Q2 2020 Tegna Inc Earnings Call
Good day and welcome to the TEGNA second quarter 2020, <unk> earnings call. This coal is being recorded our speakers for today will be gauge BG, President and Chief Executive Officer, and Victoria, Harker, Chief Financial Officer.
Hi, I would like to turn the call over to Doug Koman.
Mr Relations. Please go ahead.
Thank you and good morning, and welcome to our second quarter 2020 earnings call and webcast today, our president and CEO, Dave Lougee, and our CFO Victoria Harker interview tightness financial performance results. After that we'll open up the call for questions.
Hopefully you've had the opportunity to review this mornings press release, if you've not seen yet seen a copy of our release, it's available TEGNA Dot com.
Before we get started I'd like to remind you that this conference call and webcast include forward looking statements and our actual results may differ factors that may cause them to defer are outlined in our FCC filings.
This presentation also includes certain non-GAAP financial measures, we have provided reconciliations of those measures to the most directly comparable GAAP measures in the press release with that let me turn the call over to Dave.
Thank you Doug and good morning, everyone in the middle of the ongoing told at 19 pandemic, our second quarter performance reflects the resilience of our employees as well as TEGNA is the ability to execute on our five pillar strategy.
I mean incredibly proud of all of our colleagues across the country for serving and supporting our viewers customers and each other journeys extraordinary times as we continue to work to create long term value for all our shareholders as well as all of our stakeholders.
Obviously, the second quarter wasn't for fun time in our country. The death of Georgia, Florida, Minneapolis is we believe assembled a moment of clarity regarding systemic racism in our country.
And TEGNA is right at the epicenter.
There were 11, our station in Minneapolis race to the occasion was balanced a nuance coverage. It many of our journalist, they're working night and day often in very try and conditions. We had major stations in most of the cities, where the largest amount of protest in public engagement, including but not limited to Atlanta, Louisville, Kentucky, Portland, Oregon Seattle.
Washington, D.C. and of course, Minneapolis, and those markets and others are journalist covered the demonstrations and brought their committed these together, creating greater awareness of racial issues and facilitating honest to scale discussions about race. It I know quality through both daily news as much as well as many significant primetime specials.
Throughout their coverage they remain committed to highlighting diverse viewpoints, while their communities and the nation searched for answers knowledge and understanding.
I want to thank our journalists would encourage their thoughts one nuance coverage and their ongoing commitment to their communities.
Diversity inclusion or core company values, but were taken further proactive steps to address in combat systemic racism in our country, especially given the platforms. We have among many things. This includes better systems of accountability for how people of color represented in our content and significantly improving the development pipeline in hiring for.
At Interoil and leadership positions in our news Rins and our entire company.
This is and will be an area of heightened focus for our board and management. We are working together to shore company reflects the diversity within the community should be served in order to better serve those same communities.
To further embed that commitment and accountability ended the governance of our company each of our four board committees are going to be taking on specific areas of oversight that away TEGNA approaches diversity.
Across a number of dimensions.
Turning to cobot.
TEGNA establish culture of innovation and execution allowed us to act quickly and decisively navigate the pandemic our employees have continue to utilize innovative approaches to our work through these unprecedented circumstances have done a marvelous job in forming and uniting our communities during a time of dislocation and ice.
Relation.
I'm, especially proud of the balance facts, not fear editorial brand and philosophy from day, one are dependent on.
That philosophy is clearly resonating with our audiences across all platforms and combined with our verify franchise that helps shifts back from fiction among a sea of misinformation and this information our coverage has been a welcome ended up did anxiety, where do you Nick Ning side, you've written experience is provided by some national news.
As well as many social media outlets.
Turning now to what we've seen across our TV and digital viewership over the last few months.
We've continued to experience significant rate increases in ratings and traffics across all our platforms overall TV viewing for TEGNA has come is increasing continue to stay high across demographics or both or daytime and late news time slots.
A little platform saw an even greater rise in consumption setting records. This year across key digital metrics such as visitors video plays and monthly active users in June we had 76 million Unduplicated multi platform visitors our second highest month only behind March the beginning of the pandemic when we had a record.
87 million.
Comscore rankings habits in the top 50 digital U.S. properties each month between February in June higher than many major digital sites, including but not limited to read it must be enlinks did.
This reflects the critical role our local content operations, playing the communities. We serve further further strengthening our value to clients in the quarters to calm as we develop deliver important relevant content.
Also in the quarter in in a in late July and into July we completed the relaunch of the Justice network Multicast channel.
Now called true crime network and as part of that we introduced a free AD supported Oh TG streaming service for that network that is now available for Apple TV, Amazon fire as well as Apple and Android apps for mobile and tablet.
Viewers are now able to stream hundreds of hours of true crime stories on demand.
That was live sports return this fall, we're going to benefit from that large number of unusual events that we would not normally seen in the back half of the year that had been reschedule from the second quarter.
Our strong and large portfolio of NBC stations will now benefits for instance from the Indianapolis 500 than we have the host city host NBC market of Indianapolis and that was part of our acquisition will have the U.S. open golf tournament and the Kentucky Derby, taking place in August and September and then the Stanley Cup playoffs in September and possibly in early October.
Dnbi a on a B C is now back on the air and we look forward to hearing regular season as many playoff games on many ABC stations in the months ahead.
So during these events would not typically take place in the second half the year. When we will also experienced extraordinary political advertising demand, we will benefit from having this additional high value content and inventory in the coming months. These are all big for network events, notably and our recent acquisitions have expanded arent essentially concentrated big.
For reach so we can now there will ever these events to a wider audience than ever before.
As I mentioned earlier TEGNA continue to execute well on or five pillar strategy in the second quarter. This was evidenced by the continued strength of our subscription revenues, which we still expect to be up mid 20% for the full year.
And our new expectation for political revenues to be at least 370 million for the full year.
As political races take shape into the second half of the year, it's apparent that our political footprint will perform even better than we initially anticipated partially due to the benefit from recent additions to our strategically construction portfolio I'll touch on political in more detail in just a moment.
[noise] nonpolitical advertising trends have not yet completely returned to pre pub at levels, but we are convinced we are well positioned for the rebound in the AD market. These revenues.
Decreased our advertising and marketing services revenues decreased 21% in the quarter, but as I will talk about the moment had and they're very nice trend overall and while it may sound strange to be down 21% was a very strong result, given the consumer economy.
Got to me basically stopped for a period of time at the end of March notably our client base is resilient due to our exposure to large markets, where advertising trends tends to be driven more by sizable companies in brands with large balance sheets that are better positioned to resume advertising than many small local businesses, though.
Our sales and marketing teams are doing a great job, helping numerous local businesses get back on their feet.
Now I'd like to spend a minute discussion accrete key drivers over second quarter performance in more detail our subscription revenues grew 37% in the quarter due to rate increases acquisitions and corresponding rates synergies from our new stations, all reflecting as well all reflecting as well the 50% of subscribers we repriced.
In the fourth quarter of last year.
This growth highlights a solid underpinning of our business in spite of a modest and not unexpected acceleration and sometimes very modest given cobot 19, and the absence of any live sports in the quarter and notably we did not see any acceleration in some declines from April to May which was a pleasant surprise to us these revenues have grown.
Substantially in recent years and have proven their resiliency and economic downturns in our once again and it turns the cash flows they helped produce.
On the outside our AD sales teams have taken a very innovative innovative product approach to helping businesses get back on your feet as well as harnessing new dollar for dollar is from verticals that did do well form and we weren't position to do well during cold.
Following our decision last year to bring our national sales in house instead of using an outside third party the strategic benefits of this new integrated one TEGNA sales team led the revenue share gains in all but one of our very largest markets and that other market was flat in the markets, where there are audited numbers in the March.
Okay.
As we noted front, our last quarterly call. It an expense side, we took very swift expense actions at the beginning of the crisis and continue to manage all non essential cost to protect our product employees as well as a long term health of our business.
At the beginning of the second quarter, we announced a temporary action that all employees would take a one week for a low or a temporary pay cut in the quarter all with the goal of maintaining full employment and health care benefits of our current workforce. During this difficult time and I'm pleased to say nobody has lost their job or health care benefits due to the global crisis. This combined with other.
Actions resulted in savings of almost $40 million in the quarter from our original plan.
Many of the new efficiencies that we've learned will carry through as permanent ongoing practices that will benefit our future cash flows. Additionally, our proactive financing decisions, which Victoria will cover shortly in more detail have provided us with increased flexibility during these unprecedented times.
[noise], so our focus on consistent growth drivers over the past few years, such as subscription and political revenues also continued to yield durable durable cash flows that enable us to whether this environment well as a reminder, there a number of positive dynamics, we expect to drive our financial person performance over the next several years.
Our first half results already reflect the tailwind from the 50% of their subscriber base that was replaced reprice last year and we have significant further opportunity for growth in the back half of this year with approximately 35% of scoped subscribers to be repriced at the very tail end of this year.
These deals continue to increase to predictability of future cash flows with further upside overtime.
Now for political advertising.
Political was up significantly in the first half of the year can can compare with the prior presidential year 16, as well as above 2018 on a same store basis.
We spoken about before our portfolio has been strategically constructed to take advantage of increasing even year political spending what stations and increasingly large number of high high yield high spend battleground and swing states, including but not limited to Arizona, Colorado, Georgia, Iowa main Michigan Mince.
Minnesota.
North Carolina and Pennsylvania.
As political races of taking shape, we're increasingly confident and the outlook for our political revenues reflected in our revised at least then expectations for at least $370 million of 2020 full year political revenues.
This is not just a reflection of the presidential race, but also multiple state and congressional races that bodes well for all future even year political spending.
13 of the core of the Senate seats up for grabs our competitive or potentially competitive right now inside TEGNA markets. There were also 30 house races.
Our markets currently defined as toss up so we're just lean Democrat or lean Republican in other words competitive and due to shifts in recent months, we could see up to what additional house races come into play for us as competitive.
And we have two large states in play that we haven't seen before Georgia.
Well, we have stations in Atlanta, and making and we're going to see some presidential states spending there and to Senate seats, and finally, Texas. We're TEGNA has 12 stations serving 87% of the state too early to tell where Texas will end up but there is now presidential spending going on the books for the first time in my career.
Returning to nonpolitical advertising the improvements we've made to the business over the past few years position us well when the economy more fully reopens, our ROE T. T advertising platform premium is benefiting from the secular tailwinds of additional viewing on streaming services and while temporarily temporarily slowed somewhat into Q, it's still well.
Outperform more traditional advertising services and is now back to experienced significant year over year growth in this quarter, what we're in right now.
Our two key results during an unprecedented downturn also reflect the strategic and purposeful reshaping of our business and revenue streams overtime. The key pillars of our strategy have us well position to perform in whatever external challenges. We may have ahead of us and as we continue to navigate to the current crisis into recovery.
Our board and management team remain relentless and our and our pursuit of long term shareholder value through every Avenue.
We look forward to continue to update you on the great things happening a TEGNA through our focused on supporting our team members and communities delivering trusted news relevant content and executing on our strategy to can create value for shareholders I'll now pass the call over to Victoria to cover our financials in more detail Victoria. Thanks, Dave Good morning, everyone and thanks for joining us.
As Dave already mentioned I too want to thank the entire TEGNA team for their dedication to serving our customers are suffering their families communities and each other through this unprecedented time.
As you've heard as discussed previously our strategic plan is centered on making smart proactive cap allocation decisions.
Position does very well to work efficiently and effectively in a suddenly remote work environment this quarter.
These benefits will continue to pay dividends for us well into the future leveraging shared resources platforms and best practices to serve our clients and our viewers seamlessly.
Now turning to second quarter consolidated financial results.
As a reminder, my comments today are primarily focused on taking this performance on a consolidated non-GAAP basis.
He with visibility into the financial drivers of our business trends as well as our operational results.
You'll find all of our reported data and prior period comparative in our press release.
As we shared with you last quarter, we like most businesses suspended our 2020 financial guidance in March pending greater clarity on cobot 19 market impacts.
Over the past several months Weve continue to refine our outlook for the balance it this year in order to help the forecasting.
I'll share several key cash unpacking metrics for the full year later in my remarks.
But the second quarter total company revenue was up 8% year over year, driven by our acquisitions completed late last year as well as continued growth in subscription revenues and political advertising spending.
Excluding the impact of political advertising total revenues wasn't up 5% year for here.
In terms of the subcategories of revenue the breakdown was as follows.
Subscription revenue increased 37% year over year, reflecting growth from both our base business and our newly acquired stations.
This was the result of step ups in retransmission rates for the 50% of subscribers repriced in the fourth quarter of 2019.
As well as mechanical subscription revenue synergies achieved through our recent M&A.
This continued growth in our high margin subscription revenue coupled with our political freight put footprint provides us the steady sizable EBITDA and free cash flow, resulting in a much more resilient portfolio now more than ever another proof point for one of the key pillars of our strategic plan.
[noise] advertising and marketing services finished the quarter down 21% compared to last year, primarily due to the nonpolitical advertising cancellations related to covert 19 economic contraction.
That said, we've seen sequential positive progress since the onset of the pandemic, including an improvement by more than 20 percentage points for Maple till June.
Now to provide some further color on specific advertising sector performance trends.
As you expect some categories performed well, including insurance pharmaceutical home services, which were all up above last year.
Hum improvement education, and financial services also performed better outpacing aggregate trends.
Not surprisingly the categories, which struggled than most and this shelter in place environment.
Entertainment travel and tourism restaurants, automotive and retail all of which were down relative to last year.
Now turning to expenses for the second quarter.
As you saw a detailed in our press release. These include $8 million expense related special items, driven by fees related to our successful activism defense offset by a portion of that our portion of the proceeds from a careerbuilder divestiture.
Our operating expenses for the second quarter were 24% higher on a year over year basis, driven predominantly by our recent acquisitions, which included 13 new stations.
The Justice Inquests networks as well as programming fees, which include reverse compensation associated with higher subscription revenues.
Excluding acquisitions and programming expenses non-GAAP operating expenses were down 5%.
As we discussed last quarter at the onset of the cause of 19 pandemic. We've responded swiftly to implement cost containment measures, including reducing all non essential costs and discretionary capital expenditures in order to protect the long term health of our business.
Note that these measures were in addition to the continued streamlining of our business processes and companywide efficiency efforts.
As you've heard me discussed previously many of these have been underway for some time as part of our culture, a thoughtful cost management through operational level leverage.
Fitting our existing stations as well as new M&A.
As a reminder, some examples of these efforts include consolidation of our master control traffic streaming in monitoring platform.
Creation of shared service centers for all back office support function.
A companywide financial system consolidation and automation of sales support processing.
The implementation of our new ERP financial system is now nearing completion, which will bring our newly acquired stations onto the same financial platforms is the rest of our station is allowing for more holistic analysis reporting and forecasting of herself.
[noise] to produce the company wide cost savings achieved specifically during the second <unk> second quarter.
We implemented temporary one week employee furloughs pay reductions and a hiring freeze against the backdrop of travel restrictions and reduced discretionary spending.
As a result, we achieved a meaningful 38 million dollar cost reduction compared to budget this quarter over and above our previously projected cost takeout efforts.
As a result of all of these drivers reported adjusted EBITDA for the quarter was $124 million.
All of our newly acquired stations as well as our existing ones contribute well for the quarter. Despite a lots of high margin advertising and marketing services revenue due to covert 19.
Interest expense, so $52 million, while higher than last year due to the acquisitions in the back half between 19 was also lower than we previously had anticipated.
[noise] before providing more detail on our operating results for the quarter I'd like to remind you the steps we've taken to create a strong and resilient balance sheet well before the current market volatility.
As you recall and the second half of last year, we completed $2.1 billion and refinancings at historically low interest rates, while extending maturities, including or $1.5 billion revolving credit facility through 2024.
It's important to note that the revolver has only financial covenant, which caps leverage at 5.5 times based on a trailing eight quarter EBITDA calculation.
More recently on June 11, we also completed a 15 month extension of the first scheduled revolver leverage covenant step down from 5.5 times, just 5.25 times.
Due to occur at the end of September.
With subsequent step downs, taking place as scheduled after that time.
This not only provides us with increased financial flexibility, but allows for greater forecast certainty.
You'll also note our financial statements that after the 25 million dollar term loan maturity was paid down in June we now have very little debt due over the next 18 months, including $75 million in September and $350 million in 2021 [noise].
[noise] at the end of June cash on hand was $173 million, which has continued to grow significantly since the end of March when we temporarily paused accelerated debt reduction cognizant of market volatility.
Beyond this unused capacity under our $1.5 billion revolving credit facility contribute more than $650 million to liquidity.
With $835 million strong.
This resulted in total debt at $4.12 billion for the quarter.
You're saying that leverage or 4.76 times.
Just 4.73 times as defined by a revolver covenant calculations.
Despite these significant covert 19 impacts in the quarter, we generated fully $96 million or free cash flow, 17% of total revenue in the second quarter.
Receivable collections remain strong and cash benefited from the deferral of $30 million of federal income tax estimated payments, which will now be paid in the third quarter as part of the government response to covert 1920 years Act.
We project will remain free cash flow positive each quarter for the balance that this year.
Throughout our history TEGNA has remain prudent and forward looking in our capital allocation decisions never more important than it's been during this recent period of uncertainty.
Weve <unk> reprioritized, some investments and recently restarted.
Our accelerated debt reduction.
And continued to deliver our regular quarterly dividend to shareholders.
We were also diligent evaluating areas for reduced or delayed expenditures and have scaled back on our capex with longer term benefits given the current market forecasting challenge.
As I mentioned before many of our operational efficiency efforts underway well before the onset of the pandemic proving now to be an increasingly part of our ongoing strategy.
[noise], we shared last quarter that we would continue to monitor monitor economic conditions and carefully evaluate whether to reinstate are forward looking guidance with recent spikes in cobot 19 cases, the full impact to the pandemic rate remains uncertain as we're all so well aware.
However, there are few areas I'd now like to provide more color on regarding our outlook for the rest of this year help frame expectations of future results.
First as they've shared earlier, we still expect subscription revenue growth of mid Twentys range for the full year.
Reflecting the resiliency of these contractual revenues.
Second we also expect full your political advertising revenue to now be at least $370 million supported by the expanded competitive footprint in presidential U.S. Senate and U.S. House races.
Third we now project full year total capital expenditures to be $45 million to $50 million for the year, including approximately $20 million to $24 million of nonrecurring spend.
He 17 million dollar reduction from our prior guidance of $60 million to $66 million.
[noise] in terms of our net leverage ratio, we expect to be at 4.5 times or less by the end of year well below our financial covenant of five of up to 5.5 times.
As a reminder, all of tightness that is unsecured and we enjoy very low interest rates. Thanks to our recent refinancings.
Fourth we now expect full year interest expense to be in the range of $210 million to $215 million approximately $10 million reduction to our prior guide.
Finally, we project our effective tax rate will remain in the range of 23.5% to 24.5% despite the timing differences.
And our cash the cash tax payments due to the carriers Act I previously discussed.
We obviously will continue to monitor the cobot 19 recovery macro economic impacts to our business I hope that these full year cash metrics help provide greater context in color for your forecasting.
And with that we'll now turn it over to keep an eye for your question.
Thanks.
If he would like to ask a question. Please signaled by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure your mute function. It's turned off to allow your signal to reach our equipment.
Again press Star one to ask a question well pause for just a moment to allow everyone an opportunity to signal for questions.
Well take our first question from Dan Kurnos with the benchmark company.
Great. Thanks, [laughter] a good morning, Dave you know was very impressive political guide I think higher than most of what all of US. We're expecting you gave some really good color I guess, just trying to understand pro forma you know you mentioned a few races.
And obviously, a you know you've been hesitant to come out and given number so it feels like there's some more upside to that so just trying to get a sense of what gives you confidence right now to take your number to where it is or how things are breaking the you know books dollars.
And fund raising levels and then secondly, maybe.
I'm actually going out it's a question kinda on connected TV I've heard a lot from you know Roque, who trade desk on connected TV in the back half of the here and it seems a you know that pre down do you really well positioned to benefit from that kind of trend. So maybe you could just talk a little bit about what you're seeing on that front be helpful. Thanks.
Yes.
Thanks, Dan Good morning me take the second one first yeah, you're absolutely right I mean, I like I did want to go to one of my script, but you're absolutely right connected TV connected TV, Oh TT generally streaming services an increase in that.
Which is really additive to the broadcast business by like is there still they're not doing what life a linear TV does with those big events, but they have I just got a lot of additive services. That's a great tailwind for creamy on its already proven to be true.
You know we've got it just all that is added inventory and then advertisers will seek it out even more so.
It's a you know premium as I said is doing very very well and we have tremendous amount of partners and we'll continue to look for even more on the political side a number of factory just give us to competence and the new a higher number obviously the number on the books. We know you know what's on the book, how we're pacing Oh, you know, but the more but also.
We've got a pretty good handle on history as I've talked about in previous you know the 14 to 18 a mid term.
Increase which is almost 50% for us as well as the increase was reflection of really pre Donald Trump and post Donald Trump spending levels and so now you're adding on a part you know a presidential race I think where recall I think we didnt to 80 and 18 on a pro forma basis. When you talk about all the acquired stations so.
So now you had a presidential race on top of that what's changed since we gave our previous at least then is two things happened when Biden got the nomination debt one time looks like Bernie Sanders might get it when biden got it that put a bunch of states into play that weren't necessarily going to be in play and then between Cove, It and George Floyd.
As the President's polling numbers have declined it's brought even more states into place on the president just talking presidential the footprints widened that trend has done the same thing in the Senate and house. It took a number of seats that five months ago look solidly Republican and have put them in play both in the Senate and then.
House and as you know the money that will go into the Senate to try to get control to send it will be stratosphere. You know we've got to Senate seats in Georgia as I mentioned, we've got you know if we got almost all of the hot seats out that are out there for the Senate you know if you look at the Tossup column, there's there's foresee to that's five seats in the tossup column, we got four of 'em, Arizona.
Colorado, Maine, and North Carolina, but now we got to Senate seats in Georgia that are competitive, which obviously massive states, Iowa, We've got Michigan and now we've got seats that that you know, even Mitch Mcconnell seeding, Kentucky, which is unlikely Republican his opponent is raising an enormous amount of money without a state money from other people, saying with Linzess.
Grams upon in South Carolina, So long winded answer of saying the fund raising its huge for all the obvious reasons for the passion in the system and in the last four months have only.
You all know increased that passion passion turns into fund raising and it's also move races more into our competitive calm and we're also really are benefiting from our new footprint you know being in Pennsylvania, Indiana is it looks like it now might be in play as well, but are you know our new stations in Pennsylvania, and Iowa and even in Alabama.
And just helped us so we're very bullish on political as you can tell.
Could I just to marry the two for a second just in terms of what you might be seeing on pre me on and just housekeeping wise with that's just that's just phones the general M.S. bucket or would you record that separately as a political breakout.
You're talking about political from Paramount.
Yeah.
You're talking about political yeah, yeah, we put the political on premium on in in a regular political so yeah. You know the numbers I'm, giving you that in terms of the strength that premium on excludes pre me on political billing.
Got it thank you.
Thank you Dan.
We'll take our next question from Alexia Quadrani with JP Morgan.
I think from not just a couple class from claims Anakam evening on advertising sounds like between the return of sports obviously political it's gonna be much healthier. So how can we thought but any kind of anymore color you can give us maybe on the.
The Doctor critical more traditional advertising market I think you called out of people categories. It stayed weak because I guess anymore color you can give us some terms or what's working what's not in how's the tropic versus what you may be had anticipated I'm just a quick follow up I apologize.
But I think you said on this stuff decline.
Television.
Hi, I'm curious if you like.
Tell us how its topic right now okay.
Yeah, Let me Tim let me take the sub decline. So first so we bought up we basically you look at it this way from the end of the year to the ended the first quarter, we the declines accelerated by about one point.
And from the and now have the first quarter. The ended the second quarter wave. It it's accelerated by just under a point, which is which was better than we had forecasted so I knew their numbers out there. Another earnings calls of minus seven we're not minus seven.
And we.
Again that was zero accelerant, we did see some modest acceleration from frankly, even recovered but.
You know weeks I personally expected to see more Alexia because just you know people are at home, it's easier to cut the cord when you're sitting around all the time and streaming services et cetera, but they proved to be more resilient than I thought, especially the the cable.
Cable companies are doing a really good job I think you know Comcast and spectrum, specifically doing really good job hanging onto their customers and work, but for you know one may one large.
Satellite provider these numbers would.
Significantly different but I'm 20 way the declines have been less than we had a worried I'm relative to covert im glad to take a follow up on that if you want looks and on the advertising side as I said that the pacing the rate of decline you know it you know advertising basically stop.
All right and across all categories, but then we frankly, our local sales teams did a great job getting to a lot of local businesses that had and then the services category that you know we're able to operate but they may have not had marketing strategies. So we put marketing strategies in place so.
We as I said in previous calls, we've really expanded our services footprint.
And in the quarter, you know recruitment plumbers electricians retirement homes, you know alarm security bankruptcy air conditioning and heating we got tremendous amounts of increase the dollars in those categories that we went and got and add to that some categories. Despite the weakness in retail and auto and things like that where there were some increases in categories like and.
Sure fronts and.
And you know education home improvement, obviously banking and finance as it relates to overall trends.
You know advertising and marketing services was you know was literally 20 points better in June than it was in April I think on the last call somebody had said you know where are you looking at minus 50 in April I said, no and it was more M.S. was significantly lower than that the low low fortys would not be an accurate I'm. So.
You can kind of guests were June was but I will say don't normally give you know pacing on them quarters were in but given these unique times just to give you a sense. We finished July now minus 12.
I am asked to show you the level of improvement we're seeing so I'm now in the next few months, we've got political displacement two combined with you know were those issues in the categories, but I just up.
You know I did just to get people confidence on what the trends are an advertising. It shows you how far we've come from April.
Thank you very much huh.
Thanks selection.
Our next question.
With Stephens.
Hi, Thanks mid July pacing number UBS. It was definitely my question could you could you talk a little bit about your auto outlook and kind of the tier one versus tier three expectations you have for the balance of the year I've got some follow ups.
Yeah, well I mean, I don't whenever that really doing a forecast by category per se, but we're just following along if you will but you know obviously it fell deeply in a you know in in April why you know very deeply but like everything in fact, it improved by more than 20 points from April to June.
As a category, but still you know not below the median honor categories by quite a bit but it has continued sequential improvement and you know July is more than double digit points better than you know June as it relates to tier one tier one and tier two are doing better than tier three for us than they have all.
The way along.
And that continues to be the trend not a massive.
Oh I take that back in the third quarter to actually a pretty good difference its a pretty good difference, which speaks to what I said earlier, which is why on our overall en masse numbers, our largest markets are helping carried the day.
So we're really we're really seeing and as well as in addition to the share increases in those markets that I referenced.
Got it into simple math is that you have about 15% renewing next year.
21 for 22, except for that I think he said in the into one Q call that you do have some two years. So just on housekeeping is that 15 to close enough for those of us higher bottoms up Oh I'm sorry.
Hi, I'm, sorry, you, saying, 50% of our subs in 21, yes.
So what you're asking you know it's close to 30.
Well, yeah, Yeah, 21 that was a 30%.
Oh, sorry, you had 50 last year 35, this year, which means there would be 50 odd still hanging.
In the out year no no. Your some of your your similar ears, I think I think what you might be assuming is that everything's a three year deal that's exactly what I'm asking.
So it's not 15, so they're not so.
That's right right now to estimate right based on you know because the off a few points based on what sub trends are between now and then but that's right. We're looking at 30 at the right now at the end of 21 by the end to 21 got it got it. Thank you.
And then lastly, where would you want your leverage to be before you would get serious about looking at.
Other station acquisitions. Thanks.
Good question. They actually it has I think left to do with leverage which is not really constraining. Yes. We have plenty of firepower has much more to do frankly in this environment with valuations and how feasible valuations are and how well they can be conducted given market volatility, but there's nothing that constraint says from either a policy or the covenants them. So.
Sales in terms of doing M&A, particularly talking.
This you know at this point in time, obviously, our priority is paying down debt and getting to lower leverage levels, which were doing fairly rapidly and had been prior to.
March 19, she saw from our last quarter, but.
But there's not there's no sort of philosophical or.
Covenant reason, we need to get to a particular number in terms of leverage.
Great. Thank you.
Our next question.
Arthur with Super Research.
Yep Victoria.
On a subscription revenues they were up 37, plus for the year or so.
Six months or did you say, you're like you continue to say mid twentys for the for the full year.
Yes that was our prior guide him or could we had just simply we're still comfortable with that prior guide.
And we'll take our next question from Jim Goss with Barrington Research.
Okay, a couple of things weren't just going out further on the leverage idea you you do have a step by step down in the covenants.
Can you talk about the pace of a further leverage reductions and you know what you what you expect to get to over the next year or two.
Sure and just to clarify Jim So I said in my comments that we just in the beginning of June renegotiated. A this 15 month extension of our first step down so we instead of going from five and a half times to find an importer times in terms of the covenant restrictions at the end of September that'll be 15 months out and then it will need.
Normally scheduled step downs and occur after that.
In terms that where we are right now he thought lever.
4.7.
At the end of this quarter, we have already restarted accelerate in pay downs predominantly the revolver at the moment because then for drawn amount interest cost is fairly low.
We expect to see at four and a half times or less.
And in lot of that will just be depending on the pace of political ads and from a cash availability standpoint that we are leaning into de leveraging quickly.
Can you do that much more next year on it and then nonpolitical year.
We're capabilities, maybe a little less.
Or will that sort of hold for another year.
<unk>.
You know will continue to pay down debt not be it necessarily at the pace given the cash that's produced remember Black Hills Pan front, so not only that margin, but the cash is paid up front, but he will just be depending on the pace of the business and.
As we've said in terms of the best years since Apple in the current environment is to pay down debt.
Okay, and you talked about a position your portfolio to take advantage of swing states effectively. So you can get the most politically at.
Uh huh.
Over cycles.
Generally do you think a the swing states tend to be fairly consistent.
Year to year, though you did mention Texas is now getting more presidential ads and.
So are you able to take advantage of this tour.
You know is there some inertia that creates the environment for your to do what you're saying you're doing.
And also then the crowding out and displacement list a raise political expectations that you talk little about it or is there anything work too.
Saying, there and that score.
Hey, Jim I'll take that on the on the last one on crowd out you know we continue I think every year to get better at pricing relative and also some years. You know you may have vast disproportionate up the spending in a handful of markets, which actually really.
Makes it harder to manage the inventory, but it's so widespread where the spending is this year I think we're gonna be able to manage crowd out a little better than previous years because of the disbursement of the inventory, but you don't remains to be seen as it relates to footprint. Yes. So they you know if if if they if a status a swing state for presidential it tends to.
To be a swing state for center.
Right and ER and then you know Stakes you know it seems like Pennsylvania, Iowa, you know tend to you know right now tend to be a pretty competitive on other seats and you know and then Texas. A you know is now a place where the how spending you had some republicans decide not.
Run for reelection because they're worried about the seats or the house itself could be a big factor for us and I think we'll be in every even year election. So you know you go back to that 280 million that we did an 18 price and I think that.
That is gonna be.
You are going to see strong numbers on every mid term going forward.
Okay last thing or changes in the FCC post elections or likelihood.
And the likelihood any issues would be addressed once the election is over what would be on the table.
So it was the Republican lenders that Democrats grant.
You know Jim it's honestly too early to tell it's also got to do with who who goes in as as FCC commissioners. So obviously it'd be different dynamics on both sides of the aisle, but I do believe I'm, a little bit optimistic that on the Democratic side, which has been typically less helpful. In the past some regulatory matters.
There was a you know there's not a younger and younger staffers both in Congress and on the eighth floor of the commission that understand some of the needs for why the consolidation makes sense. So maybe a little overly optimistic on that were but we're not banking on anything at this point relative to the cap, regardless of which party takes over.
And but we'll go ahead and see any any be our trade Association has it has a you know in recent years has done a very good good job.
On managing whichever administration isn't isn't isn't play.
Alright. Thanks.
Well take our next question.
Huh with Wells Fargo.
Thanks, I'd love to get your view on whether some declines are impacting retrans or reverse comp just thinking about 50% that you did.
End of last year, and then you're probably getting into the 35%. This year. So you know is that either making and bbds over the last convivial or any other national network seeming more aggressive or is it just kind of business as usual.
Sure asking on both sides of the equation, Stephen and negotiate with MVP days and negotiating with networks.
Yeah, just trying to understand the acceleration of sub declines just kind of impacted those those discussions on both sides.
Yeah, I think so I'll just say you know so we havent negotiated anything of size, yet a incense cobot started but I'll simply say what we've seen in recent years as Subtrends increased is that the value proposition of strong big four affiliates has only increased right. So the existence of anymore.
Meaningful linear system is dependent on the big four so ironically as sub trends is some declines have increased the big force have only increased an importance in value because every consumer wants them to big events I just talked about her on them. So we like our chances you know what what people forget a lot I think if you look at the ARPU.
On a lot for the you know for a lot of the and Bbds. They are they are on the revenue side, there's shedding a lot of non necessary cable channels in the consumers is you know whether it's a secondary channels or if I'm not a sports fan maybe it's the sports to your but not the big four right and.
I think theres a lot of cord shaving going on you get a lot of customers now that have not they're not cord cutters, why they got less channels into paying for less channels, but were there and we're getting paid the same and remember our rate increases are are more than offsetting you know some declines on the network side. You know we have we have in it.
Go shaded a a newer deal we will be obviously at the end of this year will you know we've got a good relationship with that network, we bring a lot of value to them well see where they are in the content side and what programming they've renewed and what they look like in terms that I suppose I proposition of what they're going to offer and other than that it wouldn't speak to that negotiation, but I think just given our scale.
Without network and the value we bring to them on ratings over indexing on ratings that we're in a good position relative to that deal.
Great and then could you talk about maybe college sports and NFL little bit some of your peers of quantify bad as a percentage of revenue were AD sales. So would just love to get a little bit of color given that there might be some shakiness at least on my college sports side as to whether that's a material aspect of your advertising business.
Yeah, I would say college is pretty immaterial for US Pro NFL. You know you know basically all football all in would be up our total revenue was very low single digits. Okay for the course of the year, but we're also as I mentioned earlier, we've now got there is a demand for live sports. So we've done a lot.
Lot of new with live sports and the third and fourth quarter. We didn't used to have so you know you look at the ratings right now the N.B.A. finals on a b C are gonna be selling it a far different rate I think than.
And now what we had before they'll be in a political window. A these other events I spoke about you know you'd like you know a U.S. open golf tournament, he might I've talked about that a lot in years past, but that will have now a very high end audience. It's not all day with a tremendous amount of inventory and in a world of cobot that stuff has a lot higher viewing so we've got a week.
Got some offset so, especially because we own a lot of NBC right because they've got all these additional advance a in this in the third and fourth quarter.
And then just last one for me and sorry, if I missed this in the prepared remarks could you maybe talk about your increase in political spending how much is that candidate spending versus like the packer issue advertising, which I know typically gets a much higher price.
You mean, it may not I mean, a percentage of the increase you mean.
Well above our guy qualitative or quantitative yeah, the either why I'm just trying to understand how much of this is like you know the candidates fundraising and how much of this is all the other money, they're kinda circles around that.
The might look the majority of it every year will be issue spoke what we say issue Weve technical when we say your shoes that includes pack spending for candidates right. So candidates spending you know itself money raised by Joe Biden or Donald Trump won't be the majority of the spending it will be it won't be that packs contributing whether its.
You know to a you don't send a majority or you don't political committees Republican Committee and member the lowest unit rate is limited to the candidate at so the vast majority will be well call, let's call. It populates caught pack spending we will also see a significant amount of state wide validations like we do every year and.
That that actually adds up to a significant amount of dollars.
Great. Thank you.
[noise], our last question from Craig Huber Huber Research partners.
Great. Thank you got a few questions I'm just to be clear the pro forma AD revenue number just with the acquisitions in the June quarter core number was that down 33, 34%.
Year over year.
A little little lower than that up just a little lower than that.
Okay, and then what do you say 33 33 to 35.
Yeah at low end to that.
Hello, and thank you and then my next question.
The down 12% number you mentioned for the month of July I assume that includes a small at the acquisitions in there.
When you see that number.
I'm sorry, so yes that is that is pro forma for the acquisitions Dms numbers I just gave you.
Our pro forma for the acquisition same store basis.
So that minus 12 in July is same store basis right with the acquisitions.
Thank you this conclude and that's the final.
Thank you. This concludes todays thank you think operator.
Go ahead Shelby.
I would now like conference back over to the speakers for any additional remarks.
The actual being just a just once again I want to conclude I again want to reiterate our commitment to protecting our employ supporting our clients and serving our communities and again thinking all of our tech the colleagues across the country for their courage and a great work during extraordinary times, we are executing on our strategy as I said before to create long term value.
And on our mission to serve audiences with important local news information and entertainment and we'll continue to do so if you have any additional questions. We were unable to cover today. Please reach out to Doug Koman, seven or 38736764.
Thank you.
This concludes today's call. Thank you for your participation you may now disconnect.
[noise].
Oh.
[music] [noise].