TEGNA Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2023

There are 8 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to TEGNA's Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. You will then hear an automated message advising your hand is raised.

Operator

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Julie Heskett, Senior Vice President, Financial Planning and Analysis and Head of Investor Relations, please go ahead.

Speaker 1

Thank you. Good morning and welcome to our Q3 conference call and webcast. Today, our President and CEO, Dave Lougee And our CFO, Victoria Harker, will review TEGNA's financial performance and results and discuss TEGNA's quarter ahead outlook. After that, we'll open the call for questions. Hopefully, you've had the opportunity to review our Q3 earnings results.

Speaker 1

If you have not yet seen a copy of the release, it's available at tegna.com. Before we get started, I'd like to remind you that this conference call and webcast includes forward looking statements and our actual results may differ. Factors that may cause them to differ are outlined in our SEC filings. This presentation also includes certain non GAAP financial measures. We have provided reconciliations of those measures in the most directly comparable GAAP With that, let me turn the call over to Dave.

Speaker 2

Thank you, Julie, and good morning, everyone. TEGNA's 3rd quarter results reflect our business plan centered on continuing to enhance performance, optimizing operational efficiency and driving long term value for our shareholders. We achieved a record Q3 for subscription revenue and saw sequential improvement in advertising and marketing services revenue, driven by improving trends in key verticals such as auto and services. In addition to these strong underlying results, we completed our initial $300,000,000 of accelerated share repurchases or ASR. We completed that ASR at the end of August earlier than anticipated.

Speaker 2

Despite a limited trading window, we are able to quickly purchase shares opportunistically in the open market. This increases our capital commitment this year to return nearly $800,000,000 to shareholders. I'll talk more about our capital return actions and our advantage positioning in a couple of moments. Turning to Q3 results. Total company revenue finished in line with our guidance, down 11% year over year Almost exclusively the reduction of political revenue from the midterm election cycle last year.

Speaker 2

Excluding political, revenue was down just slightly year over year. As I mentioned, subscription revenue was a 3rd quarter record and up just slightly year over year. TEGNA subscription revenue continues to provide stable and predictable cash supported by contractual rate increases, partially offset by subscriber declines. We expect to reprice approximately 30% of our traditional subs by the end of this year, further improving visibility into our outlook. Despite broader macroeconomic challenges, advertising revenue trends were sequentially better than the first two quarters of the year and that trend is continuing into the 4th.

Speaker 2

AMS revenue finished the quarter down 3% compared to the Q3 of last year. However, underlying advertising trends were basically flat year over year when adjusting for the premium national account loss we've discussed on prior calls. Automotive, our largest category within AMS continues to improve and show strong year over year growth now for the 5th consecutive quarter. Auto was up 20% year over year in the quarter. Also notably services, our 2nd largest category continues to be strong and was 15% year over year.

Speaker 2

Looking ahead, 2024 will be a strong year of performance at TEGNA with a very favorable portfolio stations for political advertising In next year's Presidential Olympic Cycle, as well as the Summer Olympic Games from Paris on our large NBC portfolio stations And the Super Bowl on our large CBS portfolio compared to last year's much smaller Fox portfolio. Turning to capital allocation, we are enthused about the go forward opportunity at TEGNA and building on our strong track record of returning capital to shareholders. Our industry leading balance sheet and resilient financial performance affords us the unique ability to return capital to shareholders through share repurchases and dividends, While we simultaneously pursue organic initiatives and evaluate opportunistic bolt on M and A to further augment our attractive growth outlook and opportunities. We're on track to surpass our previously announced capital return to shareholders. Following the completion Our initial $300,000,000 ASO program earlier than anticipated as I said, we repurchased an incremental $28,000,000 of shares in the open market, slightly Just shortly before entering our blackout period.

Speaker 2

These repurchases were executed under our existing $300,000,000 share repurchase program. On our last earnings call, we announced the 2nd ASR program of $325,000,000 That program is expected to commence shortly. The completion of these four steps, the 2 ASRs, the stock transfer to satisfy the $136,000,000 deal termination fee And our recent opportunistic purchase of shares will result in us retiring nearly $800,000,000 worth of TEGNA shares. Looking ahead, strong operating performance and disciplined use of free cash flow position us to continue to build on our capital return track record. As I said, we have an industry leading balance sheet and that provides us that optionality.

Speaker 2

Even after both ASR programs purchase of shares in 2023, we still expect to end the year with net leverage under 3 times. Our strong free cash flow generation is Turning to strategic updates. In the quarter, we reached a comprehensive multiyear deal with ABC. This renews our ABC network affiliations in 13 markets across the country, which cover 9% of the U. S.

Speaker 2

Serving nearly 11,000,000 households. Our partnership combines ABC's popular entertainment sports and news program with our strong local stations and large audiences. We believe our successful negotiation with ABC highlights the win win long term relationships we have with our programming partners. TEGNA's local stations provide irreplaceable local news, which is some of the most watched and trusted within the nation. Coupled with Leading program from program partners like ABC, our platforms deliver scale audiences with strong engagement.

Speaker 2

The vast and powerful reach of broadcast distribution is enjoying a growing audience reach advantage Over other far more fragmented competitors in ecosystem, most specifically cable channels and cable programmers. One area that highlights that shift is what's happening now with professional sports. With the existing artists and cable model in the final innings, The move of local sports from cable to broadcast is in the first inning of a new era. Professional sports teams and leagues are more acutely aware than anyone Of this seismic shift in reach and distribution and are excited about the chance to reach all consumers, not just a smaller and smaller percentage of their addressable market. Along these lines, this quarter we announced that Ken's, our station in San Antonio will exclusively air 11 San Antonio Spurs games during this broadcast season.

Speaker 2

With French sensation and number 1 draft pick Victor Wembanyana, capturing attention across the country and if not the globe, We're thrilled to be the Spurs broadcast partner for this year. As the current RSN bankruptcy proceeding plays out, look for more announcements to come. Given our large portfolio of strong stations in big sports home markets, we are very, very well positioned for this shift and opportunity In local sports. Also in the Q3, locked on, our leading local sports digital network with daily shows for all 4 pro sports leagues and major College programs hit more milestones. Its audience has now gone past 27,000,000 listens and views per month.

Speaker 2

We launched 4 local lock on fast channels in the quarter with more slated to launch in the 4th quarter. Daily Blast Live, Our daily talk and trending topic show entered its 7th season this September, now with a larger distribution footprint than ever. We've added 20 Sinclair markets and additional Hearst market to our current footprint of 16 gray markets as well as all of the TEGNA stations in our large reach, Our total reach to more than 55% of the U. S. As the programming landscape continues to evolve, we believe Dailyblast Live's efficient production model We'll increasingly offer broadcasters a sustainable option for their content needs, while simultaneously delighting our audiences.

Speaker 2

Verify, our national brand that combats this information ended the 2nd quarter with ended the 3rd quarter, I should say, with approximately 467,000 followers across Various dedicated channels. Weekly verified this show increased for the 4th consecutive quarter with more than 2,800,000 minutes Watched across TEGNA's Station streaming apps during the Q3 and about those streaming apps our TEGNA's Station streaming apps now Have reached 677,000,000 minutes on streaming, a 78% increase year over year in the quarter. These apps are now available for all stations on Roku, Fire TV and Apple TV devices. And in the quarter, we also started rolling out Rolling out our apps for Samsung, LG, Chromecast and other platforms and expect to have all stations live on these platforms by year end. Delivering news that matters and impactful investigations that make a difference in people's lives are the center of each and every one of our newsrooms.

Speaker 2

We're very proud of the determination and resilience of our engaged employees that enables us to fulfill our mission every day. A special congratulations and shout out to WWL, our station in New Orleans that recently received a National News Emmy Their investigation led to much needed law changes in Louisiana. The work we do changes lives and changes loss. With that, I'll now turn the call over to Victoria.

Speaker 3

Thanks, Dave. Good morning, everyone, and thanks for joining us. As you've already heard, we've achieved record 3rd quarter Our key revenue and expense guidance provided last quarter in line with expectations. Before I drill down on Drivers of our Q3 financial results, I'd like to reiterate both the Board and the management team's focus and commitment to continued return of capital to our shareholders as you've seen in our ongoing execution on those plans. As Dave mentioned earlier, we are very pleased that nearly $800,000,000 in cash accumulated during the pendency of our transaction has been committed to share repurchases over the past 6 months.

Speaker 3

And as you've already seen, Execution on that return of capital is well underway. During the Q3, we completed the initial 300,000,000 Accelerated share repurchase program on August 31, a few weeks earlier than we previously anticipated. The initial $300,000,000 ASR program reduced TEGNA's Outstanding share count by approximately 18,000,000 shares. In addition, in the Q2, approximately 9,000,000 shares were retired through Standard General's As Dave mentioned, following the completion of the first ASR and before entering our blackout period on September 16, we opportunistically repurchased an additional $28,000,000 or nearly 2,000,000 shares in the open market. As a result, total share reduction as of the end of the third quarter was 29,000,000.

Speaker 3

Beyond this, as announced in August, our 2nd ASR program targeting $325,000,000 in repurchases will kick off this week. As a result of all of these actions, since the termination of the merger agreement in late May, TEGNA is committed to nearly $800,000,000 in share repurchases Through ASRs, the settlement of the merger termination fee and opportunistic repurchases in the open market. As a result of this commitment, we expect approximately 45,000,000 to 50,000,000 shares to be retired by the end of March 2024 based on current market prices, reflecting more than 20% of shares outstanding prior to us undertaking these actions. Additionally, following the termination of the merger agreement, the Board declared a 20% increase to the regular quarterly dividend, which was paid out for the first time in October. As you're also aware, we have an extremely strong balance sheet, including low leverage and we are very well positioned to continue to return capital to shareholders through buybacks and dividends while investing in organic growth and bolt on M and A opportunities.

Speaker 3

We also have manageable debt With no near term bond maturities until March of 2026 and all of our debt is fixed rate at a very attractive 5.2% on a weighted average basis. We ended the quarter with total debt of $3,100,000,000 in cash of $553,000,000 As a reminder, our only financial covenant is a 4.5 times leverage cap that applies to our undrawn $1,500,000,000 revolver. Net leverage ended the quarter at 2.61 times. All of these well planned and actions highlight the strength of our balance sheet, which provides optionality around capital allocation decisions and continues to differentiate us in this current macroeconomic environment. Now let's take a look at the drivers of our 3rd quarter financial performance.

Speaker 3

My comments today are primarily focused on TEGNA's performance on on a consolidated non GAAP basis to provide you with visibility into the financial drivers of our business trends as well as our operating results. You can find all of our reported data and prior period comps down 11% year over year due almost exclusively to lower political revenue when compared to the midterm election cycle last year. Excluding political revenue, total revenue was down just slightly compared to the Q3 of 2022. Our record 3rd quarter with subscription revenue, which increased slightly year over year was driven by subscriber rate increases from contractual rate escalators, partially offset by subscriber declines of mid single digits. As we mentioned last quarter, we have an additional 30% of our traditional subs up for renewal by the end of this year.

Speaker 3

On the reverse comp side of the equation, we had previously stated we have approximately 60% of our big four subs up for renewal by year end. We are pleased to announce we've reached a comprehensive multiyear agreement renewal with ABC representing roughly 20% of our Big 4 subs. We also look to renew our agreement with NBC toward the end of this year. Now, I'll unpack the drivers of AMS performance in the 3rd quarter and the drivers. AMS revenue finished the quarter down 3% compared to the Q3 of last year.

Speaker 3

Advertising trends were basically flat when adjusting for the previously disclosed loss of a single premium national account earlier this year. Despite macroeconomic challenges, advertising revenue trends improved in the 3rd quarter and were sequentially better than second. These gains were driven by improving trends in key verticals such as automotive, services, insurance and packaged goods. As a reminder, the underlying advertising improvements began in 2nd quarter and are continuing into the 4th. Within AMS, we are thrilled to see our 2 largest advertising categories, automotive and services continued to perform well.

Speaker 3

Automotive advertising generated growth for the 5th consecutive quarter with 3rd quarter up double digits year over year. The services category was also up double digits year over year with the strength in home services such as HVAC, electrical, pest control and plumbing. Categories facing headwinds in the current macroeconomic environment include media, telecom, restaurants, healthcare and banking. Now turning to Premion. As you've heard over the prior quarters, Premion continues to strengthen its position in the convergent TV by winning additional local advertisers that are allocating larger spending dollars to streaming.

Speaker 3

During the quarter, Premion introduced programmatic selling capabilities, enabling agencies to leverage either managed services or hands on keyboard buying workflow. Similar to last year, Premion revenue was down year over year, impacted by the loss of a single large national account. However, Premion's primary focus is on the growth in local OTT revenue and

Speaker 1

where it's uniquely

Speaker 3

positioned to win. Premion Local revenue is strong, up double digits year to date. As a reminder, the national account loss impacted AMS by 2 points in the 1st 3 quarters of the year. However, in the Q4, the account impact will be 4 points on AMS given seasonality. We cycled the loss of this account at the beginning of 2024.

Speaker 3

Looking ahead, 2024 will be a strong year at TEGNA driven by favorable portfolio stations in key markets benefiting from election cycle, the Summer Olympics and the Super Bowl. TEGNA's high margin subscription and political revenues produce annuity like EBITDA and free cash flow And provides more than 50% of our total revenues on a 2 year basis. Turning now to expenses for the Q3. For the quarter, non GAAP operating expenses of $576,000,000 finished in line with our guidance range, up 1% compared to Q3 last year, driven by higher programming fees. Excluding programming costs, non GAAP operating expenses for the quarter also finished within our guidance range down 1% when compared to last year due to expense management and ongoing operational efficiencies.

Speaker 3

3rd quarter expenses coming out of the merger termination were slightly We expect Q4 year over year expense to be lower as well. As expected, our 3rd quarter adjusted EBITDA of $166,000,000 was down 38% year over year, primarily driven by the absence of high margin political revenue from midterm elections and higher programming costs. We continue to generate strong free cash flow of $60,000,000 during the quarter, driven primarily by our high margin durable subscription revenues and the thoughtful management of our balance sheet as we've historically done. Now turning to 2023 outlook. As you saw in today's Q3 release, we remain on track to meet all of our key guidance metrics for the full year and provide forward guidance for the Q4 and key financial metrics.

Speaker 3

To help you model our near term expectations, let's walk through a few Q4 financial guidance metrics. As a reminder, we expect to be disproportionately impacted on a comparable basis in the 4th quarter by the absence of $179,000,000 of high margin political revenue from the midterm election last year. For the Q4, we expect total company revenue to be down mid to high teens percent year over year, primarily driven by the absence of political revenue I just mentioned. Excluding political, 4th quarter revenue is projected to be flat. We forecast operating expenses in the 4th quarter to increase in a low single digit percentage range compared to Q4 2022, driven by increased programming expenses.

Speaker 3

Excluding programming costs, we project 4th quarter operating expenses to be down low single digit percent year over year. Now turning to full year 2023. We'd like to reiterate that our full year 2023 guidance elements and ranges remain the same as announced last And we remain on track to meeting or exceeding them. As a reminder, you can find our 2022 actuals for all of these metrics in our investor presentation on our website. For the year, corporate expense is expected to be in the range of $40,000,000 to $45,000,000 Depreciation is projected to be in the range of $60,000,000 to $65,000,000 amortization is projected to be in the range of $53,000,000 to $54,000,000 Interest expense is expected to be in the range of $170,000,000 to $175,000,000 We expect capital expenditures to be in the range of $55,000,000 to $60,000,000 We forecast an effective tax rate in the range of 23.5% to 24.5%.

Speaker 3

Even after the impacts of both ASR programs and the incremental repurchase of shares in 2023, we continue to expect to end 2023 with net leverage below 3 times. And with that, we'll now turn to Q and A to take

Operator

Our first question comes from the line of Dan Kurnos with The Benchmark Company.

Speaker 4

Great. Thanks. Good morning. Victoria, thanks for all of the numbers Around the guide, but I'm still just trying to sort of reconcile, I think sequentially understand a year on year basis with political, But you said in Q3 ad trends were relatively flat year on year ex the Premion National loss. Know you called out a little bit more sequential impact due to seasonality in Q4.

Speaker 4

That's fair. We've heard that national for the local, The broadcast group has gotten a little better and you guys talked about trends improving into Q4, plus you have easier comp with crowd out And political should step up sequentially. I know it's we're still early for next year. So just trying to sort of understand, Is there some conservatism in that guide? Is it just based on trends or bookings you're seeing now and just lack of visibility?

Speaker 4

Sub churn should also be maybe a little bit less sequentially in Q4 than Q3. So just trying to get a sense of how you guys Are thinking about sort of the trends going into next quarter?

Speaker 2

Hey, Dan, it's Dave. I'll just take the last one first around, I'll just You mentioned the category is still about political. We're not expecting any frankly. We have a tremendous footprint for the year, but we don't have necessarily a As good as our footprint is for a full year, we've never had a real big primary footprint for early presidential primaries. So we don't see maybe Some of those dollars otherwise, so we'll do fine, but that's not where we have the most enthusiasm about political.

Speaker 2

But I'll let Julie speak to the rest around underlying advertising.

Speaker 1

Certainly. So I will reiterate that the sequential trends are improving, continuing into 4th quarter. And you're right, Dan, that you heard in Q3, normalizing underlying trends would have been flat year over year. So that will be better in Q4 and it's included in our total revenue guide. The one impact also for your purposes is The Premion National business, which we've talked about all year long, being a headwind to us, it is a bigger Adjustment in 4th quarter impact, what it had been about 2 points, all year long for 2nd and third quarter It's going to be more 4 points, as Victoria said, in the 4th quarter.

Speaker 1

So if you just do that math alone, Right. Roughly flat in Q3, you would be up mid single digits in Q4.

Speaker 4

Okay. We can talk through

Speaker 2

a little bit more of the

Speaker 4

pieces offline, but I get it and it's good to hear sort of, I guess, the continuation of trends. On the expense side, I think this is A little bit of a surprise just out there, maybe not, maybe it's just me. But just want to get a sense, the Q4 guide is good in terms of underlying OpEx, you just did ABC. So I don't know, Dave, if I know you won't comment specifically on how the deal played out, but just how to think About the growth there, ABC and NBC, which you have still coming up, NBC, of course, and NIM coming up, have been historically variable deals. I don't know how we should be thinking about the growth in reverse, but underlying is, is there more OpEx efficiency Sees to be driven both in Q4 and then into 2024, excluding those programming costs.

Speaker 4

So just maybe take those two pieces, it would be super helpful. Thanks.

Speaker 2

Well, I'll just speak to overall. So as Victoria also mentioned, Dan, that we do have some expense, so this might not have that are That which you referred to relative to the strategic issues of coming out of a failed acquisition. So we have been spending some dollars, it won't be a permanent run rate Relative to some outside work, some advisory work and the types of things that Victoria outlined, so there There are a point or 2 relative to that number, but we'll have a little bit of that in forth as well, but most of that should burn off into next year. And I would just say, we're not guiding on expenses per se next year. And I'm not going to given that we've got our largest reverse comp deal still to go.

Speaker 2

Dan, as you know, not going to Comment on numbers relative to reverse comp and program expense, but other than to say on that topic, Relative to the network deals, as I signaled on our two calls ago, after we came out of the merger process, That it was going to be a new dynamic relative to the realities of the business, and I just would stand by those comments.

Speaker 4

Okay, got it. Thank you. Good to see you guys. Keep buying back stock. Appreciate the color.

Operator

Our next question comes from the line of Stephen Cahall with Wells Fargo.

Speaker 5

Thanks. Dave, maybe first just to follow on Dan's question a little bit. So, I know you and a lot of your peers have been consistent that The growth rate of reverse comp is lower than what it used to be, that new paradigm that you talked about. I

Speaker 2

think what a lot of

Speaker 5

us are trying to figure out Is what the key discussion points are when you're talking to a network partner like ABC who you just renewed or NBC that you have coming up In relation to how their streaming plans affect your business, Disney has been pretty clear that they intend to take sports direct to consumer. That has some impact on your ABC stations and same with NBC. So wondering if you could just help us frame how you think about the future And how you're kind of defending against more especially sports content going on to streaming? And then, Victoria, you all had some discretionary Q3 share repurchases. What's your appetite to continue down that path?

Speaker 5

Are you allowed to During the upcoming $225,000,000 ASR, or is that just something that you'll kind of wait and see after the ASR where the stock price is. Thank you.

Speaker 2

Christina, I'll take the first one first. As you can imagine, we have as you know, as we're public about, we have one large negotiation between now and year's end. So I don't think I'm going to get into commenting on what the discussion points are because I would really sort of just simply don't want to comment during a negotiation period. As I indicated on the last call, obviously, the exclusivity issues, frankly, in the case of ABC, ESPN and ABC, obviously, ESPN has been That exclusivity went away some time ago relative to ABC Disney, yet it remains a value partner of ours. And so I think what I'd say is, It's all part of the value equation.

Speaker 2

When you say when they're moving sports to streaming, it's not exclusive to streaming, right? They're simulcast. Sports Broadcast will be the big barker for a very long time. And when you just look at the ratings that broadcast games do in the NFL, so I would just simply say, So the lack of exclusivity on sports that some of which existed before, But the newer versions of that all become part of the value equation. So I know that probably is not helpful around numbers, but from a standpoint of how we think of it, It's just putting a value to what that reality is and then having a conversation that's realistic based An ecosystem that once was all about exclusivity and one that's not, then that has a different value.

Speaker 3

And to address the Second portion of your question, Stephen, we use the opportunity. We had a window in time in which the ASR program the first ASR Our program finished a few weeks early given some of the compression in the marketplace. So we have, as you know, an existing $300,000,000 Approval program to use opportunistically. So we dove into the market and use that window over time and execute on $28,000,000 of share buyback Then my expectation is that the Board will likely renew that going forward and we use it sort of opportunistically when we can and see those moments in time. But the ASR program 2, which is a $325,000,000 kicks off this week and that will be the primary initial Set of buybacks during the quarter and then what happened subsequent to that, obviously, we will then announce.

Speaker 3

But I just want to make sure we're clear on that. We have that opportunistic program will use it when we are on clear days, when there are windows in time that we can actually get into the market and use them and the price is right.

Speaker 5

Great. Thank you.

Speaker 6

Thanks, David.

Operator

Our next Question comes from the line of James Goss with Barrington Research. James, your line is now open. Our next question will come from the line of Craig Huber with Huber Research Partners.

Speaker 6

Yes. Hi. Thank you. My first question on Premion, I think you guys said last quarter, it was down modestly, which I'll assume that means mid single digits. Maybe just comment how it Did in the quarter, obviously, had to hit with the lost national account, but just sort of frame that for us, please.

Speaker 1

Yes. Craig, it's Julie. I'll take that. The commentary would be exactly the same. While total premium revenues are down modestly, again, the focus is on The local side of the business, so we know that national is down year over year, but local is up year to date double digits.

Speaker 6

Okay, great. Thanks. In the past, you guys have said retrans subs down mid Single digits year over year, is that the similar trend we had in the 3rd quarter?

Speaker 7

Yes.

Speaker 6

Okay. Thank you. And then in your mind, you guys have obviously been very aggressive here repurchasing stock as you went through several times today. Is there anything that you're thinking differently for next year? Obviously, you're going to have a windfall next year, all this political ad revenue next year.

Speaker 6

You're obviously arguing Your stock price is quite low and investors would agree with that. Is there anything in your mind that you're seeing out there on the macro side of things that would maybe preclude you From buying back a ton of stock next year to continue these, I guess, rolling ASRs, how we want to think about it?

Speaker 2

Craig, it's Dave. I'll just point to what Victoria said in her script is that we have the Board is and management is laser focused on capital return, but because of our balance We have the optionality, as I said, to do what we need to do that it's in the best use of return for shareholders with the ability of not foreclosing any avenue, Right. And but as we indicated, we are very focused on shareholder return in this environment. And we obviously like our balance sheet to be Pretty strong given some uncertainty that's out there.

Speaker 3

And just to expand on that a little bit. As I mentioned in my script, we don't have any maturity through 2026. Our first call option on that occurs later in the fall of 2024. Given current interest rates, likely not financially Wise for us to take advantage of that opportunity, but there's no reason we can't do all of that. So Looking at a potential recap on future maturities, we've got the cash and the ability, the strength of the balance sheet to both manage those debt maturities, Recap as is useful in the interest rate environment, plus buy back shares and continue to do our dividend and invest organically, so all of it.

Speaker 6

And then my final question, net retrans for this year, how do you sort of think about that's going to shape up when we're all said and done here, Down slightly modestly for the year, net retrans.

Speaker 1

Yes. Craig, we have not guided.

Operator

We don't

Speaker 2

guide Craig in every chance.

Speaker 1

And again, we've got negotiations coming up here in the Q4 that may impact that. So we're not in a position to Answer that at this time.

Speaker 2

As you know, obviously, Craig, we got a lot of subs up and a large reverse comp deal. So We're not going to, in the middle of negotiations, comment on anything on that.

Speaker 6

Okay. Thank you.

Operator

Our next question comes from the line of James Goss with Barrington Research.

Speaker 7

Okay. Thank you. Sorry about that last thing. I wanted to ask about a couple of things. One about the streaming apps.

Speaker 7

Obviously, this is a great way to Try to offset the risk to some of the economics with the traditional cable and satellite platform. I'm wondering, in terms of the various outlets you use between Roku or YouTube, there will be Different types of economic implications. I wonder if you could talk a little more about how you're viewing that and how things are developing along those lines?

Speaker 2

Let's say, Jim, it varies, right, because we a lot of our major usage comes off of our own apps and our own without any going to any third party platform. So it really varies on the platform, whether it's our own, it's obviously 0 share. And then those deals look very different based on them. Some of them we feel good about, some of them we don't love for the long term. But we've gone for distribution in the short term to get it out there.

Speaker 2

Some of them we've not done For the being baked into the question you've asked, but I think that over time, it will become a scale play and we will be I think We are big and then I think we'll look for opportunities to get even bigger over time. I'm not Signaling anything relative to anything big until 2024. But as you point out, it's a good opportunity for us. And frankly, The programming cost is all pretty much incremental marginal cost of our existing operations. So it's a win win.

Speaker 7

Okay. A couple of other things, one with DBL. It's gaining increased traction. You're at 55% of the country. Is there any Consistency of the time slots it's applying and can you talk about the economic model That you're able to get with that particular effort.

Speaker 2

I'm sorry, Jim, you broke up. Would you just say that last part again?

Speaker 7

Yes. With DBL gaining Increased traction to 55 percent of the country. Can you talk about the consistency of The time slots that typically gets put into and what the economics are in terms of your value as you deal with other broadcasters And distributing that

Speaker 5

to the purpose. Yes.

Speaker 2

I mean, mostly what we value was, we take the last part of that first, Jim, is we value the distribution. That distribution gets us audience and eyeballs, And we can monetize over time. So but as it relates to time slots, they're almost exclusively right now in the afternoon time slot. They vary across markets. It varies a lot based on the makeup of that market, the strength of that station.

Speaker 2

So I wouldn't say any one time period. We have success stories In every time period and there's some places where we don't do as well. But bottom line is it's a great model for us because Like as I think you know, we produced that in Denver on a much lower cost model than dramatically lower than if we did that in Hollywood. And It's all additional distribution is gravy for us off of a pretty much a fixed expense run rate. So It's a good play for us and we haven't talked a lot about it in recent years, but it's just been a great thing for us that's continued to keep on giving.

Speaker 7

Okay. One last thing that hasn't been talked about. ATSC 3.0, Even though the broadcasters seem pretty enthused about it, I think a lot of the TV sellers do not seem so enthused because they might have competing products They may not want to have incurred the additional costs and maybe the FCC could mandate inclusion. And I'm just wondering how you are looking at What your expectations are in terms of how it might fit in with you in particular with TEGNA?

Speaker 2

Yes, I can't speak to what or why other people say what they say. But I would simply speak for ourself Consistent with what I've said in the past, Jim, is that we very much believe it's opportunistically important for that new standard to be made accessible to the American people And that we're believers in that, but from a pure business model standpoint, I think we would be a bit from our perspective, A bit not true to our word if we were too enthusiastic into any near term business models because we have stayed close to it. We've been very much a frankly, one of the founding fathers, if you will, of Pearl, the consortium that has looked at that and we continue to do good work for us In the industry, but from a technical perspective, we're not talking about putting up points on the board near term Relative to economics and frankly, I think in terms of strategic options, as I said before, We look at it like the iPhone as a platform. So we think of ATS3 as a platform, just like the iPhone. It was other third parties who wrote the programs and the applications that made money off the iPhone and I'm still bullish that over time that can happen ATSC 3.0 as well, but I just can't we don't any seething on the near term horizon that we as TEGNA Put a lot of financial stock in it at this time.

Speaker 7

Do you think the FCC will have to mandate it As a way to get it done or do you think the broadcasters will eventually or the rather the TV makers will eventually

Speaker 4

Agree, it's worthwhile.

Speaker 2

I think given the FCC and TEGNA this year, I'm not going to opine on the FCC, I'll leave that be. But I would simply say that, I would say broadcasters have done a pretty good job voluntarily of getting it done, Getting transitions done till date, we have more stations we're transitioning. But I think it remains to be seen how the Future plays out relative to the manufacturers and public policy. I think it's a good question.

Speaker 7

All right. Thank you very much.

Operator

Our next question comes from the line of Craig Huber with Huber Research Partners.

Speaker 2

Yes. Hi. Craig Huber, good morning.

Speaker 3

We missed you.

Speaker 4

We missed you.

Speaker 6

A couple of follow ups guys. You mentioned 4Q ad trends improving sequentially versus what you saw in the Q3 here. I'm curious by categories. Are there any categories in the current quarter that are significantly doing better this quarter than what you saw in the 3rd quarter? Maybe you could also touch on national in particular.

Speaker 1

Yes. So Did you just say national in particular, Craig? Let me just double check on what you asked.

Speaker 6

Yes. Yes. I would like to hear what categories are doing Materially better than this quarter so far versus what you saw.

Speaker 3

4th versus 3rd.

Speaker 2

Yes. I think the trends are pretty similar, Craig. We looked at those yesterday. I don't think the bottom line with those performers in 3rd or the performers in 4th, I'm not certain to see any major variances to speak of.

Speaker 6

Okay, great. And my other question, given the 2 strikes in Hollywood 1 still ongoing here, I'm just curious, The lead in that you guys have to your late night news, is there any impact there on your ad revenues there materially at all that you've seen so far?

Speaker 2

Good question, Craig. No, because really that the scripted drama as a good lead into the late news sort of went away a few years ago with time shifting. So our economics have not been based on your network prime is a very small piece of our total company revenue. And for a lead in standpoint, there's really 2 worlds. On the East and West Coast where the majority of our stations and revenue is not, but the majority of other companies are probably, that's an 11 o'clock news period and that's been affected Some time ago or that 11 o'clock news might have been a big number 20, 30 years ago.

Speaker 2

That's been sort of eaten away gradually over the last 50 years, probably accelerated over the 5 to 10. So that's not in our model. Our 10 o'clock newscast in our Central and Rocky time zones, think all of Texas and In the Midwest, Minneapolis and St. Louis and those markets and in the Rocky Mountains, think of Phoenix and Denver, etcetera. Those are the 10 o'clock time period and that's not affected by Basically people are up and awake.

Speaker 2

So even though a scripted show may or may not be watching a linear fashion where our news is strong, We still get good ratings. So no, there's really no trend there relative to that. So to your question about the strike, even if scripted shows are in reruns In the call at the 9 o'clock time period in the central and 10 o'clock time period in the east and west, I don't think that's going to have much effect on us per se. And I think it will also put the networks to getting more generally speaking. I won't talk about any specific and a more innovative around more The type of program that works better on linear like sports does, but also event type programming, think The Voice over the years or Dancing With the Stars, Call it realityevent programming that's less susceptible to time shifting that people like to watch As an event, which is really a specific hallmark continues to be a broadcast.

Speaker 6

And my final question, Network of primetime, what percent of your ad revenue is that maybe coming into this year?

Speaker 2

Hold on on that.

Speaker 1

Primetime revenue for the total company, Craig, is about 4%. If you're talking just advertising, it would be in the low teens percent.

Speaker 6

Okay, great. Thank you.

Speaker 2

Thanks, Craig.

Operator

That concludes today's question and answer session. I'd like to turn the call back to Dave Bugee for closing remarks.

Speaker 2

Thank you. And one final note as we close here. As we indicated last Quarter, Victoria will be stepping down at year's end as CFO and Julie will be stepping into that seat after years of preparation. While Victoria will be CFO through the end of the year and will be helping with the transition through spring of next year, this will be her last earnings call with us. I want to take this public opportunity to thank her for all she's done here at TEGNA and for our shareholders over many, many years.

Speaker 3

Thank you, Dave, and it's been my pleasure to serve and support Gannett and TEGNA for almost 12 years. 70 earnings calls later over my career, this is A momentous occasion for me, but I am very, very confident and proud of the team, Julie in particular, but the rest of the finance team. And I'll be around clapping from the stands.

Speaker 2

Thanks, Victoria. With that, thanks, everyone, for taking the time to join us today

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
TEGNA Q3 2023
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