Q2 2020 Nexstar Media Group Inc Earnings Call
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Good.
Group's second quarter 2020 results.
This call is being recorded.
The conference over to Joe just funny Investor Relations. Please go ahead Sir.
Thank you.
Everyone I just want to read the Safe Harbor language after which we'll get you had the.
Actual presentation, all statements or comments made by management. During this conference call other than statements of historical facts may be deemed forward looking statements for the purposes or the private secure.
Ladies Litigation Reform Act like 95.
Extra cautions that these forward looking statements are subject to risks or uncertainties.
They cause actual results could differ materially from those reflected by the forward looking statements made during the call.
For additional details on these risks or uncertainties. Please see Nexstars report on form 10-K for the year ended December 31st 20, Brltwo Nexstar subsequent filings with Securities Exchange Commission.
Next door undertakes no obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise.
That it's now my pleasure teleconference call over to your host Nexstar, Chairman President and CEO Terry So Gary. Please go ahead.
Thank you Joseph and good morning, everyone. Thank you all for joining its review Nexstars record second quarter results today.
As we get started I want to acknowledge that extra nation team members for their front line a central work in tireless efforts to provide viewers in users with continuous access to local news and other services. Despite the challenges presented by the pandemic on recent civil unrest.
Our planning and preparation strong balance sheet and commitment one markets and employees I'm proud to say that Nexstar has kept our employee roster intact and a record quarterly results again reflect our team's commitment to flexibility throughout this time as always our chief Financial Officer, Tom Carter is on the call with me this morning.
Next our industry, leading scale and diversification, our solid execution, such as our new business strategies and our rapid adoption of cost containment programs at the onset of the pandemic resulted in record second quarter results with all of our cash flow metrics well above consensus expectations.
41% rise in second quarter net revenue reflects growth in told me television advertising revenue because we drove year over year increases in same station, new television business and strong shares a political spending it on markets as well as the 71% Europe, where you're increasing distribution fee revenues.
That's that's despite the economic pressures related to the pandemic nexstars topline growth in operating expense management disciplines resulted in a 38.7 increase in net income and record second quarter broadcast cash flow adjusted EBITDA and free cash flow with those net metrics growing 28%, 49% and hundred 20. So.
<unk> percent, respectively on a year over year basis.
As to what continues to address the health and economic challenges brought on by the pandemic the strength of our business model and enterprise wide focus on managing operations for free cash flow enabled us to bring about 21% of every net revenue dollar to the free cash flow line.
In the year to date period, Nexstars generated approximately $631 million or free cash flow before onetime transaction expenses.
We have comparison, we generated a total of $521 million to free cash flow in all of 2019, So our growth momentum remains strong even before the upcoming benefit of political spending in the back half of the year.
Reflecting repurchases made in Q1, <unk>, we have reduced our share count to approximately 45.5 million shares outstanding. So 2020 year to date free cash flow per share amounts to about $13, an 86 cents per share.
And we remain confident in our unique positioning in this environment to again generates significant free cash flow into current quarter and again in Q4 this year.
Speaking of the full year 2020, it's important to remember that approximately 60% of our annual revenue is expected to be drive front contractual distribution fee and political advertising revenues, which is not expected to be materially impacted by the pandemic.
Specifically nexstar has solid visibility in terms of our contractual distribution economics through December 2022, as we completed do multiyear retention mission consent agreements, representing approximately 70% of our subscribers at yearend 2019, as well as new long term network affiliation contracts with CBS Fox and NBC.
At the same time Nexstar has a strong balance sheet, including approximately 665 million in cash as of June 30, without access to our another hundred 80 or $140 million under our revolving credit facility.
We continually successfully navigate through the evolving challenges presented by the pandemic based on our core value absorbing communities, where we operate.
Liberating leading local news and the other critical information in content to viewers whether on air online.
In this regard Nexstar stations have produced 41 separate town hall meetings addressing state and regional responses to the virus. Additionally, nexstar has a generated over 30 different programs related to <unk> recent civil unrest and race relations in our communities.
With local news and information, while it's never been more central for Americans. The pandemic has changed consumers media consumption habits in ways that showcase the inherent strength of local broadcast television our content nexstars, leading local brands.
The most powerful and trusted voice in the country more people are turning into their stations local news cash than ever before.
According to Nielsen data, even as states localities began to reopen the second quarter.
For broadcast television evening news viewership among adults aged 18 to 34 remained impressively high with year over year increases in average cumulative weekly impressions in April may and June of 151%, 83% and 89% respectively.
Similarly on the digital front nexstars websites and mobile apps grew year over year page views by 250% of 1.1 billion in April with total Muslim monthly users up 133% to 96 million, we continue to generate strong digital audiences throughout the quarter with weekday and weekend page view traffic across our local web site.
Up 50, and 60% respectively. During the months in June compared to the prior year.
Additionally, in terms of unique users Nexstars digital properties ranked number one in the country and local news number 12 in all of news and information and we're the number 33 site overall domestically in June as measured by Comscore.
As the nations largest producer of local news programming Nexstars proprietary content provides a central news and information to users and viewers that is unique and relevant to each of local communities, we serve across the United States.
Now more than ever viewers rely on television news to stay informed about everything from a latest pandemic developments reopening of the economy to the upcoming election.
With Nexstars market, leading stations insights deep local and national reach and local broadcast record of being the most influential and effective medium for both brands and politicians, we expect to see advertisers continuing to allocate increased spending to our broadcast and digital platforms at the threat resolved.
Turning back to some second quarter highlights total television advertising revenue increased 18.1% to 319.8 million, including political revenue of 21.6 million in core advertising revenue of 298.2 million.
While local and national advertisers adapted their media plans during the second quarter, we saw sequential month over month improvement in our same station core advertising revenue performance from April to May from May to June and this trend continuing in July.
Standing marketplace challenges Nexstars local sales initiatives continued to generate healthy levels of new business with second quarter, New television AD revenue rising on both a quarterly sequential and year over year basis in total our sales teams generated $20.7 million of second quarter, new to television revenue marketing, 11.3% rise.
Over the first quarter and afford a half percent rise over the comparable 2019 period.
I mentioned at the outset of our call our new business strategies ongoing sales training education and deployment of performance focused initiatives combined with our sharing of best practices have proven very effective and our ability to capture AD spend share in both broadcast and digital locally.
We reported healthy levels of Q2 spending by political action committees and from candidates with 2022nd quarter political revenue of 21.6 million exceeding our expectations from early in the quarter. Despite the cancellation of some primaries. Both presidential campaigns recently generated record levels of fund, raising which bodes well for our upcoming political red.
The new trajectory as such our full year 2020 expectation for net political revenue in the low 400 million range remains unchanged.
Distribution agreement renewals and the inclusion of WGN America resulted in a 21% I'm sorry, if 71% rise in second quarter distribution revenue to 536.5 million, representing nearly 59% of total net revenue.
Second quarter 2020, total digital revenue declined by approximately $9.6 million or 17%, reflecting our focus on higher margin profitable operations.
Digital profitability was up substantially over the comparable comparable prior year period, as our website and mobile App engagement also rose significantly.
Total combined second quarter digital and distribution fee revenue of $583.2 million rose approximately 57.1% over the prior year period, right, 64% quarterly revenues up from 57% in a year ago period year over year increase in second quarter distribution revenue reflects the new agreements reached in the second half.
From 2019 at a realization of Tribune media revenue revenue synergies related to the after acquired clauses in our retransmission consent contracts and as noted the inclusion of WGN America.
Our expectations for net Retrans growth remain unchanged for the balance of the year in the mid teens percentage range, reflecting new long term network affiliation agreements with CBS Fox and NBC completed in the second half of 2019 and as a result over 80% of our big four affiliations are contracted through December 31 of 2021 and over 70% of a big.
For affiliations are contracted through December 31 of 2022.
With our successful 2019 renewal at retransmission consent agreements, representing approximately 70% of our subscriber base with approximately 17% of the base to be renewed. This year are significant net retrans revenue growth in 2020 will complement the strong political growth and spending that we're seeing taken together the affiliation renewals, which also include OTI.
Agreements, our new Retrans contracts and sub levels that remain in line with our forecast, we have pretty clear visibility for net retrans revenue growth expectations in 2020 and beyond.
As we discussed on last call at the onset of the pandemic, we took immediate action to adapt our business to address the economic impact on the use of U.S. commercial advertising market.
We implemented a range of cost cutting initiatives, which resulted in operating in corporate expense savings in excess of $40 million from budgeted second quarter levels.
Looking ahead to third quarter, while the pandemic continues to impact commercial advertising, we're seeing the same pattern of month over month improvement in our pacing data and expect to benefit from significantly increased levels of political AD spending and in fact, our July political billing exceeded that of all of Q2.
Overall, we're encouraged by continuing signs of recovery across our station footprint and by key economic indicators, including employment data in consumer spending at present, we're constantly cautiously optimistic about the return of live sports as like news and sports programming continues to generate the strongest left strongest levels and viewership across our all demographics.
Yeah.
Additionally, preparations for the September one launch of WGN America as Prime time National New cast news nation, which will reach approximately 75 million households across the country are proceeding on schedule and on budget. We're in rehearsals now in my first impressions of the product are very positive.
News national their daily from ATM to 11, P.M. eat T. and will draw on the local regional and national expertise of Nexstars, 5400, journalists and I didn't and local news rooms across the country and during the quarter, we announced the anchor teams and correspondents for like three hour primetime national newscasts were already attracting strong interest from leading.
National advertisers at much higher than normal cost per points for WGN America.
Broadcast with liver news reporting that as fact based impactful and unbiased and we're confident that there are more americans than ever before we're seeking just that.
In addition to the like nightly news gas news nations team of reporters and producers will deliver news 24 hours a day online through news nation soon to be launched AP News nation, now, which will create another opportunity for monetization and revenue diversification.
As always we remain committed to generating free cash flow actively manage our capital structure, our cost of capital and our liquidity position to provide the financial flexibility to support our business and enhance shareholder returns as we emerged from the pandemic during our first half of 2020, we allocated approximately 594 million in.
Patients and investments towards debt reduction opportunistic share repurchases and cash dividends.
Additionally, as I mentioned before Nexstar continues to maintain a strong balance sheet, including 665 million in cash on hand at June 30, with access to additional 140 million under our revolving credit facility on the return of capital front in late June we declared our third quarterly cash dividend at a the new 56 cents per share level, which was 24%.
Ahead of last year's payout.
With our 191% year to date free cash flow growth, our contractual distribution fee revenues, our food network distributions.
Historically, low LIBOR rates, which have reduced our interest expense and what is projected to be the biggest presidential election cycle in the company's history, we remain confident in our positioning to be free cash flow positive in every quarter 2020, and we continue to expect Nexstars net leverage declined to approximately four times by year end.
In summary, while the pandemic has presented challenges for most every industry nexstars, leading local platforms are well positioned to continue building the topline maintaining close control of fixed and variable cost and optimizing the balance sheet overtime or disciplines. In these areas have strengthened the resiliency of our business in our business model and created an unrivaled.
Local marketing platform, while supporting increasing growing and growing returns for our shareholders.
With that said, let me turn the call over to Tom Carter for our financial review and update Tom.
Thanks, Perry and good morning, everybody has outlined in this mornings press release, the actual results for the three and six months ended June 32020.
The company's legacy Nexstar operations.
Andrew results from Tribune media stations, which were acquired on September 19 2019.
Second quarter 2020 revenue from WGN America also acquired in the Caribbean transaction is included in core television advertising revenue and distribution fee revenue.
Contribution from Nexstars, 31.3% ownership stake in television food network and other investments acquired in the true Caribbean transaction is included in the full income statement under income or loss on equity investments net and then the cash flow statement under distributions from equity investments.
Comparable three and six month period ended June 32019 reflects legacy Nexstar operations during that period.
All actual results also reflect the impact of onetime transaction expenses incurred in the quarters, both in the quarters and the six month period, ending June 30, 2020, and June 30 2019.
With that I'll start with a review of Nexstars Q2 income statement, a balance sheet that after which I'll provide an update on our capital structure at some points of guidance.
On a combined company basis and pro forma for the divested station second quarter same station net total revenue was down 6% due to a decline in same station core advertising revenue of approximately 35%.
Reflecting a sharp decline in April due to the pandemic and subsequent month over month improvement from April to May from May to June same station distribution fee revenue was up 28% and continuing digital revenues were down 18.2%, reflecting local agents.
Services revenue growth of approximately 8% while station website revenue was down approximately 30% due to softer local local customer buying trends related to the pandemic.
To offset the anticipated impact of Cowen 19 on commercial advertising revenue late in the first quarter Nexstar implemented a range of cost cutting initiatives, which resulted in operating at corporate expense savings in excess of $40 million from budgeted levels and the second quarter of 2020.
Second quarter station direct operating expenses net of trade expense were approximately 414 billion up from 292 million in the prior year, primarily reflecting the full quarter of incremental expenses associated with the Tribune operations and the budgeted growth in network affiliation expense as a partial offset to a rising distribution revenue.
Second quarter station asked you today was approximately 158 million inclusive of a tribute operations.
Same station pro forma fixed expenses, excluding programming expenses were down 18% over the year over year period due to synergies related from a Tribune acquisition and the previously pension expense reduction activities in response to the pandemic.
Corporate expenses were 35 million inclusive of 13 million or stock based comp at approximately 5.4 million a onetime transaction expenses, when excluding noncash comp and onetime transaction expenses recurring corporate expenses were approximately 17 million, which came in better than the guidance. We had provided in the first.
Quarter call I've, approximately 21.5 million by the end of April the vast majority of the initial operating synergies of the transit Tribune transaction have been realized.
Second quarter operating cash taxes were approximately $6 million substantially lower than our guidance or 45 to 15 million due to a timing difference.
That 40 to 40 to 45 million dollar variance will now be paid in Q3 ongoing capex and transaction Capex totaled $40 million spectrum Repack Capex totaled 13 million had received approximately 26 million of reimbursements from the FCC during the quarter as a reminder.
Anticipate being fully reimbursed for all spectrum related capex over the course of the year.
Second quarter total interest expense amounted to 82 million up from 51 million in the same period in 2019, while cash interest expense was 78 million compared to 49 billion last year with increases due to obviously the increase that's associated with the Tribune funding, partially offset by lower interest rates.
Second quarter broadcast cash flow of 291 million as well as adjusted EBITDA 298 million and free cash flow of 200 million all pre transaction expenses.
I see the consensus expectations and primarily reflect the realization of synergies and growth related to the Tribune transaction distribution free of distribution agreement renewals executed in the second half of the year and the deferred tax cash taxes as I mentioned before.
Adjusted EBITDA and free cash flow rep.
Reflect approximately $27 million and distributions from equity investments related to our 31% ownership in the TV food network. As a reminder, we receive cash distributions from TV food on a quarterly basis with the largest payment recorded during the first quarter of each year for the third quarter of 2020, we anticipate Rick.
Adding approximately $12 million in TV food network distribution.
We expect cost savings in Q3, two approximately $25 million.
Relative to the originally budgeted levels as variable cost and discretionary expenditures are prudently bought brought back online with the expected strengthening of the economy and the broadcasting advertising environment.
Third quarter, we project recurring cash corporate overhead exclusive of stock comp and transactions cost to be approximately $23 million and we will easily meet our run rate cash corporate overhead guidance of approximately $120 billion for the entire year.
[laughter] noncash comp is projected to be approximately $13 million for the quarter and $48 million for the full year transaction expenses, while approximately $3 million for the quarter. It will decline for the remainder part of the year.
Third quarter operating cash taxes are now estimated to be approximately $150 million and operating cash taxes for the entire year walk now come in at approximately $250 million and total.
Non operating cash taxes associated with the gains on the asset sales and legal settlements in Q3 will be approximately 83 million.
Third quarter Capex should tell me that approximately 40 million and we're still expecting approximately $160 million for the entire year, we're proceeding on budget with our investment related to the launch of WGN America is prime time National newscast News nation on September Onest at prioritize capital expenditures to me to maintain maximum flexibility.
In the current environment, meaning the timing of certain capex can be delayed until.
Later quarters if required.
Finally, we expect Nexstars cash interest expense to approximately 78 million for the third quarter and $325 million to $350 million for the full year, reflecting interest expense savings related to the decline in LIBOR rates.
Turning to the balance sheet Nexstars outstanding debt at June 30 was approximately $8 billion and consisted of 5.4 billion of term loans and two series of senior subordinated notes one at approximately $900 million and the other at $1.8 billion with maturities of 2024 in 2000.
27, respectively.
Total net that approximated 7.4 billion at June 30, compared to 7.6 billion at March 31st and 8.3 billion. At 12, 31 2019 net debt for first lien Covenant purposes is 5.2 billion with net debt net cash limited to a 200 million dollar amount.
Our first lien covenant ratio at June Thirtyth was approximately 3.11 compared to 3.52 at year end, which is well below our first lien covenant of four to quarter. As a reminder, our first lien covenant limits cash netting approximately 200 million.
Our total net leverage at quarter end with 4.47 compared to 5.18 at year end and as a reminder, nexstars only covenant is our first lien.
Debt Covenant, which is the aforementioned Florida quarter.
At the onset of a pandemic nexstar took immediate actions to adopt our business to the and current environment to preserve liquidity in order to best position. The company for a long term success as we returned to normalized operations. In this regard we continue to prioritize cash retention and asset added approximately 231 billion to our first quarter cash position.
For a total cash balances 665 million at June Thirtyth with an additional $140 million available under our revolving credit facility at the same time during the second quarter, we returned approximately $25 million to shareholders through the quarterly cash dividend and may $13 million in payments on our debt.
During the first half a 2020, we have actively managed our capital stock structure cost of capital and liquidity position to support our business in this challenging environment.
While enhancing shareholder returns year to date, we have allocated approximately 594 million towards shareholder value, creating initiatives, including $473 million in debt reduction $51 million in dividend payments and $73 million and share repurchase.
In the near time, while preliminary data suggests ongoing sequential improvement in economic trends and the commercial advertising environment. We continue to focus on cash preservation in order to optimize our financial flexibility as we move through the third quarter.
Looking ahead with continued double digit year over year growth and distribution revenue and what are expected to be robust spending levels related the upcoming presidential election, which we do not expect to be materially impacted by the Corona virus, we have excellent visibility got over 50% of our annual revenue in 2020 as such we expect to be free crash.
Flow positive in the third and fourth quarters. In addition to continuing our dividend payments, we remain committed to allocating the vast majority of our free cash flow towards leverage reduction and confident in reaching our target level for the reduced level of total net leverage to four times by year end 2020, Nexstar has already made.
Significant progress on our leverage reduction plan and we enjoy strong cash position with additional capacity under our revolver. In addition, the reduction in interest rate expense.
It is the favorable LIBOR rates operating expense savings at our capital allocation prioritization will also serve us well in the second half of 2020 as a result were confident at our liquidity position and ability to service our debt through these challenging times and do not anticipate liquidity or covenant issues as we move through the year.
In summary, despite the unprecedented challenge of the pandemic our scale leadership flexibility synergy realization in operation plans are generating results. Our capital structure is in great shape from a cost of capital maturity and ability to quickly address leverage in addition, our service to our local communities and local and national.
Advertisers has never been stronger our disciplines in these areas have driven significant growth as well as consistency and visibility to our results and we remain confident that our ability to enhance shareholder value in the near term and on the other side of the pandemic that concludes the financial review for the call I'll now turn it over back to Perry for some close.
Thing remarks, before Q1 day.
Thanks, very much Tom in summary, I hope that our comments today reinforces the fact that we remain confident in the strength and the resilience of Nexstars scaled and diversified business model Nexstars, leading local platform is well positioned to withstand this environment due to several factors, including our differentiated broadcast and digital sales.
Programs continued growth of our distribution revenue stream and what are projected to be record levels of political spending here in 2020.
In terms of capital allocation, we believed that our free cash flow combined with the active management of both our cost structure in our balance sheet will provide us with financial flexibility to continue supporting our shareholder value creation initiatives. As a result, nexstar is well positioned to fully participate in the recovery and we remain highly confident in our core strategies and.
In terms of serving the communities, where we have operations in building the topline maintaining close control of fixed and variable costs and optimizing the balance sheet.
Focus combined with our time proven operating strategies is enabling nexstar to overcome the near term challenges and extend our long term record of growth and shareholder value creation.
We look forward very much to catching up with you with another positive report just after election day and on behalf of the entire Nexstar nation, Our board and our management team. Thank you for your continued interest support and for joining US today. So now let's open the call to accumulate to address your specific areas of interest operator.
Yes. Thank you know and asking question. Please stand by pressing star one on your cellphone Keith.
Hearing anything else Speakerphone. Please make sure your mute function that turned out to a liar signal to reach our equipment.
Again star one if he would like to ask a question.
And well take our first question from John Kennedy with Wolfe Research.
Thank you.
One is you talked about local news.
What do you see in terms of advertiser demand growth in news.
The Dayparts given the ratings you said you spoke to and then I guess the sub levels in line with expectations is that read through that Theres been no noticeable impact from the 10 Demichele.
Call given the light.
Well as as it relates to local news through the first six months of this year, 51% of our total advertising revenue came from local news and that's up over the prior years.
A cumulative totals which indicates obviously advertisers are putting their money.
In into that product and increasing ER with increasing frequency.
Obviously, the the demand is where the audiences and thats, where the audiences for US right now and so we do see continued read through and we're hopeful that the audience gains at least some of them will be sticky when you know when I hate to use this term when when the new normal settles in is to whatever that is but so far through.
This normal people in all age groups are tuned into our local news broadcast in increasing numbers.
I will say that I mean, obviously, a mbps it reported sub counts in attrition for the quarter those are factored into.
Into our projections and analyses and ER and our Retrans revenue is again, we forecast attrition into our budgeting process and and we are we are at budget on Retrans revenue in our projections through through the end of this year. So we've seen no significant decline beyond what we had forecasted so.
Well, we think it's business as usual from a distribution revenue standpoint.
Thanks very much.
Our next question will come from Stephen call Huh with Wells Fargo.
Thanks, I'm wondering if you could talk a little bit about your reverse compensation agreements as said declines are accelerating I was wondering if that's changing the tone of those at all and also does that make you think about moving from like a per sub basis.
Sorry to a per sub basis from a six programming fee, where you can and related Lee we have more broadcast content going direct consumer like CBS, all access and Peacock. So how do you think about monetizing those households that may not be subscribing through the traditional process.
Sure.
I would say you know the current relationships with the networks, our mix of fixed fee and and Ah.
Percentages of distribution revenues. So there are some that that are fungible and others that are not and those conversations are continuing what's in the best interest of both parties to get a deal done. So there is some some hedge there at this point and where do you know, we're not ready to call the ball as to what the the most preferable up.
Preferable term is there based on our negotiating ability.
As it relates to CBS all access a we participate in that were paid to be a part of that service and our local stream as a part of that offerings.
Peacock we're not.
Affiliate, a local news affiliate streams are not yet a part of that broadcast.
Offering and we're not sure if at any point they will be but we do have this thing called over the air which we reach.
A much larger universe potentially than the wired and pay cable universe already work in a 16% of our viewers already use that as their as their reception device without the eight of a pay wall and that's available to us to those who want to a quote stream us that way if you will and the.
Good news about that is there a far fewer competitors for eyeballs in a in an over the year world than there are in a 500 plus cable or satellite universe. So again we.
We are in flux, we have a lot of our agreements nailed down through 21 and 22, we do have some it will be up.
End of this year in early next year, and Thats, where those conversations will will center around what's the best type of agreement a fourq for both companies to enter into.
Great and then just one on political four years ago, we kind of got to head fake at the last minute from the Trump campaign in terms of not spending what was expected.
I don't think any of us expect that to happen. This time, but when do you feel comfortable that theres not going to be any negative surprises on the political spending side.
Oh, I'm pretty comfortable and that right now I mean look at the amount of money that both camps are raised that the attendant packs and special interest groups have raised supporting those candidates as well as down down ballot candidates. You know there are no guarantees in this business, but as close as a guarantee is I'll make use there'll be no negative surprise on political advertising.
That's a pretty good guarantee thank you.
Well now take our next question from Zack Silver with B. Riley.
Okay, great. Thanks for asking the question. The first one is just if you can quantify the sequential improvement for core in July versus.
Total Twoq, you 20, or even the pro forma year over year change so far in July and then more broadly I think it a little bit related to Stephen's question. There at about there has been at the macro environment in growth and streaming is going to accelerate the shift of AD dollars from linear TV to connected TV and screaming I can you talk about how well positioned yard.
To address that if that narrative does turn out to play out.
I'll, let you address how linear you want to get on guidance. Obviously, we saw substantial sequential improvement in core AD trends in July versus not only June but the entire quarter.
Tom I don't know if you went adding more details to that but I'll, let you speak to that.
Sure well I think.
What I'll say about July is obviously July was substantially better than the second quarter as a whole in July was better than the last month of the second quarter. So sequentially things have gotten better and that trend continues into early Q3.
Got it as it relates to.
Additional streaming services you know there at some point there becomes kind of a same this to them and you.
You know its all about the content. If you have the content that people want they will find a way to consume you whether that's over the year or whether that's through a pay service or through a streaming service that were paid to be on and without our services you have an inferior offering to the viewing public it is obvious.
We demonstrated that local news is a product that people want and are willing to pay for and so I think we'll just stand by that you know, it's that's a lot less noisy at the operating level than it is perhaps at the investor level about these streaming services is it a fragmenting universe, but are they just taking from a from a wire.
From a from a a a traditional paytv universe into a virtual paytv universe, and if so and we're on both sides of that transaction. It's not a you know it's not nearly the the noise that are that it appears to be in the investment community. So we're somewhat sanguine about it you know where we have a product that people want.
We're the largest producer of it in the country, it's called local news and.
And we believe that product will stand the test at the time as it has for the last 40 years test uptime.
Yes, I think that makes sense and one more if I could that does the I guess for Tom does a target leverage ratio for this year contemplate any.
Any buybacks in the second half and can you remind us where we are in resuming.
Repurchase program. Thanks.
Doug.
Say, how much of it is allocated to stock repurchases.
We think we Havent authorization left.
From the board, we're currently not buying stock.
But I would anticipate that too.
At revisited here in the not too distant future why we think about it is really starting on labor day and quite honestly, that's probably not doing service to the fact that as Perry mentioned July political revenue was very strong and we think August will be as well we're rapidly transitioning out of.
This being a story.
During the pandemic just about.
Core advertising revenue like what's happening there the other leg two legs to the stool from our perspective.
Distribution revenue has been strong continues to be strong as Perry mentioned were on budget for the year were on budget for the second we Rod we were actually above budget for the second quarter, where on budget for the third quarter with regard to retransmission revenues and then the third leg of the stool is political and that's really going that handle.
Has got to get lit.
Here right around Labor day, and run really hard for the two months of September October and the first week of November so the free cash flow with a company well continue to.
Go along nicely and then get turbo charged by free cash flow from political beginning around labor day as I've said to other people I fully expect our our capital allocation attitude to change from playing defense playing offense sometime or at around Labor day.
Hey, we're not there yet, but I can see there from here and when that happens that I would imagine we wouldn't sit here with an unnatural $600 million attach on our balance sheet, we deploy that by actually repaying debt and looking at stock repurchases, but that's a.
Multi variable equation tell me what the stock is around that time and I'll tell you what our appetite is.
Right is that responsive yes. That's helpful. Thank you both.
I just want to add to Toms comment about political you most folks woke up this morning reading about the bidens by that he's placing starting in September.
In a 15 states what we operate a substantial operations in 12 of those 15 stage. So.
Just to point out that political will reach a crescendo around labor day that will continue on through the first week of November and ER and again with July results being above all of second quarter for political.
That's a pretty good pretty good measure I think of whats yet to come in so we remain confident in our political guidance and as that story continues to improve then I think you'll see a tom exercise more optionality around our cash forward that currently exist on the balance sheet.
Got it thanks guys.
Well now take our next question from Aaron Watts with Deutsche Bank.
Hi, guys. Thanks for having the on.
Couple questions on the AD environment I guess first.
Theres been some fits and starts in terms of koby cases.
In pockets of the country what.
And your markets that have been affected by that.
And I guess on a related note in terms of categories, just given the importance of the auto category.
Anything you can give us in terms of how that rebound is shaping up and what you're expecting from auto in the next couple of months.
Yeah Auto has rebounded you know, we're seeing better or better pacing and better results in Q3 than we did in Q2 when dealers were shut down.
We're seeing certain of the Oems move money around from market to market based on where they have cars and that's primarily of affected some of the foreign nameplates, but on the whole I think the our expectations for auto are that it will be less down sequentially going forward as well most of core advertising.
As it related to.
Covert I didn't know if you meant how it affected the company or what were seeing in our markets.
[music].
But I can give you a little color on both Oh, we have had 145.
Confirmed cases in the company.
Since the beginning of the pandemic.
Remarkably out of a workforce of about 13000 that that you know people that are out in the community.
We've only had one hospitalization and that person is fully recovered about 60% of our employees are working from the facility to which there was signed we have another 20% that are reporting to work, but not necessarily in the facility reporters meeting their crews in the field to go to their first assignment and thing.
And that sort and we have another 20% that are that are are working remotely and.
With our board that everybody into peak is reporting to work. However, nobody is populating or New York offices, because of the public transportation requirements and they don't feel safe and there's certainly no mandate to do that and so thats kind of a proxy for the country. You know, we keep tabs by every market as to.
Various stages of reopening I would say that all of our markets have some degree of reopening some more than others there've been some pauses in California, and Texas and others on on further reopening.
Areas had been rolled back bars, and restaurants are not necessarily big advertising categories with us to begin with hospitality continues to be.
A category, where we see no spend to speak of.
There is some intrastate tourism ads that are going on like if you're in Texas come to Arkansas and vice versa in Oklahoma.
We're seeing some of that but hospitality for us is a sub 2% category that you know is not materially driving our topline so.
And I don't know if that's the kind of a flavor you were looking for but I'm happy to answer any more specific follow up.
No.
Okay.
One last one from me and I appreciate the time again.
You spoke to the important local news and the AD revenues that come in attached to that to the overall revenue pie.
If we're thinking about the potential that maybe NFL football delayed or college football doesn't happen in the fall.
Do we think about the flow through.
That potential and what it could mean to your revenue pie.
Sure well I'm glad you asked that it's interesting at the local station level, which is where we live all sports comprises about 10% of our advertising revenue and of that the NFL comprises about 60% of that 10%. So let's just in real round up.
Over say the AD revenues support is half of our revenue and NFL is 6% of 10% of that so we're talking about three points of revenue. So from an advertising perspective, because of the limited available at the local stations get in all of local sports or all of televised sports that's not.
Local.
It's it's not that big of a contributor but obviously it has an outsized.
Effect on viewership on promotional ability and I would say on the national psyche on People's morale, obviously distributors are very interested in live sports because they know live sports in live news drive viewership, but from a pure financial advertising point of view, it's a it's not all that material to our.
Our top or bottom line.
Okay perfect that's exactly what I was looking for stay well guys.
Thank you.
Our next question will be from Brian Twist Deutsche Bank.
Two questions.
First wondering if you could give us some color on what you're seeing in terms of subscriber declines in your markets.
I'm curious how they compare to the overall industry.
And any color on advertising and distributor reception to news nation and any expectations for when you might see some incremental revenue lift from these nation. Thanks.
Okay.
Obama Larry I'll go ahead.
Scriber and then I'll talk about Gn how's that.
Sure.
I would say are.
Experienced with subscribers is not materially different than that of the.
The M. Btds, obviously, we are still getting an uplift.
From the virtual MPPD, so that they they traditionally bpd subscriber loss is somewhat recoup, but certainly not all recouped bye.
By the the virtual MVP days and as Perry mentioned, obviously, we factor in in our budgeting process and then our guidance process.
And attrition rate for subscribers and a a unit rate for our for our revenue and as we mentioned that was basically in line for the second quarter and early returns for the third quarter are consistent with that.
Expectation, so not getting into specifics subscriber decline numbers et cetera, I would say that.
We we see and feel the same thing that the.
The distributors do.
It's just that are our economics are a little bit different because we've got.
Right that helps us offset that.
But it's consistent with our expectations.
As it relates to WGN America, we have had and Dana Zimmer and her team had been out presenting WGN America to every MVP D.
Which we already do business and also those that do not carry WGN.
WGN America, and that's primarily in legacy Nexstar markets.
And we have an opportunity with renewals between now and the ended the year for an incremental approximately 200 to 250000 subs that could add WGN America and these are smaller systems again, where nexstar has it relationship but there was no tribune relationship that would have included WGN America. So there is upside there.
And I would say that the reception from distributors has been positive, particularly from those who have.
Existing contracts and realize theres going to be additional value add for no additional cost during the term of the current agreement.
We are distributed on 18 T. now.
As the only virtual MB PD system as service that is offering WGN America, we are efforting too to get distribution.
At the launch or shortly thereafter on other otcs surfaces and that will be value add were WGN America is not currently distributed but the reception from both the advertising community in the distribution beauty has been positive because we're investing in a product that will add value to their businesses as well.
Great. Thanks, Thanks, Barry Thanks, Tom.
Well take our next question from Dan Kurnos with benchmark.
Thanks, Good morning, Slim Pickings left here after the strong print and all the questions, but I guess I'll ask you one follow up to the prior Perry I don't know if you're willing to sort of.
Good color on sub carriage incremental opportunity is there any way for us to think about sort of timing, how you're thinking about.
The news nation impact itself relisted to either advertising or I.
I guess ancillary would that your comment on carrier, we know it's going to be self funding, obviously as plans to kind of expand it. So just any help kind of framing your thoughts on sort of the magnitude of that opportunity and then separately. Obviously, there's been a lot of noise lately in the digital World Facebook Twitter.
Add boycotts all of that fun stuff you guys are the largest you guys a pretty big network effect in a pretty strong digital portfolio ourselves is there any accrued benefits you guys or do you think that stays mostly in the digital bucket. Thanks.
I'll speak first to WGN America. The Oh, we have a I'm very impressed with the job that they wrote a minute sales team have done in assembling a.
Advertisers for further Premier Premier week of WGN America is news nation Blue Chip names and an egg cost per points that are.
In excess of I'm, sorry, I should say cost for thousands.
That are in excess of 50% greater than what a standard programming we're generating alone.
So that's a very positive initial indication, we're trying to rework some of the existing buys into.
The news nation primetime offering and.
And so what we could really uses it went up front or a fourth quarter scatter market to break but all of that said, we do anticipate an incremental let's call it low.
Eight figure or revenue contribution to WG ends AD revenue in the four months of the of the end of this year.
And again, given the size and scope of the operation that wouldn't be deemed to be material, but we do even in these conditions expect.
Although a low eight figure uplift in gross revenue, there and ER and distribution that will mostly comment the ended the year. So will impact 2021 more than this year. There have been some incremental deals done already that will launch WGN America.
We now in the end of the year, but I would say the vast majority of that impact would be felt in a in a in 2021 and again, you're talking a potential uplift of you know a quarter million subscribers on a you know.
Nielsen reported I think 75 million subscriber base, so even that is incremental but it's been it's all incremental and that's what we're going to do is driving incremental growth out of the assets that we own.
And then the thoughts on either Facebook Twitter as it relates to core political on this that stays in the digital bucket or if you could pick some of that up.
Yeah listen I think the most direct a transfer could be in political if people you know if certain platforms are refusing those ads that money has to go somewhere and you know without conventions to fund and without rallies to fund the one way to reach people is through broadcast television I think we're seeing an evidence of that right now.
So I think that would be probably the direct transfer unit with all the boy Scouts and all of that I don't think you've seen a substantial a decline in a in digital revenue performance on those platforms.
So at this point the damages more reputation within financial and we'll see you know how deep the government the wants to get involved and taking a look in protection potentially regulating these companies more symmetrically with the way we are regulated but at this point I think the financial transfer.
Outside of political up to the best of our knowledge is minimal.
Got it Super helpful. Thanks to the color in the next quarter.
Yes.
Our next question will come from Craig.
Search partners.
Yes. Good morning, Thank you.
Few questions.
Last quarterly conference call I believe you guys said.
Retrans subs were down 4.5% year over year.
As you guys May know Sinclair on their coal right before your said this second quarter subs were down about 7%.
Cleaner than it is in the first we'll side should I assume that you guys were down roughly about 7% for the second quarter for yourselves at reasonable slightly worse than the for donor.
No.
So I assume it so it's a little bit better than that then can you just help me understand.
I would say, it's more consistent with the second quarter.
The second quarter, So you need more consistent with the first quarter down four four and a half.
Oh, I'm, sorry, with with with what we announced the first quarter, you're right first quarter.
No I wouldn't say it's down for it.
Greg I'm not going to get the exact number I've already said that it's not down seven but it's closer to the previous quarter's results.
Okay appreciate that.
Can you help us.
TV advertising pacings for the month of August, which you say that those are tracking better the rated to clean their core advertising. So that is tracking better than what you are what July turn up today.
I think it's a little we have very.
A few days in August here I'm thinking it's a little.
Too early to be making any comments with regard to that.
Okay can you help us and maybe just I'm trying to understand.
Then what your.
Budgeting or thinking that the rate of decline for you to core advertising could be down.
In the third quarter.
You can maybe that's why we're not that's why we're not giving guidance right.
I, it's going to be Dallas with July how much July was down if you would.
Well I think I told you it was down less again, I'm not going to give specific numbers.
But July was down less than June and June was obviously, if it's just math if the entire quarter was down 35% and every quarter every month within the second quarter got better then clearly June was down less than 35%.
And July was down less than June.
That's kind of the extent of the forward looking guidance that we're going to give as it relates to specific advertising revenue.
Okay.
Maybe let me ask another question then in this on this virus situations going out there.
In the states with the virus cases have gotten dramatically worse here in the last several weeks. If you guys seen a material change in the core TV advertising.
In those markets as if any significant change there you can talk talk about.
No and again.
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Cases in Texas have gone I mean, you have to we don't operate just in one one area that you're in that you might be hearing that news from right. So you've got to look across 114 markets and look at those states and you know.
Cases might be reported to be up 30%, which could be 100 cases in it in a state I mean, you've got to put all of these numbers into context, but I would say no. The evidence is in you know in our results in July and are pacing in August and are pacing in September all substantially better than where we exited second quarter and then we performed in SEC.
In quarter so.
Proof is in the numbers as Tom says, it's just math, but you know we have not seen any and I think I. Just said. This you know hospitality continues to be down autos, improving we don't get a lot of money from restaurants, unless it's QSR and their Macon mill through their drive through so.
Things are we're seeing steadily steady improvements and even work.
You know pausing and opening is better than not being opened at all and that's that's kind of our worst case scenario when some of our markets in and others.
We don't have that you know this morning, we're dealing with the aftermath of storms up the east coast from the Carolinas into Virginia, and up into a Pennsylvania, New York and flooding in those kinds of things and those are going to be more temporary disruptors two businesses until they can reopen than than the pandemic and so its situational and we deal in 38.
It's across the country and you've got to add it all together, but theres you know.
Nothing other than business as usual is the way we deal with things and I think the results speak for themselves.
Last question guys on the cost front, you guys talked a pro forma cost the second quarter down 18% can you give us a little bit more to how we should we think about your cost trends for the third quarter. I know you give a figure there versus your budget for the third quarter somewhere one.
Second quarter, but just what sort of costs. If you could just help us little bit think about that may not repeat the cost savings a third quarter you benefit from in the second thank you.
I really don't understand the question other than the fact, obviously we had.
Guided to $40 million and cost takeouts in the second quarter.
We believe which we over performed on that same number for the third quarter is 25 million as we obviously some of those are variable costs as advertising starts to return those costs go up.
Some of our discretionary that we will add back again, we will travel more in the third quarter than we did in the second quarter. We basically couldn't have traveled any less in the second quarter than we did so some of the discretionary costs will get added back in.
But that will be more than offset by higher.
Higher advertising revenues in the second quarter, but specifically as it relates to.
If you're looking year over year, the majority of the synergies taken out of the Tribune transaction have occurred so that won't change materially sequentially Q2, Q3 over Q2, and you'll have some added expense coming back in but thats. The ex the extent of some of the.
The pushes and pulls on expenses.
Yes, well. Thank you appreciate that guys.
Well now Scott next question, John Kornreich Smith JK media.
I Hope you can hear me having that.
Like people from that.
Two quickies.
Tom I think the 24 bonds were callable two days ago.
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That.
Likely to be called.
Well again, John I think it that's consistent with our message that and the next 30 to 45 days I think we will have a better.
Feel on actual political revenue coming in Labor day, and obviously same with another month of core and we'll be able to start making.
More aggressive decisions with regard to capital allocation in that you know obviously in the last.
<unk> hundred 20 days and probably the next 30 days were still going to continue to take a pretty conservative.
View on that but hopefully be able to flip the switch and become a little bit more aggressive in the in the near term.
Secondly, the.
Correctly that they're on track mid teens reprint net retrans growth.
This year.
You mentioned that the growth the gross retrans.
Is that high Twentys pro forma.
That correctly.
Wendy's net mid teens.
So far this year are our retrans revenue growth has exceeded 20%, but that is correct, we haven't budget or mid teens.
Yes, well 28 in the second quarter I forget what exactly the first quarter is we budgeted for mid teens growth and net retrans for the entire year, but so far we have exceeded that.
Okay. So net net retrans margins are down.
More than a little bit this year is that correct no I would say that they're actually.
A little bit because we're we've included a fair amount of Tribune subscribers that are not big four affiliates, where our net retrans margin is substantially in excess of 50%.
Got it thank you very much.
Well now take our next question from Jim Goss with Barrington Research.
Thanks.
During the early days of the pandemic, a there seems to be a surgeon or a pretty good increase at least in usage and even sampling them.
Broadcast and other video.
The categories that Didnt take.
It doesn't tend to.
Cynical requested.
Well I could have sort of flat can you address.
Again.
Not sure what happened there.
So, but I was wondering if any of that has proven sustainable as well.
Mike.
If you would like to cancel this request Keith Press Star Zero again.
I'm, sorry, I haven't heard.
Go ahead, Jim I think somebody is trying to either record or exit the call.
Okay, sorry, but anyway I was wondering if any of the increased usage and the.
Sampling has proven sustainable or isn't has it mostly dissipated did any of that play a role in your retrans negotiations during that period.
We had precious few retrans.
Negotiations are done in the first half of the year, we had one top 10 a that were.
We're pleased with the results on I would say my in my comments earlier I didn't report that are.
Our viewership and I highlighted the 18 to 34 demographic, obviously was up in April 151%, 83% in May and 89% in June over the prior year.
Our digital page views, which were in excess of 2.3 billion for the quarter were 1.1 billion in April that was up 133% and then in the month of June just by comparison, our local web sites were up 60% compared to the prior year. So.
There is there is some covert fatigue I think but I also think there is increased interest in local news and we consider ourselves to be the last bastion of local news with the Dominion waste of newspaper in radio local coverage and content. So we do think.
That there is sticking his to this you know the long tail will determine how much but but people continue to turn to our newscast and record numbers and it's amazing.
80 away in Los Angeles, and WGN in Chicago independent stations by and large, but producing copious amounts of local news our ranking number one in all dayparts, beating all of the network our windows in virtually every newscast and that just speaks to the power of localism that you're not dependent on network.
Lead in or lead out to what to generate your audience, you're doing it on your own and a and were particularly gratified by by that kind of execution producing those kinds of results.
Okay and.
One last thing of the I was wondering about the promotion efforts to create visibility for.
News nation as that is.
Turning to the floor and also it seems like.
CNN tended to fill a similar similar role to that which you're targeting where the tended to be unbiased to make a slow list. So these days and it.
Darren in that area. It would tend to these a place to go and something.
And events occur but.
As some of the other news Mark plan to newscasts.
Politically would sort of gather the their base.
In more normal times and I'm wondering if there's a way for you to position yourself too.
Sorry, together at least that role and maybe.
Maybe something more sustainable and if this proves successful do you think your broaden that beyond the three our original timeframe.
Well, thanks, Jim as if Theres a lot of near to unpack out I'll try and do my best with it here.
Obviously that is how CNN started I don't think anyone listening to this call think CNN is in that same place today from an unbiased political lean.
We as as I've said before we have a staff of rhetoricians at two full time staff, the do nothing but checked scripts and reporting for.
I'm conscious bias and bias in our writing and we've had very spirited discussions about that even in the reversals you know.
We are we do think we will be that place to go for news that doesn't make a 22 minute news hole in a network evening news broadcast or much news on the opinion based.
Talk networks.
For example, last night, our reversals, we did a story on the first women police chief in Colorado Springs, and that's not a store you'd see everyplace else, but again, we've got our we've got the country divided up into six zones, and we have zone producers and their their job is to know exactly what's going on in those zones in all of those news.
Rooms, and what might be of interest to a national audience. In addition to the 150 people. We've hired in Chicago correspondence that are also based in Miami, New York, Dallas, Los Angeles, and DC that report exclusively for the network as well as all the behind the scenes production folks that that that we think we can give a.
More representative view of America than perhaps what seen inside the New York.
DC beltway.
So we think theres a purpose for that and there's a reason for that and the acceptance of that concept now which has been very enthusiastic. It's now just on us to deliver as it relates to promotion we have.
Secured something that none of the other networks news networks I think are able to compete with and that is to harness the power of 196 television stations across the next our nation to promote this newscast on a date specific basis.
Beginning later this month and.
If you look at the annualized promotion value that the stations movie contributing on a dedicated basis, it's something approaching $100 million.
We are layering on top of that on an annualized basis approximately $20 million of.
Outside promotion expense, which primarily goes for.
Advertising on other cable networks, because were just a channel change away at that point on national and syndicated radio we're also.
Investing heavily in social media and not only because of the app, but to try and drive a younger demographic to an alternative newscast and so.
We think our promotion spending all taken together you know a nine figure amount to both cash and in kind contributions for the company are another asset that will well hopefully drive success for this this effort and again its you know it is a counter programming.
Opportunity in primetime and we're going to do our best Dick succeed. There. Obviously, if we are successful we would look at other day parts, but we're taking very much of a crawl walk run approach to this we want to get it right and and we will grow as fast as our success would allow us to grow so I think I leave it at that but.
You know, we're very excited about the prospect of of introducing an alternative in prime time to entertainment sports and opinion programming and that the product will reach a.
Well struck a chord and resonate with the audience and audience growth and advertiser growth will continue so.
Tune in it launches on September Onest.
Thanks for your capture it well.
That does conclude our question answer session for today.
Conference back over to look for any additional or closing remarks.
Thank you operator, again, where we're very pleased that our progress and were pleased that our strong financial position and we're excited about the launch of WGN America and the advent of the political spending season that we'll all be upon us before our next call. So we look forward reporting back to you shortly after election day with the early results.
On all of those efforts and thank you very much for your time. This morning, thanks for joining us.
Yes.
Once again that does conclude today's conference. We thank you all for your participation you may now disconnect.
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