de levering and as as we did lever and if you.
You know political comes in hotter than expected.
We have an authorization in place in May at some time may get back in the market that.
As we've said over the course of the last six to nine months.
Add delevering is a focus area of already.
Got it right.
Okay.
And with no further questions in queue I'll turn it back to the company for any closing comments. Thank you. We appreciate everyone. Joining us today have a good day.
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