Q1 2020 Earnings Call
[music].
Good day, everyone welcome to today's Nexstar Media Group first quarter 2020 results call today's conference is being recorded.
I'd like to turn things over to Mr. Joseph <unk> Investor Relations. Please go ahead Sir.
Thank you Kelly and good morning, everyone and thank you for joining Nexstar media group 2021st quarter Conference call I'll read the Safe Harbor language, after which we'll get to managements commentary in your questions and answers.
All statements or comments made by management during today's conference call other than statements of historical fact, maybe deemed forward looking statements purposes or the private Securities Litigation Reform Act of 1995.
Start cautions that these forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those reflected by the forward looking statements made during the call.
For additional details on these risks and uncertainties. Please see Nexstars annual report on form 10-K for the year ended December 31st 29.
Core subsequent public filings with Securities Exchange Commission.
Let's start undertakes no obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise.
With that it's now my pleasure turn the conference call over to your host Nexstar founder Chairman, President and Chief Executive Officer, Perry Sook Perry. Please go ahead.
Thank you very much Josephs and good morning, everyone. Thank you for joining us to review Nexstars record first quarter results before we get started I want to express our appreciation here at Nexstar to all the Braves wind health care and other a central workers, who are serving our country through this pandemic.
We're also grateful to all the employees over the next our nation for their front wind a central work commitments and efforts are providing viewers with the corner I'd be a continuous access to local news and other services in our communities. During these I'm guessing that at times and as always our Chief Financial Officer, Tom Carter is here with me on the call. This morning.
As the World continues to address that help when economic challenges created by the Cobot 19 pandemic and it was our company was our country response to changes in our day to day wives, our priority as it has always been as their health and safety of our employees, while being up our customers and the communities in which we operate.
We take a won't go to bring local news and other critical information to viewers very seriously guests. We continued to navigate through unique in evolving challenges related to this kind of buyers.
Well the news and information it never been more central to American what people are tuning into stations local newscasts than ever before it sounds to cope with 19 outbreak, we're seeing significant year over year increases in our already strong local news viewerships, both on air and online.
As the nations largest broadcast group on the top producer of local news programming Nexstar and our talented and dedicated teams over 5400 local journalists are delivering essential lifesaving news and information to our viewers across all traditional and digital media platforms. In this regard 69 stations in 55 markets appeared over.
It doesn't separate town hall meetings with state and local politicians and health officials as of this date to address state a regional responses to the Coke 19 virus as well as the actions across states, but they were taking to reopen their economies.
Our interactive Townhall broadcast some wife streams have enabled local residents to get guidance from their states top health and government officials.
What they are doing to safely reopened the regions and we continue to create special program and get back to keep our communities in regions, where we operate informed by the best local sources with Nexstars market, leading stations deep local and national reach local broadcast record of being the most influential and effective medium for both brands and politicians we expect.
To see advertisers allocating increased spending to our broadcast and digital platforms as this threat resolved.
Okay. That's a few months since our last call.
Separations and our disaster plan for emergency situations had already been established and we move personnel quickly to remote work and work from home situations to allow our operations to proceed uninterrupted.
Mentioned, a moment ago, our service, especially in times of emergencies is essential and we had been able to keep our teams say our stations on the year, Hawaii local content, we're delivering its not provided by Google Youtube Facebook or other platforms and with our disaster plan in place our strong balance sheet and our commitment to our markets and our employees next.
It was kept our employee roster intact, but we have made significant reductions in other Q2 operating costs, which we will review in just a moment.
Well the pandemic has undoubtedly impact at near term AD sales our results in the early part of 2020 were quite impressive with significant growth in several key metrics and we've developed a range of proactive sale strategy that training webinars for our teams.
Enabled them to keep clients during and after the pandemic.
Up and running as well as to preserve and build their businesses and brands as the country reopens.
He also remain highly focused on the 2020 political opportunity with 17 primary election schedule from now through July as well as the November presidential federal and state wide elections.
Despite the challenges presented by the onset on in March or Cobot, 19, Nexstar delivered record first quarter operating results net revenue profitability and cash flow metrics all exceeding consensus expectations are strong first quarter financial results reflect solid core and digital advertising revenue growth in January and February record.
Q1 political spending.
85% year over year growth and distribution revenue as well as a meaningful cash distribution from our 31.7% ownership in the TV food network.
Nexstars double digit top line increases combined with expense management disciplines, and the strong operating leverage in our business model drove Bcf adjusted EBITDA and free cash flow growth before transaction expenses of 107%, 207.6% and 242% respectively.
During the first quarter, we brought about 39% that every net revenue dollar to the free cash flow line.
Our first quarter results indicate that Nexstar was ahead of pace to meet our 2021 cooperate a pro forma operating annual average free cash flow guidance of 1.175 billion.
Despite this promising start beginning in March mid March the broadcast industry experienced rapid changes in market conditions, which impacted advertising revenue in the last three weeks of the mom and into second quarter. The duration of the cobot, making an impact on core AD sales on certain as conditions conditions continue to evolve on a daily basis.
And as a result, and despite the revenue visibility afforded by our distribution agreements our distribution from TV network and other sources. We believe it is preparing for the time being to withdraw our free cash flow guidance for the 2021 cycle.
Having said that it's important to note that more than 50% of our annual revenue is expected to be derived this year from contractual distribution fee and political advertising revenue, which is not expected to be materially impacted by the corona virus.
Specifically nexstar has solid visibility in terms of our contractual distribution economics 320, 22, as we completed new multiyear retransmission consent agreements, representing approximately 70% of our subscribers at year end 2019, as well as new long term affiliation if our contracts with CBS Fox and NBC.
At the same time Nexstar has a strong balance sheet, including $434 million in cash as of March 31st with access to an additional 140 million under our revolving credit facility and in addition in late 2019, we completed the operating about 665 million senior note offering do 2027 at 5.6.
5% that enabled us to retire the most expensive pieces of our unsecured debt now our nearest term long long term bond maturities are in 2024.
Following the outbreak Nexstar took immediate actions to preserve liquidity to further strengthen the company for our long term success as we returned to normalized operations. In this regard during Q1, nexstar allocated $470 million towards debt reduction lowering our first lien net leverage ratio from 3.52% at year end.
2019 to 3.4 times at March 31 to 2020, which is well below our first lien covenant of 4.25%, which is only that that is our only cover.
Additionally, the company's cost of capital has declined as the result of the more than 115 basis point reduction in LIBOR rates, which at current levels imply something on the order of approximately $60 million in annual cash interest expense savings.
On the operating front, we've implemented a range of cost cutting initiatives, which will result in operating expense savings of approximately $40 million in the second quarter of 2020.
While we are proceeding with our investment related to the much anticipated September 1st Twentytwenty launch of WGN America is prime time National newscast News nation, we have prioritized other capital expenditures to maintain maximum financial flexibility.
The cost that we've made in expenses were done in a surgical not shotgun manner, and we replatforming preserving potentially revenue grows like news nation and other initiatives underway to build the top line.
Similarly, we have proceeded with select key operating and growth initiatives in terms of hiring are promoting general managers and key department managers to strengthen the leadership team and our local operations and we've expanded local news programming and resources as local news is a key source of local local rad add and political revenue.
As a result, nexstars business is well positioned to withstand the near term decline in core advertising, which given our revenue diversification initiatives of last decade today represents about 39% of our total annual revenue in an election year.
As such we project that Nexstar will be free cash flow positive in every quarter or 40 twice.
We're also confident in our liquidity position and available to serve.
I would need to service that through 2020, and we did not anticipate any liquidity covenant issues as we move through the balance of the year.
Looking quickly at first quarter results net revenue rose, 74.2% to $1.1 billion, marking our first ever quarter exceeding a billion dollars in revenue.
Television advertising revenue increased 86.7% to 472.7 million, including record first quarter political revenue of 55.3 million and 65.7% rise in core advertising revenue. Despite the inventory allocation to political and the fall off in March.
Notably with active spending by presidential candidates and our expanded scale when he primary states 2021st quarter political revenue outpaced our internal forecasts and rose by 70% on a same station pro forma basis versus the 2016 period last comparable presidential election cycle.
Including political first quarter net revenue would have increased approximately 66% over the prior year period, that's excluding political.
The inclusion of WGN America, and the 2019 distribution agreement renewals were evident in our Retrans line and resulted in a 75.1% rise and distribution revenue to a quarterly record of 549.7 million and we grew digital revenue of 6.8% to 56.4 million.
In Q1 of 2010 of our top 25 AD categories were up on the same station basis Nexstars local sales initiatives continue to generate healthy levels of new business revenue with Q1, new television AD spending rising both on a quarterly sequential and year over year basis in total our sales teams generated 18.6 million Don.
As part of New television Q1 revenue marketing, 11% rise over the prior year.
We see upside into new television AD revenue metric throughout the remainder of this year as the former Tribune stations more fully adopt the nexstar sales disciplines, and we transmission their sales teams to the nexstar incentive plans.
With respect to political our fastest growing AD category, we exceeded our budgets and we benefited from the presidential candidate spending as well as continued healthy levels APAC issue in proposition spending across the group.
Total combined first quarter digital and distribution fee revenue up $606.2 million rose approximately 65.3% over the prior year period, the year over year increase in first quarter non television revenue reflects new distribution agreements reached at the second half for 2019, and our realization that Tribune media revenue synergies related to.
You are after acquired clauses in our retransmission consent contracts as well as the inclusion of WGN America, and our realign digital operations.
With respect to our expectations for net Retrans wrote in the low to mid teen percentage in 2020.
Second half of 2019, we entered into new long term network affiliation agreements with CBS Fox and NBC as a result over 80% of our big four appropriations our contracted through December 31 of 2021 and over 70% our contracted through December 31 of 2022.
With our successful 2019 renewals of retransmission consent agreements, representing approximately 70% of our subscriber base, what about 20% of our base to be renewed. This year are significant net retrans growth in 2020 will complement our strong political broke that we're already seeing.
Taken together the affiliation renewals, which I will also include the LPG agreements and new Retrans contracts provide us with clear visibility on net retransmission revenue growth in 2020 and beyond.
With our focused on generating free cash flow, we remain disciplined and managing costs, while paying dividends repurchasing shares and pursuing other opportunities to enhance shareholder returns in this regard during the first quarter, we allocated $25.7 million towards cash dividend payments, another $72.6 million opportunistic opportunities.
We repurchased 950000 shares of Nexstars class a common stock in Q1, reducing our basic share count by approximately 2%.
45.2 million outstanding class a common shares.
Media immediately upon seeing the extensive to cope with 19 outbreak in March stock repurchases were halted in order to preserve cash as we continue to prioritize debt reduction.
What are your do they progress on debt reduction mid teens pro forma net retrans growth and the biggest presidential election in the company's history before us reduction in the LIBOR rates and our participation in the TB food network distributions Nexstar now expects our total net leverage ratio to declined to approximately 4% four times by year end slightly.
The higher than our previous estimates on the return of capital front last week, we declared our second quarterly cash dividend for 2020 at the new 56 cents level or 24% ahead of last years levels.
In summary, while the quite a virus has presented challenges for the entire broadcast industry Nexstars, leading local broadcast platform is well positioned to withstand the challenging environment due to the continued growth of distribution revenue our food network distributions, our focus on local AD sales and the wide use of the combined Nexstar truth.
Nexstar Tribune digital media platforms, and what are projected to be record levels of political spending in 2020.
In terms of capital allocation, we believed our free cash flow combined with the active management of our cost structure, our capex timing and our balanced street, a balance sheet strength will provide us with the financial flexibility to continue supporting our shareholder value creation initiatives. Looking ahead, we remain highly confident our long term strategies in terms of serving.
Communities, where we have operations building the topline maintaining coast close control of fixed and variable costs and optimizing our balance sheet.
Over time, our disciplines in these areas have strengthened the resiliency of our business and created an unrivaled local marketing platform, while supporting rowing returns for and to our shareholders.
With all of that said, we now turn the call over to talk harder for our financial review and update Tom.
Thanks, Perry and good morning, everyone as outlined in this mornings press release, the actual results for the three months ending March 30, 2020 reflect the company's legacy Nexstar operations and a full quarter results from Tribune media stations, which we acquired on September 19th of 2019, both of these amounts obviously also.
Our net of divestitures, which has taken place back in September as well as another round on in early March 2020.
First quarter 2020 revenue from WGN America also acquired in the Caribbean transaction is included in core advertising revenue and distribution fee revenue a full quarter contribution from Nexstars, 31.3% ownership in the TV food network and other investments required to than Tribune transaction is included in the full income.
Statement under income or loss from equity investments net and in the cash flow statement under distributions from equity investments.
The comparable three month period, ending 331, 2019 reflects legacy Nexstar operations only all actual results reflect the impact of 7.4 million and 5.4 million a onetime transaction expenses incurred in the quarters, ending 30, 31, 20, and 30 31 19, respectively.
With that I'll start with a review of Nexstars Q1 income statement the balance sheet data after which I'll provide an update on our capital structure and some points of guidance.
On a combined company basis and pro forma for the divested stations first quarter same station net revenue was down it was up 14.2% same station core advertising was down 5%, reflecting solid growth in spending in January February and a decline in March protect.
Early in the last three weeks of that month, which was due to the covered 19 pandemic.
Consolidated digital revenues were down 13.7% local station website revenues up 6.5% as we continue to cycle through prior years revenue comps that included discontinued lines of business.
Pro forma same station political revenue was up 70% over 2016 over the 2016 same period, the last comparable presidential election cycle again on a same station basis.
Excluding political total net revenue was up 9% on a pro forma same station basis distribution fee revenue was up 28.2% over Q1 of 2019. Additionally, it was up 23% over Q4 of 20.
19, showing the effects of the renewal of Retrans agreements at year end.
First quarter station direct operating expenses net of trade were approximately 442 million up from 289 million in the prior year, primarily reflecting a full quarter of incremental expenses associated with the term Tribune acquisitions and the growth in budget. It increases the network affiliation expenses as a partial offs.
Two are rising distribution revenue.
Same station pro forma fixed expenses, excluding program expenses were down 9% year over year as we realized synergies realized from the TVN acquisition.
First quarter station SDMA was approximately 165 million relating to the full quarter.
Tribune operations, while corporate expenses was 53 million inclusive of 10.7 million of stock based comp and 7.4 million of onetime transaction expenses when excluding noncash comp in one tried transaction expenses recurrent corporate expenses were approximately 35 million, which came in better than guidance we.
Provided in the fourth quarter call of approximately 40 million.
By the end of April the vast majority of the initial operating synergies of the transact of the Tribune transactions have been realized.
First quarter operating cash taxes were only 2.1 million as the Q1 estimated payment is now due in April.
Ongoing capex and transaction Capex totaled 43 million spectrum repack capex totaled approximately $17 million, which was partially offset by approximately $13 million of reimbursements during the quarter. As a reminder, we anticipate being fully reimbursed for all spectrum retract repacked capex.
First quarter total interest expense amounted to 101 million up from 53 million in the same period in 2019, while cash interest expense was 97 million compared to 51 million. The last year with the increase is due to the encouraged that sits on Tribune.
First quarter broadcast cash flow of 430 million as well as adjusted EBITDA of 565 million and free cash flow of 434 million all pre transaction expenses exceeded consensus expectations and primarily reflect related growth realize realization of synergies and destroy.
Fusion agreement renewals executed in the second half of 2019.
Adjusted EBITDA and free cash flow reflect approximately $170 million in distributions from equity investments related to our 31% ownership in the TV network. As a reminder, we receive cash or cash distributions from TV food on a quarterly basis with the largest payment recorded during the first quarter.
Each year for the second quarter of 2020, we anticipate recording approximately $25 million in TV food network distributions looking ahead to offset the anticipated impact of cobot 19 on our commercial advertising revenue late in the first quarter Nexstar implemented a range of cost cutting initiatives, which are.
As a result in operating a corporate expense savings approximately $40 million in the second quarter 2020.
For the second quarter, we projected recurring cash corporate overhead exclusive of stock comp and transaction expenses to be approximately 21.5 million and really easily meet our run rate corporate overhead guidance of approximately 120 million for the year.
Noncash comp is projected to be approximately 12.5 million for the quarter and $48 million for the year transaction expenses will be approximately $5 million for the second quarter and will decline during the remaining or the remainder of the year second quarter operating cash taxes are estimated to be between 45 and $50 million.
And operating cash taxes for the year will come in well below the $350 million previously estimated.
Second quarter Capex should come in at approximately 47 million and as Perry mentioned, we're still budgeting.
Approximately $160 million for the year and proceeding with our investment related to the summer 2020 launch a general WGN America as Prime time National newscast News nation.
Additionally, we have prioritize capital expenditures to maintain maximum financial flexibility in the current environment, meaning the timing of certain capital that capex can be delayed for a number of quarters.
Finally, we expect Nexstars cash interest expense to approximately $82 million for the second quarter and substantially less than 370, and approximately $370 million for the full year substantially less than the previous guidance of 400 million, reflecting interest expense savings related to the decline in LIBOR rates.
Turning to the balance sheet Nexstars outstanding debt at 331, 2020 was approximately $8.050 billion and consisted of.
5.4 billion in term of first lien term loans and two series.
Hi, This high base senior sub debt, one with a 2024 maturity of approximately $900 million and one with a 2027 maturity of approximately $1.8 billion and as Perry mentioned before we had a healthy cash balance of $434 million at quarter end.
Net debt amounted to approximately 7.6 billion compared to 8.3 billion at 12 31 19.
With the onset of the current a virus in March in the first quarter Nexstar took immediate actions to adopt our business.
Our business to operate in the current environment preserve liquidity in order to best position. The company for long term success as we returned to normalized operations. In this regard nexstar allocated $457 million in funds from operations and investments towards debt reduction during debt reduction.
Lowering our net first lien covenant ratio from 3.5 to at year end 19 to 3.0 for at 331, 20, which is well below our first lien covenant of 400 quarter times as a remainder our first lien as a reminder, our net first lien covenant limits cash netting to a Mac.
Some of $200 million, our total net leverage at quarter end was 4.51 compared to 5.18 at year end 2019, as a reminder, nexstars only covenant is our first lien debt covenant, which is the aforementioned for the quarter times.
In addition to our leverage reduction activity during the first quarter reallocated $25.7 million towards cash dividend payments and another $72.6 million to opportunistically repurchased just short of a million shares the nexstar class a common stock, reducing our basic share count to $45.2 million to 2 million shares.
His outstanding at quarter end.
Immediately upon seeing extended the cover 19 outbreak in March stock purchases were suspended in order to prioritize cash retention.
Despite anticipated challenges in the coming months Nexstar has a strong balance sheet, including the aforementioned $434 million in cash at 331 with access to an additional $140 million under our revolving credit facility.
In addition, our nearest term bond maturities are in 2024 and in the fourth quarter of 2019, we completed the offering of $665 million five inside eight senior notes due 2027, which enabled us to retire the most expenses pieces of our unsecured debt as well as the nearest term maturities.
Prior to the 2024 maturity looking ahead with continued double digit year over year growth in distribution revenue and what many expect to be a substantial spending levels related to the upcoming presidential elections, which we do not expect to be materially impacted by the front of Iris.
Excellent visibility on over 50% of our annual revenue in 2020.
As such we expect to be free cash flow positive in every quarter of 2020.
Nexstar has already made significant progress progress in our leverage reduction plan and we enjoy a strong cash position with additional capacity under our revolver. In addition, the reduction in interest expense related to our favorable LIBOR rates, the approximately $40 million, an expected second quarter operating expense savings and our capital expenditure prioritization.
Well allow will serve us well in coming quarters. As a result, we're confident in our liquidity position and our ability to service our debt through these challenging times and do not anticipate liquidity or covenant issues as we move through the year.
In addition to continue on our dividend payments, we remain committed to allocating the vast majority of our free cash flow towards leverage reduction and are confident in reaching our slightly revised target for reducing total net leverage to the four times range by 12 31 of 2020.
In summary, despite the unprecedented challenges with the onset of become current of Iris our integration.
Synergy realization and operation plans are generating results our capital structure is in great shape from a cost of capital maturity and ability to access to address leverage. In addition, our service to our local communities on the local and national advertisers has never been stronger.
Our disciplines in these areas have driven significant growth as well as consistency and visibility of results. While we have withdrawn our 2000 22021 pro forma for annual free cash flow guidance of 1.175 billion. At this time, we remain confident in our ability to de lever on the lunch to deliver on the long term value.
Tribune transaction on the other side the pandemic that concludes the financial review for the call and I'll turn it back over to Perry for some closing remarks before today.
Thank you very much Tom that are more than maybe three years of business. It over 16 years as a public company Nexstars management team Board and employees have weathered the storm of the dotcom boss 911 pad.
Thousand eight financial crisis, and the recession that follow throughout each of these times, we work to support to sustain our employees, our local businesses and the communities in which we operate.
The next there has always been this has always been our approach to business that is more important today than ever before in each case, we came out on the other side stronger and better equipped to deliver outsized returns to our shareholders at our long term record of value creation, which supporters.
As we address a pandemic that will no doubt become a chapter in the history books our commitment.
To all of our constituents remains unwavering, while we've been door. The challenge has been set upon us by the Cobot 19 outbreak I hope our comments today reinforces the fact that we remain confident and the strength and resilience of Nexstar scales and diversified business model.
Our business is less impacted than it was some 11 or 12 years ago. During a recession, because we took the steps necessary to create significant new contributing revenue sources.
Our focus over the last decade, and expanding our scale is serving US now as a leading platform for political candidates as well as national regional and local advertisers looking to reach nearly every demographic in the United States.
Our leverage is very manageable and coming down our liquidity is great and we intend to remain free cash flow positive, while continuing to pay our quarterly dividend.
This focus combined with our time proven operating integration strategies will enable us to overcome the near term challenges and extend our long term record of shareholder value creation.
Look forward reporting on our continued growth accomplishments throughout 2020 and on behalf of the entire Nexstar nation, Our board and management team. Thank you for your continued interest in the company your support and for joining US today now, let's open the call to Q1 eight to address your specific areas of interest operator.
Thank you gentlemen at this time, if you do have a question that will be star one once again.
We'll hear first today from Dan Kurnos benchmark.
Great. Thanks, Good morning, and you guys.
Tristar Street high Retrans.
Carriage estimate here I'm, just trying to get a sense of there was anything I know, Tom I think you'd mentioned some.
To push out from 18 T that bled into 2020 or if there was some noise there and then Harry in your prepared remarks.
You talked about kind of confidence in that net retrans number I don't know if you mentioned expectations near term around sub declines.
It feels like you guys believe they'll come back, but just any thought on.
That upside just outweighs any potential near term choppiness or just kind of your views there.
Well sure listen as far as some declines go in our internal models, Dana Zimmer and her expertise produce a model that projects sub attrition.
In which is how we develop the guidance that we give to all of you I can just tell you that all reported some declines this year have been less than the assumptions we have in our model. So it's not like sub declines are sneaking up on anybody here, but I will say that obviously two schools of thought one is that in an economic time people look to cut expenses there are other folks it.
Thanks, Good sense cable and the bundle is kind of the cheapest you know.
Entertainment.
That that is one of the last things to go and I think time will tell but I would say in previous recessions. What we have seen is there has been sub some sub churn because people are unable to pay their bills that however has not yet been factored in because the MPPD. So.
Made a commitment to know disconnects due to non payment at least for the next few months.
But our long term view would be that will be the bundle, providing internet and video as well as convenient navigation is a pretty good our movies may suffer but are you know people will stay home and watch and watch television viewership, which certainly sustain that and and I saw a report yesterday where people.
We're prioritizing cable over utilities because of other.
Disconnect.
No disconnects Bernard payments that have been made so I think as far as looking forward.
We think that what we have projected in our models our.
You know are consistent with what we think will happen and we don't expect any and a significant barriers to that there was no will 18 t. effect that pushed over from fourth quarter to first quarter that will manifest itself in the third quarter of this year, where we'll be up against zero history for a period of time, but no. The numbers are real numbers are solid and we expect the.
The numbers to continue throughout the year I would say Dan. If there were then we beat our budget in the first quarter by <unk> percent or so so thats $5 million on a.
Call. It at around 550 million dollar distribution fee. So that was shifts truing up subscriber numbers with Tribune et cetera. So there maybe a little bit of Overperformance, there not a lot, but you will see a slight.
We obviously as Perry mentioned a tribute.
Attrition every quarter, so you'll see some attrition between Q1 in Q2, especially in light of the fact that the repricings at the end of Q1 were pretty nominal but we're very confident our numbers and continue to see a strong.
Growth in Retrans through the year.
We did have a significant repricing happened in Q2 within our insignificant MPPD and we're very pleased with those results. So the beat goes on there.
Super Helpful. And then Perry I'm sure, there's nothing you'd prefer to talk more about than core, but just if you could give us just your sense on pacings are maybe conversations you're having with advertisers to inform your kind of optimistic we come out of the stronger and budgets shift to TV. Once we once we get out of this.
Sure well sitting here in Dallas, we probably have a little different perspective than folks that sit in the in the in the northeast.
On on what's going on because business is here in Texas are opening even my Barber is going to open on Friday, and our hope to be one of the first in line. After two may not have to go to Georgia for a haircut anymore thats exactly right, but I mean, I Q2 will be the worst of it in our view.
We have two models running internally one as a base case of what we expect that happened in one is a worst case, which is significantly worse than that and in under all of those scenarios. We remain profitable that every quarter and as I say you know this this co. Good led recession, you can put a put a big dent in the door, but it's not going.
Come anywhere close to totaling vehicle, we will manage through it are pacing for third quarter core revenue was significantly better than than Q2, but again, that's a small sample size, but we've also had a number of folks that have cancelled advertising out of Q2 and pushed into Q3 and in some cases with increased the budgets now these are all.
Anecdotes, but.
We are braced for a pretty sobering Q2 and.
In line with I think kind of chatter you've heard from other operators and projections of what people have made on encore.
We think you Q3 will be better than that but we're also prepared if it's not and also I would say as we progress through Q2, we see better pacings towards the end of the quarter than we saw in April.
And obviously some of this has to do with just a general reopening of some markets and given the breadth of Nexstars.
Footprint, we participate in a lot of those.
Texas had a meaningful way, Ohio, and a meaningful way, Florida as well. So I think we'll sit will enter I'm, sorry will exit Q2, and a better pacing position than we entered Q2.
Got it that is really super helpful color guys. Thanks very much.
John Janedis Wolfe research.
Thanks.
You guys talk to net leverage around four times at year end.
Standing you pulled the guidance does not mean in the base case assumption you still feel reasonably good about your initially but expectations for the year. When you factor in I guess your non advertising revenue and expense initiatives and then maybe as a follow up to Dan.
On political.
I know you said not much of a covenant impact, but to what extent did that or has it impacted timing of money getting put to work.
And understanding it's going to be a good year has your outlook or shape of the year changed at all.
I'll speak to the political question first.
With the outperformance in Q1, primarily related to mirror bloombergs participation in the presidential process. We did not expect that Q2 would necessarily be better than Q1 from political now with the movement of primaries from April and May into June and July we've.
Seeing a shift of money there, but we don't think it will have any impact on the on the money that is we're will ultimately accumulated by the ended the year.
Q4 is where the game is play 50% of the political revenue will come between labor Labor day, and the general election, So its September and Q4, and and we do not think there'll be any.
Any change to our guidance our projections are our expectations for our political revenue performance in 2020.
And with regard to.
Even thought budget, obviously with the impact of this and we expect it to.
Impact Q2 in Q3, and potentially Q4, depending on which model and how that rollout works it will affect our EBITDA. So EBITDA will be down for the year.
Some of it is offset we really quite honestly have more levers to pull between EBITDA and free cash flow than we do between revenue and EBITDA revenue and EBITDA, obviously were subject to the markets.
Yes.
Experience with regard to reducing core advertising and we can offset that to a degree but not to a large degree, but if you look at the difference between.
EBITDA and free cash flow, our cash taxes are going to be substantially less because at some because obviously, our EBITDA and operating income will be down because of reduced revenue our interest expense will be down by.
20, plus percent because of reduced.
Interest rates, particularly LIBOR rates and our ability to be Manny actively manage.
Capital expenditures will be down so all three key areas between EBITDA and free cash flow can be positively affected by management and so our free cash flow expectations and the amount as Jeff variants and that is a lot less than the amount of variance in our.
EBITDA I don't know Thats responsive to your question or not John but thats kind of way we think about.
Yeah that'll do it thanks Tom.
Hi, Steve.
Thanks, guys referenced double digit net retrans growth.
Could you maybe at a high level talk about how we should think about.
Hi, 70% that you just renewed versus accelerators in years, two and three.
Well I, that's why I pointed out that growth between Q4, and Q1 of 23%. So our our growth was 23%.
70% of those subscribers reprice, 30%.
May or may not all of the remaining 30% had an escalator at year end.
So you can theres that arithmetic equation in there somewhere where you can try and assign a value on the increase of the 70%, but I would say generally it would be above the 23% that we saw on the portfolio as a whole between Q4 in Q1.
Got it.
You mentioned, you've gotten a size.
Okay.
I guess.
Hi, saying blackouts are off the table.
How does that shape the game.
Renewing.
It doesn't really I mean parties are continuing negotiate in good faith and obviously you don't have a deal into both parties agree so.
We don't think that will be any any.
And any real effects I mean.
No.
We we expect it will just continue to be business as usual and and from this point forward. We don't have any significant other renewals up the approximate 20% ever subscriber base because reprice this year until.
Until Q4.
Great how much.
20 isn't.
Yes.
No we're not going to give you the playbook here I mean.
A large percentage of the 20% the biggest piece of business in 2020, but right.
There's got to be something left to the Americas imagination.
All right.
My next one could you could you talk about.
Interplay between.
Due to cancellations and just.
Keeping people in the spot.
The balance.
Yeah.
Well sure I mean, it's you know we have a fixed level of inventory. So theres less demand you know rates will be lower and obviously, we're working with advertisers to say I'd love to stay on the air but I need some help so maybe we'll add some billboards we'll do some other things.
Where we need when we're at our best were partners with our with our business partners and so we're working with them and obviously, we have more inventory to use to to promote things and it's been a very good opportunity now or to begin to promote WGN America is news nation, because we have some inventory available to do that.
But I would just pricing a supply demand that's it's no more difficult than that I will tell you that obviously with the political revenue we generated in January and February there were some markets that were that were at price peaks, obviously, a lot of that evaporated in many markets not all but many markets.
In March with primaries canceled no March madness, other things that got pushed out two or cancelled or per seven later this year or canceled and so if we look at it categories.
This is probably fairly intuitive, but you know we saw declines in auto travel and leisure restaurants in certain retail not surprisingly the category showing the biggest year over year increases were attorneys home repair drugstores grocery stores and packaged goods and thats, probably intuitive when you think of people.
His way of life, then and their way of right now in terms of what's going on but.
Our dealerships are open in Pennsylvania, and Ohio, and Texas and so.
We expect to that.
We'll see those categories began to rebound here the zero percent 84 month financing I mean people take advantage those operators and now if you read any the any D.A. daily post you're hearing about shortage of trucks and.
No shortage of popular mop.
Gentlemen, can you still here.
Yes.
I can.
Okay standby.
And everyone. Please standby reestablish our speakers.
And gentlemen, please continue.
All right Kyle sorry about that we add some technical difficulties not sure where and Perry's answer we got cut off we lost.
Certain truck models.
Hi.
Okay, well, that's certainly true so I guess the end at the end of that are came shortly after that that commented just that we see the ebb and flow in the supply demand will probably even out but there is there is demand and causing shortages in some some some models, particularly in popular truck and SCB models right now.
Great. Thank you.
Well move on.
With Barrington research.
Hi, a couple of items, one just a ruling that regarding the political spending.
Well, you benefit or be hurt if campaigns are more virtual this year.
I would expect on balance if you're not holding rallies, you're not spending money to fill stadiums not a trends that you're going to spend more money on television and we've heard that from some of the political advertising agencies that.
This this is going to be the primary means of communication through the campaign at least maybe took a late stages when people feel comfortable congregating. So I would think on balance Jim It would be a net positive I couldn't quantify to what extent, though.
I also wonder if any of the old laws about equal time sort of things coming to come into play and weather.
They buy one party or by.
Political AD at least on national level versus another.
Hard to say I'm equal time is usually we have to a 40 equal time, we certainly do there's no obligation to buy it and they are not usually comes into play in terms of candidates time on air We will continue to as we move into the political season and the focus turns there will continue to do debates on a state.
I'd basis with Senators Representatives governors and those kinds of things the companies become particularly adept at organizing those particularly where in markets, where we have a presence virtually in the entire state like in Illinois, Ryka, Tennessee, Texas, Pennsylvania, So you'll see you'll see us continue to participate in that.
We hope the debate will be vigorous and the the spending will be as well.
Okay, and then one other area I Wonder if you could provide a little more color on WGN a.
Blend of local services versus a national overlay.
Like what are you envisioning is a tier news or will it have a critical point of view.
Target audience target advertisers, where do you said and what as you and maybe the expansion potential. It's it does developed a good following.
Sure well.
We start with the fact that WGN America is distributed according to Nielsen approximately 75 million homes.
And if you look at the programming across the primetime Daypart, its either entertainment or hopefully once again sports or opinion shows there is no real hard news.
Entity in primetime and so thats the that is the direction that we're going to head.
We announced our launch date of September the first 2020, I am and it will be three hours a of wife news we've hired our main anchor team. We're in negotiations with our weekend anchor teams. We've hired approximately 30 people out of the 130 that will be hiring to launch construction goes on.
They did in the in Chicago, where the broadcast will originate from and we're very excited about this and we have had virtual upfront presentations with probably 100 national advertisers some of which would never talk to WGN America, because you know reruns and certain original programming was not the demographic they're trying to reach so this will.
Be hard news, a 100% absent a bias and were so serious about that we're hiring a panel of rhetoricians to review our broadcast for unconscious bias that may creep into the words, we use in the reporting that we do.
And I can tell you from my Barber to certain investors you know people have said the timing for this couldn't be better the country just wants straight news no opinion and they'll make their own decisions and that's what we're going to try and serve it will be it'll be all news using the backbone of our 5400 journalist plus the 130 40.
People, we hire that will be based in Chicago.
We have hired network quality correspondence.
No names that you would recognize today, but hopefully names you recognize down the down the road and and we're working through our promotion plan as well as finalizing.
All the technical aspects of it but it will be absent bias and local and based from Chicago. So we're calling it the center of news and you know this will be from Heartland and primarily.
Directed for the Heartland, which is where WGN A's distribution is strongest.
Alright, Thank you very much.
You bet.
From Huber Research partners, we'll hear from Craig Huber.
Thank you a few questions if I could.
Just retrans subs in the quarter.
Down say, 4% to 5% year over year on an organic basis.
Including the benefit.
They were down at the bottom end of that range, yes.
Thank you for that and then I noticed is asked before but.
For the month of April can you give us a sense how much your core organic TV AD revenues were down I mean, just so people get a sense, what's going on out there.
And also your maybe because for the full quarter if you could.
We're not talking about obviously specifics with regard to the quarter, but I would say our our experience has not materially different than some other some of our other of our peers and with regard to the decline in core revenue that they saw or are seeing early in this.
Quarter.
When you say that does that mean like down say 35, 40%. So you referenced we just don't give we just don't give guidance down to that level of detail, we give free cash flow guidance, and which we were drawn because of the core advertising performance, but.
We're just not going to give guidance to that level of detail.
I understand I'm, sorry, I was just but for the month of April when you reference your peers. The number you're referencing for your peers is that stay down 35, 40% just for April please.
That is on what you read but.
What a number that I've heard before yes, sir.
Okay. Thank you for the clarity there and then Terry I'm curious to hear if you could quantify obviously household to watch the news a lot more out there and so if I mean can you quantify does she can't how much your news ratings have been up here over the last couple of months and I know, it's tough I mean, how much that helped will hold on the back into this I mean.
Yes.
Well it depends on day parts could I would say early morning news is up if we look at the average in this averaging K T O a with our APC affiliate in dose in Alabama, but we I would say morning news is up approximately 15% mid teens across the board some markets.
More than that we're seeing the biggest increases in the early evening news in the late evening news and those numbers have been as high as 40% increases and Oh I think some we're hopeful that some new habits are forming that people are realizing that there is value in this product that does keep them connected with what's going on locally.
And time will tell how much of those audiences, we actually retain a but I think that so it'll be a number greater than zero and something less than 100% of the levels were performing at now.
The next couple of cost questions. If I could can you just help us.
How should we think about.
Do you use of furloughs here in the second quarter versus permanent head count reductions.
None.
On either side.
On either side.
Okay. That's interesting and then I'll just my last question the 40 million of cost savings that you referenced for the second quarter just to be clear that's above and beyond anything that you are already was think you'd be able take out of the system for the treatment acquisition and it's also number versus all else being equal versus your first quarter cost base.
Is it is in addition to the expense synergies that were part of the Tribune transaction and they are specifically.
Related to reduction in revenue and discretionary expense above and beyond as I mentioned before.
The Tribune anticipated is really relative to our budget.
Okay. Thank you guys.
Well hear next from.
What's your bank.
Hi, guys. Thanks for getting on your Perry I'm sure that even after all this time away from the Barbara Harris still looking tighter and sharper than 99.9 standby.
I'm not worried there oh, thank you for your support.
[laughter].
I'm.
Curious maybe in some of your smaller market.
What you're hearing from the SMB there.
Encouraging to hear that.
You are seeing auto dealerships opened but more broadly.
Are you feeling that the pull back and advertising from SMB that is temporary in nature as more of a permanent health this time or maybe somewhere in between and maybe also how important that group of advertisers is year over all that.
Sure well you know it's hard to give a one size fits all answer to that I will just tell you that you know obviously if businesses were mandated to close there's really no percentage in advertising. What we saw was the uptick in grocery stores and drug stores and people thinking first responders and kind of pivoting their advertising that.
Okay.
Businesses that open some that were maybe marginal that probably weren't advertising that much anyway might be on the brink, but you know we I set of note every every month to all of our 140 Vice presidents in the company, including all of our general managers and I said you know and this was this was.
Literally.
A month ago at this time instead listen as as we begin to talk about reopening you should be visiting with every one of your advertisers every one of your accounts every business and not asking for an order, but just sitting down and talking about ways to.
Reopened strong and rig and gain market share in your segment in your vertical you know from competitors that are not going to take that at that time as they don't ask for an order just come up with ideas and we've been doing that and we been around the horn, our regional vice presidents as well as the COO and the present the broadcast division have device.
Ended up the top hundred advertisers in the company and everyone's getting a phone call and it's not so much how're you doing but how can we help us things reopened what ideas can we bring to you here are some we have what ideas do you have as a way that we can help you a rebound strong and be ahead of the curve in your space and gain market share. So.
I can tell you that we the feedback has been a none of our peer group appear to be doing this and b.
They appreciate the time in the goodwill created by spending the time to focus on their business and how we could be helpful. In an agent of change going forward, but again with its if it's a one location you know hair salon or one location restaurant. They may not have been spending a lot with us anyway, and there's no question that some people will throwing the towel but.
When it will be fewer businesses in these markets than there were pre beginning of the recession, but I would say thats true when every recession and so they make up a small piece of our depends on how you define smbs, but obviously, if they're not if they're living right at the at the at the water level, then they're probably not spending money.
In advertising to begin with.
That's helpful context, Thank you and Ah stay well.
Thank you you too.
Well move onto that silver with B. Riley.
Okay, great. Thanks hearing the question did you guys are well.
The first is just around capital allocation I understand that leverage reduction.
So your priority this year with all the economic uncertainty, but clearly your stock is at depressed levels here and wondering if you could give us a little bit of color on what gives you what would give you the visibility to resume the opportunistic share repurchases you've done on the path.
I think weve need you know a higher visibility into core advertising revenues going forward I.
I don't see us doing anything.
From a stock repurchase perspective for the balance of Q2 and depending on the economy opening back up and that its effect on our revenue we could potentially revisit that at that at that point, but right now I would say suspend it is the best way to put the.
Stock buyback, we do about 80 to 80 $85 million of.
Authorization left under the.
The board authorization for repurchases, but I don't see us necessarily being active in that market over the next to that over the next 60 days or so.
Got it and then one more if I can just on the non programming op outside this $40 million inefficiencies in the second quarter.
With that they're close you guys are contemplating plays out are there opportunities to flex that beyond 40 million.
Longer term with more of your employees working from home more digitization of processes, perhaps do you think that there could be any structural tail tailwinds to the long term cost structure. That's.
I would say you know look.
We dynamically manage our business and are there more takeouts available to US yes, we think at that point it starts to hit more into the meat and less into the that fatty areas of the at discretionary part of our expense structure, but are there more yes, we just don't see.
In the current environment, we don't see the need to do that if it's I kind of make the analogy I think we know how if you are fording river how deep. The river is we just don't know how wide it is and so depending on that the pace of the.
Potential recovery on the pace of our core we can dynamically manage our business.
I'll just add to that Guy we have enacted certain cost reductions that will affect the third quarter and that number will dynamically flex based on how the revenue flexes in in third quarter.
Well, we as Tom said, we have levers to pull.
And obviously you can imagine if there is a reduction in revenue. This reduction in commission as a reduction in travel I mean, none of this is you're going to should be news to anybody so, but we we have left our workforce intact, because we need them on the front lines and serving our communities and providing the essential services in which we do we have not ask anybody to take furloughs.
Sure.
Or have we had any lay offs.
You know as I say on our monthly managers call I said.
At this goes on for year, we're going to revisit everything but at this point, we do not see the need to do that so and we've got to keep our business is robust to participate in the recovery, which is by the way already happening listen the governor raised the the stay at home order.
As of the end of April our corporate offices open air people are here unless they have compromised immunities or.
You know childcare were senior care issues, they have to deal with and we're making allowances for that and you'll see very you know we've got states that are that are that are wide open that never employed any shelter in place.
The probably the last place that happens in the country will be New York City and for good reason, but even the rest of New York Upstate may play by different rules and have different flexibilities than that then Metro New York area does and certainly we are dealing with our case by case basis. So.
I think that what we're we're seeing is you know the beginning of reopening of economies and obviously businesses that are open that went to work went to grow their business will be will be our partners going forward and so we will we will as Tom says we were actively manage the.
Cost side of our business in our capital allocation based on on the revenue and <unk> as I said earlier in the call. We've got two different scenarios running one is what we expect to happen over the next.
Second third and fourth quarters, and then a worst case scenario that is substantially behind that and we are managing the business to our base case, but prepared if the worst cases, there it will not catch us by surprise and we'll pull the other levers that we have available to us.
Got it very helpful. Thanks, Terry Thanks, Tom.
Well here now from Stephens Hall with Wells Fargo.
Thanks, maybe first Tom you talked a little bit about those levers between EBITDA and free cash flow you've done a lot on cash tax savings in cash interest savings. So if we just think about a loss dollar of advertising is there an easy way for us to think about what that is in terms of the impact to operating cash flow or free cash.
So.
No because some of it is structural like commissions and.
Sales expense and et cetera, and some of it is more discretionary that again is something that requires actively managed as opposed to just you know direct sales expense. So it's hard to say I would say you know we're probably look.
Looking at somewhere on the order of.
15% to 20% to direct and the rest is kind of discretionary terms of sales.
Okay and then when we just think about your leverage guidance for the year, how do we think about the.
EBITDA or cash generation from the food network stake as a component of that I imagine you have a.
Little bit lower from that didn't they faced some advertising challenges as well.
Yes.
Keep in mind that I gave guidance for second quarter. So if you add those two together that will approximate 90% of the cash flow to be realized from the food network.
In 2020, so you know that score has already been put on the board for the most part.
Okay, Great and then you talked a little bit.
How politicos really gain weight from labor day till November could you maybe speak at all to what sort of expressions of interest you might already be seeing in terms of AD buying for that period and I think it was the story last week about some campaign starting to roll out a couple of waves of at the first time, they've done that post coded I don't know if on the Democratic.
Side.
No way, though.
Questions or you just on if there are still sort of re strategizing based on the way things have changed his commentary about the level of demand.
Experiencing for that period. Thank you.
We have reservations have plenty of time for political advertisers, all the way up to and through election day.
That really kind of becomes an options market because as it heats up people make decisions are there, whereas there whether they want to stay at the current pricing grid or need to move to where the market has moved so it's interesting, but not meaningful but I would say that the current demand is a is no is not atypical to what we would expect in a presidential election.
One year, you know and again the caveat is that I have to the money were come between labor day, and the election day and that is as it always has been and if anything at all we obviously, we're substantially ahead of our internal expectations in Q1, Q2 will be a bit in flux because some primaries.
Got moved out to Q3, but again, we don't expect any of that will affect our political revenue assumptions for the year.
Yes.
Anything further Steven.
[noise] nobody was that thank you.
Thank you and Perry at this time I like to turn things back to you for closing remarks.
Thank you very much. Thank you all for joining us today and I was a longer called unusual we called it important to us to spend time and share as much of our boxes as we can with you. We look forward to a gathering again in early August to report on our Q2 and a report on our increased visibility for the remainder of the year. Thanks again, everyone for joining us were.
Mark again soon.
And that does conclude today's conference again, thank you for joining us today.
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