TEGNA Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2024

There are 10 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Q2 twenty twenty four TEGNA Inc. 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 Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your first speaker today, Kirk von Seeelan. Please go ahead.

Speaker 1

Thank you. Good morning and welcome to our Q2 2024 conference call and webcast. My name is Kirk von Seeelan, and I am TEGNA's Treasurer. Today, our President and CEO, Dave Lougee and our CFO, Julie Heskett, will review TEGNA's 2nd quarter performance and results and provide TEGNA's full year and Q3 outlook. After that, we'll open the call for questions.

Speaker 1

Hopefully, you've had the opportunity to review this morning's press release. If you've not yet seen a copy of the release, it's available at tegnet.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.

Speaker 1

We have provided reconciliations of those measures to the most directly comparable GAAP measures in the press release. With that, let me turn the call over to Dave.

Speaker 2

Thank you, Kirk, and good morning, everyone. First, let me begin by saying what a privilege it's been leading this great company for the past 7 years. We've gone through a lot together and I'm proud to have worked closely with you, the investment community, as well as my colleagues across TEGNA. My and I look forward to watching him take the company forward to new heights. Mike's very eager to get started, but his first official day is not until next week.

Speaker 2

So I'll kindly ask that you hold off another quarter before peppering with questions. I'll begin this morning by discussing Q2 results and providing an update on recent wins. I'll then pass it to Julie to highlight our financial performance and capital deployment strategy in more detail. We achieved our key guidance metrics in the Q2 finishing at the midpoint of our guidance range for revenue and in line with expense range. 2nd quarter total company revenue fell year over year as subscriber and national advertising declines continue to accelerate, partially offset by political advertising.

Speaker 2

The economy continues to proceed at a sluggish and uncertain pace and that's been echoed in national ad spend, which is lower than we anticipated going into the year. That said, local advertising is faring well considering the headwinds facing national, as small and medium local businesses show a more willingness to spend. We're especially seeing that at Premion, industry leading CTV sales platform that serves the local marketplace. Our hypothesis continues to hold true that the local market will continue to adopt CTV advertising and Premion is well positioned to capitalize on this opportunity. Our premium sales footprint reaches almost 80% of U.

Speaker 2

S. Households and there's considerable upside in cross selling to our existing linear customers as they increasingly adopt CTV. We're confident our recent acquisition of Octillion, which marries cutting edge technology with premium sales acumen will further accelerate the combined businesses. Again, while national advertising has been sluggish, we expect an uptick in ad spend during the Q3 due to the current Paris Olympics coverage on our NBC stations. We've continued to add dollars throughout the summer games, which are producing tremendous ratings as broadcast numbers for the Parex Olympics are way up from Tokyo.

Speaker 2

Our NBC stations are some of the strongest in the country, outperforming the national average of ratings across all dayparts and we have 7 of the top 13 rated stations in the top 30 markets. Now let's turn to the coming election in November. As you all know, the events of the last month are unprecedented. The change at the top of the Democratic ticket has clearly unleashed pent up enthusiasm on that side of the aisle and that's translated into more than $300,000,000 in donations for the Harris campaign in just less than 2 weeks. In every way, including advertising, this is now a very different race.

Speaker 2

But as the saying goes, the more things change, the more they stay the same. Specifically, once again, it looks like a 7 state electoral college race, the same 7 states, and that's good news for TEGNA. It's once again coming down to Pennsylvania, Michigan, Wisconsin, Georgia, Arizona, North Carolina and Nevada, and we cover all but one. And whatever the presidential spending was going to be in those states before, it's new math today. We expect record presidential spending from now through Election Day and Julie and I look forward to taking your questions on the topic during the Q and A.

Speaker 2

In the Senate, while there are fewer races than in recent cycles, as we've said several times before, the races that are competitive will likely break all spending records for those seats as parties and donors have come to recognize more than ever what's at stake with control of the Senate. While there are fewer competitive seats overall, we have stations covering 5 of the 7 hottest races, Ohio, Pennsylvania, Arizona, Michigan and Wisconsin. There's not as many governors races in presidential years than during the midterms. So once again, a great footprint for us on the races that there are. We cover all 3 of the most competitive races, North Carolina, New Hampshire and Washington State.

Speaker 2

Bottom line, we are extremely well positioned to capture our share of linear and OTT political ad dollars during what's going to be a red hot 90 days of spending from now to Election Day. Before I wrap it up, I'd like to say a few words about the current state of sports on local broadcasting and what it implies about the ecosystem. The recently announced NBA network deals is a notable milestone that I don't think has been adequately reported on. Specifically, the deal with NBC signifies a huge shift away from pay cable to broadcast for the league. As we've talked about before, that's no accident.

Speaker 2

And NBA Commissioner Adam Silver came out and said it last week, it's all about reach. With the continually declining reach of paid cable, WIGs and teams need and want the extraordinary distribution and marketing power of strong broadcast networks made strong in great part by their strong local affiliates like ours. And in the case of NBC, no affiliate group is as important to NBC as TEGNA. Our portfolio of highly regarded large market stations in pro team home markets is well positioned to capitalize on this shift. Last quarter, we announced deals with the NHL Seattle Kraken, the Seattle Reign of the Women's Soccer League and an exclusive broadcast distribution deal with the WNBA's Indiana Fever.

Speaker 2

We took Caitlin Clark and the Fever to 12 other broadcast markets, including her home market of Iowa. The performance to date has been exceptional for us and for them. Our deal with the Kraken to distribute all West was expanded this quarter with distribution in Alaska by partnering with Gray Media. This adds to our outer market distribution in Seattle, Spokane and Portland creating an unprecedented footprint to air games for free over the air beginning in October. We're in multiple discussions with teams in several markets.

Speaker 2

And as we've said before, we'll do deals where they make strategic and financial sense. But at its core, the implications of this trend are important. A great deal of the most passionate and consumed local sports content is returning to local broadcasting. Finally, want to use this opportunity to extend my deepest gratitude to our station colleagues for their tireless dedication to serving viewers across this country, especially in these challenging times for local journalists and journalists everywhere. Every day, our colleagues across TEGNA are doing remarkable work, changing lives and changing laws, part of TEGNA's stated purpose of serving the greater good of the communities we serve.

Speaker 2

It's because of them, this position has been such an honor and privilege to hold. And to all our stakeholders, I want you to know how confident the Board and I are that Mike Stipe is the right next leader for TEGNA. With that, let me turn the microphone over to Mike to say a few words.

Speaker 3

Good morning, everyone. I'm here to briefly introduce myself and then I'll turn it back to the team to take you through the numbers and answer your questions. But first, I want to thank Dave. TEGNA is in the strong position it is today, thanks to his leadership and the entire industry has benefited from his decades of service. Dave's legacy is a real inspiration to me and his ongoing counsel is going to be invaluable.

Speaker 3

I've joined the TEGNA team because people served with quality local journalism are better informed, more engaged in our democracy and more active in their communities. In an increasingly polarized and distrusted news environment, people genuinely value local news and hold their local broadcast news teams in the highest regard. In my experience, trusted brands and indispensable content are a powerful foundation for success. It was a lesson I learned as a leader at NBCUniversal and again as an executive at Google and one that I've employed repeatedly as CEO. Over my last two roles as CEO of XO Group and then as CEO of Artsy, we combined great content, beloved brands and exceptional digital experiences to delight our users, lead our industries, drive substantial profit growth and unlock significant shareholder value.

Speaker 3

The potential to do the same at TEGNA is enormous and I'm really excited to get to work. I'll formally join the company next week and I look forward to speaking with you all more fulsomely after Q3. I want to thank you all very much. And with that, back to you, Dave.

Speaker 2

Thanks, Mike. And with that, I'll turn it over to Julie.

Speaker 4

Thanks, Dave and Mike. Good morning, everyone, and thank you for joining us. To start this morning, I will cover TEGNA's capital allocation execution, then provide an update on our business transformation initiatives before closing with a review of our financial results and guidance. My comments today are primarily focused on TEGNA's performance on a consolidated non GAAP basis to provide you with visibility into the financial drivers of our business trends as well as our operational results. You can find all our reported data and prior period comparatives in our press release.

Speaker 4

We are making great progress on our promise to return between 40% 60% of adjusted free cash flow to our shareholders over the 2024 to 20 25 period. In the Q2, we repurchased approximately $72,000,000 of our common stock, representing 5,100,000 shares. Combined with our regular quarterly dividend, our total cash return to shareholders in the second quarter was $93,000,000 In the first half of twenty twenty four, we have returned $196,000,000 of capital to shareholders by way of share repurchases and dividends, achieving 56% year to date of our $350,000,000 commitment for 2024. Notably, since the merger agreement termination in May last year, we've returned over $1,000,000,000 to shareholders to date. We've repurchased more than $900,000,000 or 27% of our shares outstanding.

Speaker 4

And over that same time, we have paid $103,000,000 in dividends. We are well positioned to meet our commitment while keeping dry powder to take advantage of opportunities to grow our business organically or inorganically. We remain patient and discerning regarding the company's capital, preserving flexibility and investing where we see the greatest value. When we announced Q1 earnings in May, we simultaneously announced an increase to our dividend. The first payment to shareholders at the increased amount of $0.125 per share was made on July 1.

Speaker 4

We are proud to deliver a dividend yield in excess of 3% to our shareholders as an integral part of our return of capital strategy. As Dave referenced, we achieved our key guidance metrics in the 2nd quarter, finishing at the midpoint of our guidance range for revenue and in line with our expense range. Total company revenue for the 2nd quarter was down 3% year over year, primarily due to lower subscription and advertising marketing services revenues, partially offset by higher political advertising. 2nd quarter subscription revenue was down 7% year over year, primarily due to subscriber declines, which were partially offset by contractual rate increases. We expect to renew 20% of our traditional subscribers at the end of this year and another 45% in 2025.

Speaker 4

Moving to advertising and marketing services. AMS revenue was down 5 percent year over year due to softness in national advertising demand, while local advertising remained more resilient. We saw strength within the categories of services, entertainment, banking and finance and restaurants within the quarter. Categories that were a drag on our resorts were automotive, home improvement, retail, health care and media telecom. Premion local revenue continues to experience positive momentum, delivering revenue growth in the low double digits compared to last year.

Speaker 4

National premium revenue, however, remains challenging offsetting local growth and resulting in 2nd quarter non political premium revenue to be flat year over year. Another added benefit of Premion is the opportunity to gain political advertising revenue, which bodes well for TEGNA's election cycle. When including political advertising on our CTV platform, total Premion revenues are up year over year. As Dave discussed, we continue to be bullish with Premion's position to capitalize on the growth of CTV advertising. Coupled with our recent acquisition of Octillion, we expect Premion's revenue growth rate to increase for years to come despite the tougher comps in 2024.

Speaker 4

Turning now to expenses. As we introduced earlier this year, we have embarked on an internal review of our cost and developed transformative initiatives to structurally reduce our cost by generating $90,000,000 to $100,000,000 in annualized savings as we exit 2025. As a reminder, these cost reductions are included in our previously provided 2 year adjusted free cash flow guidance. We are directly targeting reductions in operating expenses outside of our high growth factors of Premion and Sports Programming, which are slated to see expenses grow year over year as they boost revenue for TEGNA. A major area of focus is transforming the core operating model of television station.

Speaker 4

Actions taken thus far include a realignment of vendor services, workforce restructuring across several functions such as sales and information technology as well as a restructure of corporate oversight. These actions will result in incremental year over year expense improvements for operating expenses less programming and Premion for the balance of 2024 and through 2025. Further, we anticipate that our efforts in deploying technological innovations, including AI, across our stations will start to yield results in late 2025. Consistent with prior initiatives, we will keep you informed of our progress regularly over the coming quarters. For the Q2, non GAAP operating expenses of $563,000,000 were down slightly compared to the Q2 last year, reflecting the business transformation initiatives I just outlined.

Speaker 4

This is a sequential improvement from the Q1 of 2024 where non GAAP operating expenses were up 1% year over year. Adjusted EBITDA was $176,000,000 and we generated adjusted free cash flow of $131,000,000 during the 2nd quarter. We ended the quarter with total debt of $3,100,000,000 and cash of $446,000,000 Net leverage at the end of the quarter was 2.9x. Our industry leading balance sheet and strong adjusted free cash flow generation is a differentiator that gives us the ability to reward shareholders, grow the business and maintain our leverage at or below 3 times. Now turning to our outlook.

Speaker 4

As we noted in our press release this morning, we are reaffirming all our key full year 2024 guidance metrics and our combined 24,000,000 to 25,000,000 adjusted free cash flow guidance of $900,000,000 to $1,100,000,000 Please refer to our press release to see the full details of our guidance. I'll now provide our Q3 financial guidance metrics. We expect 3rd quarter total company revenue to be up 9% to 12% year over year as we are seeing strong bookings from political ad spending as well as the Summer Olympics. We forecast operating expenses in the Q3 to be flat to down slightly compared to last year. This concludes my prepared remarks today.

Speaker 4

Before we begin Q and A, on behalf of all our management team and colleagues, I would like to thank Dave for his leadership, guidance and tireless contributions that have had a positive impact on TEGNA, our employees and the entire broadcast industry. His passion for local journalism and serving the local communities is unparalleled. We wish him all the best as he retires as TEGNA's President and CEO. Let's now turn to Q and A. As Dave mentioned, Mike will not be participating in Q and A, and Dave and I look forward to answering your questions.

Speaker 4

Operator, please open the line for questions.

Operator

Thank you. At this time, we will conduct a question and answer session. Our first question comes from the line of Dan Kurnos of The Benchmark Company. Your line is now open.

Speaker 5

Great, thanks. Good morning. Dave, it's been a wild ride since the Belo days. So if anyone has earned a break, you have. Congratulations on your retirement and certainly wish you the best going forward.

Speaker 2

Thank you. I have

Speaker 5

maybe we'll start with political since you brought it up. I mean, I don't know if anybody knows how it's going to play out, but we've certainly seen the fundraising numbers. I don't know if there's a knock on effect now because of incremental enthusiasm on the Democrat side. But how should we be thinking relative to and Julie, obviously, if you want to give us the comp again relative to 2020, just how much we should be thinking about the potential upside over the balance of this year?

Speaker 2

Yes. I'll just let me give you a kind of color commentary and then let Julie do the play by play relative to the guidance is a couple of things to think about. I think obviously there's definitely new enthusiasm, new dollars. That said, I think in the last couple of months of Biden staying in the race, it had suppressed fundraising on the Democratic side. So it kind of depends how you look at it, right, on really what the fundraising is and will be.

Speaker 2

I think it's going to keep the enthusiasm and all the Senate races and fundraising there, I think very, very strong. But I think it is important relative to the numbers to understand where we are starting at a starting place that we're coming from. Let me turn that over to Julie.

Speaker 4

Yes. Hi. Good morning, everyone. From political dollars to level set full year 2020, excluding the Georgia Senate runoff which was about $50,000,000 for us that would give a comparable 2020 of $395,000,000 If you break that down just in the first half, you have heard us talk about we do not have as many Senate races or competitive footprint on the Senate side. We're as strong as we were and now stronger with the fundraising of Presidential.

Speaker 4

So there's puts and there's takes to both of those. The first half of the year, you'll now notice in looking at Q1 and Q2, we're slightly behind 2020. We're 8% behind in the actuals for the first half of the year. So we need to make that up here in the back half just to get back to that $395,000,000 but that's kind of where we see it. So it's going to depend, as you said, Dan, it's the puts and the takes, but presidential is definitely looking strong for us.

Speaker 2

You're right, Dan. On one point, what we don't have good clarity on right now is how all the events of last 2 or 3 weeks will affect the Republican the presidential fundraising on the Republican side.

Speaker 5

But I assume at this point, you guys have started to factor in some of the down ballot stuff that's really picked up some of the measures that we've seen.

Speaker 2

Yes, yes. I'm not sure the events of the last month have impacted those much, but we've counting on those all along. You're right.

Speaker 5

Okay. And then look, I mean, the metrics for the Olympics have been fantastic. I don't know if you guys want to put a finer point on the incremental tailwind from that. I know it's always hard to kind of balance that between what gets lost with sort of more traditional inventory. But between that and then obviously the NBA coming at the end of this year, just how we should think about, I guess, sort of core, in the next 6 months balanced against the obviously increasing crowd out effect?

Speaker 4

That's right. So in all of those factors, Dan, there's just a lot of complications. It's an art, not a science. Let me break down Q3 first. Yes, the Olympics is extremely favorable.

Speaker 4

We're pleased with the audience, which is driving that revenue. We've mentioned before some of the favorability of Olympics is being in a political cycle. So some of our Olympic dollars is political. So recognize that those dollars would fall into So that is AMS. I know your question is specific about political crowd out and or incremental in Q3.

Speaker 4

Our Olympic historical incremental has been roughly 3% to 5% of our AMS number. That will depend between winter and summer. Summer is more favorable. What we're seeing in this one is that would be at the high end of that 3% to 5%. So you can expect Olympic incremental to be about 4% or 5 percent of our total AMS in Q3.

Speaker 4

Leaning into Q4, you're really going to have more political crowd out, again, art versus a science, but we have seen advertising tick up in Q3 based on that Olympics. 2nd quarter AMS, was weaker as you heard Dave say and I in our prepared remarks, auto was a really big factor of that. Auto has improved in Q3.

Speaker 2

And on the last comment about the NBA, Dan, I'd say we don't have all the details yet on the NBC deal. We know quite a bit. I'm not sure all we can say yet, but the bottom line is there are regular season games and regular season NBA games up during the NFL season tend to from audience ratings everything else advertisers just not be as high demand. So we're only looking at I think at best a couple months of that. So and those games will be preempting previous inventory that was in there, whether it was prime or local news.

Speaker 2

So I don't think I'd look at much of a driver this year for that.

Speaker 5

Okay, great. Thanks for all the color. And again, Dave, best of luck to you. It's been a pleasure working with you.

Speaker 2

Thank you, Dan. Same to you.

Operator

Thank you. Our next question comes from the line of Craig Huber of Huber Research Partners. Your line is now open.

Speaker 6

Great. Thank you. Dave, we've known each other a long time. I think you're going to be missed by all your colleagues and that's certainly satisfied and your investors out there. But I personally think you've done a hell of a job over these decades of all the best in your retirement.

Speaker 7

Thank you, Craig.

Speaker 6

My first question, Dave, can you just and a quick question, your retrans subscriber losses in the quarter, how much were they down? Obviously, your retrans subscription revenue was down about 7% of your rates were up, right? But what was the actual sub losses percentage year over year, please?

Speaker 2

Our net subs were down mid single digits we said before, but slightly more towards high single digits than 0. So

Speaker 4

just that Craig, I would expand on that slightly. So we do frequently always say mid single digits subscribers being down. There is cyclicality in our subscriber trends where late winter, spring and summer, they are weaker and then they jump back up in Q3 and Q4. So slight acceleration in Q2 because of the lag of And

Speaker 2

there's some tend to be volatility seasonally

Speaker 4

with the conversion

Speaker 2

of VPDs, right?

Speaker 4

That's exactly right. But it is still comfortably in that mid single digit down range.

Speaker 6

Okay, great. Thank you for that. And then talk a little bit further about local advertising at your TV stations. How that performed in the Q2 year over year? What's your sense so far on the Q3?

Speaker 6

And maybe also touch on, Dave, if about national, you said that, that got worse, if I heard you right in the quarter. How's that trending for you in the Q3?

Speaker 4

Yes. National is definitely the macro concern and the tougher comp for us, Craig. So national down double digits, core much stronger, resilient flat to up slightly. Auto was a really big turn for us in Q2. As you know, auto really was rebounding in 2023.

Speaker 4

We had 7 consecutive quarters of auto being up including 1st quarter. But now in Q2, auto was down and down double digits. So it was a big turn in that category specifically. And you are seeing that really in the Tier 1 and the Tier 2, which is much more on the national side of the business than the local. But on a positive note, we've seen auto return positive here in Q3 on the linear core side.

Speaker 6

And if I heard you right, I think you said Premion revenues were up low double digits year over year. Are you still expecting the performance of Premion to accelerate in the back half of the year versus what happened in the second quarter, say?

Speaker 4

I do, Craig. So Premion in 2nd quarter in totality, while being up low single digits, does include some political. Excluding that non political premium was flat. The local premium was up double digits, which again signals that tougher comp on the national side. There is another big comp coming up in Q3 on that national side of the business, but definitely we expect Premion to ramp up in the back half of the year.

Speaker 6

Sorry, just say that one more time please with Premion revenues in total, what was percent change versus a year ago?

Speaker 4

Yes. 2nd quarter was up low single digits year over year in Q2. Excluding political, non political revenue was flat year over year.

Speaker 6

And within that local is up low double digits?

Speaker 4

That's correct. Local up double digits.

Speaker 6

Okay, got it. Thank you very much. And again Dave all the best.

Speaker 2

Thank you, Craig.

Operator

Thank you. Our next question comes from the line of Steven Cahall of Wells Fargo. Your line is now open.

Speaker 8

Thanks. So just wanted to unpack retrans a little more. Thank you for that sub attrition number. I was wondering if you could also update us as to what percentage of your retrans or distribution revenue at this point is digital between vMVPDs and a la carte streaming subs like Peacock? And how should we think about net retrans for the quarter in 2024?

Speaker 8

I'm guessing it's still stable since I think like 2 thirds of your subs are on variable cost structures, but just wanted to confirm that. And then Dave, you talked about a greater willingness to spend from local businesses. I think the big macro question after what we saw last week is whether this latest economic weakness is more pronounced towards the lower end of the economic range and if that has any more pronounced impact on local businesses than what we've seen over the last couple of years with national being weaker and local being stronger. So is there any signs that that's happening? Or is kind of the market's reaction to some of these things not necessarily something you're seeing at the business level?

Speaker 2

Thanks. Thanks, Steven. I'll take that and then I'll let Julie handle the retrans question. I think so it's a mixed bag. We're trying to read the tea leaves.

Speaker 2

Obviously, as Julie mentioned, auto was really, I think, the main variable from 1st to 2nd quarter relative to underlying pacing. So you can read into that what you will and that appears to be across the board in auto. So I don't know that we have an indication of which end of the economic spectrum if any or if that's more broadly distributed. Local business continue to hang in there. I would say certainly a local services which are not which I think are fairly good bellwether.

Speaker 2

They're strong, but they're not stronger. I mean, I definitely maybe even fallen back a little bit in the Q2. So it feels like it's an across the board right now, but we don't I don't think we have any definitive data that answers the question on which end of the spectrum.

Speaker 4

And on the retrans question, Stephen, we do not break out any of our data publicly between traditional virtual streaming. What I can say is you've now seen the reset for TEGNA, both you saw it in Q1, now second quarter with the top line revenues being down in that mid single digits. The majority just because of top line is a factor of the traditional subscriber declines, which again you can look at the public numbers for cable and satellite which are down the double digits offset by the virtual and streaming subscribers increasing, but of course that's the mix of the lower top line rate. Because of our successful negotiations in our affiliation agreements being mostly variable now versus fixed, we have bent that curb and the stability on net retrans. So quarter to quarter to quarter now going forward with that new reset, if you will, net retrans is stable.

Speaker 8

Great. Thank you.

Speaker 4

You're welcome.

Operator

Thank you. Our next question comes from the line of Patrick Scholes of Barrington Research. Your line is now open. Patrick Scholl, if you could unmute.

Speaker 7

Here, this is Jim Glass, also from Barrington Research. Dave, I'd like to add my good luck and congratulations on your success at Belo and the Gannett and Technic Companies in particular. You've been you had a long ride there. Thank you, Jim. I wanted to ask, if you can identify any share of the dollars from the states and the those you mentioned the 7 state electoral races that are particularly important.

Speaker 7

Is it reasonable to think of those as taking a pretty significant share of those dollars? Because I know there would be dollars in all the other states as well, but just how important are they relative to the rest of the country, would you say?

Speaker 2

Well, I'd say every state has its long tail of political spending, right, depending out there's all these down ballot races. But the when you think about the not the least rate sensitive dollars, right, from the packs, they go to the competitive races. The vast majority of those pack money go to the Governor, Senate and presidential races where they are competitive. So I would say you do see a quite a disproportionate share of total political ad dollars going to the competitive races. In fact, I missed that actually, there's a key other part, which is the House, right.

Speaker 2

And of course by definition we're in 39% of the country, so we got 39% of the house races and then there's less competitive house races than there were 20 years ago because of redistricting, but that means that the individual house races that are competitive will also see a disproportionate share, and we've got a lot of those house races.

Speaker 7

Okay. Then also in terms of in discussing premium in the CTV advertising, was wondering if you could talk about the availability of your stations on the CTV platforms in addition to the more traditional or MVPD, vMVPD distribution versions?

Speaker 2

Yes. Tom Cox, who oversees Premion in our company is here, and I'll let him take the answer.

Speaker 9

I believe your question was primarily related to our streaming O and O apps, if I followed it correctly. The good news there is we continue to see strong acceleration in viewership across those platforms. We're actually reaching a point where the viewership levels are markets. And so we see that as a significant opportunity for us moving forward to drive both greater viewership as well as higher revenues. The other nice piece about that is that's our O and O inventory.

Speaker 9

So the margin on that business versus the Premion business or many of our other digital products is quite high, again, because they're owned and operated.

Speaker 7

Okay. Yes. Thank you. And then the last thing, we've gotten used to rising net retrans over the years, and it's been very important to the broadcasters. As that category begins to flatten, if you will, what are the key areas you think we should look to in terms of driving incremental growth?

Speaker 7

Is it Premion? Is it the programming like True Crime Channel and the others? Is it ATSC 3.1 initiatives? How would you think of the key areas to drive future growth?

Speaker 2

Yes, I will take that Jim as I hand the reins over here in the next week. Look, I think that yes, so the net the innings of the net retrans as the growth driver have certainly come to the later stages there relative to the industry. I think a lot of it's going to have to do with what programming both in the digital space and in the linear space that the company is able to create and achieve and efficient basis going forward. But I think most importantly is the smart strategic use of this balance sheet. We have a tremendous amount of assets.

Speaker 2

We've got strong local brands in local communities, which are not nearly as competitive as the national landscape. That's a valuable asset to have. To have valuable local content that is strongly branded is can be a jumping off point source significant new business whether organic or inorganic as Julie and we have said many times. So the team going forward under Mike's leadership will be looking at how to leverage that and as well and frankly, I think that then there was also the regulatory issue depending on which administration wins. There should be some type of regulatory relief in the future.

Speaker 2

Again, I'm not going to put a timeframe on that, but that will be an opportunity for this company as well, whether that's in the virtual MVPD side or whether that's in the ownership cap, Given the strength of this company, our scale and the balance sheet that we have, the company is well positioned to find those new areas of growth. But I wouldn't saddle my successor with putting down one particular area, it wouldn't be appropriate at this point.

Speaker 7

All right. Well, thanks for your thoughts.

Speaker 2

Thank you, Jim.

Operator

Thank you. Our next question, we welcome back Craig Huber of Huber Research Partners. Your line is now open.

Speaker 6

Thank you. Just can you talk a little bit further about the auto trends? Just a little bit more expand upon that what you saw in the quarter. I think you said you're optimistic as you trend better in the Q3. I guess why?

Speaker 4

I did say that, Craig. In Q2, as I mentioned, auto was down low double digits. That was mostly driven in Tier 1 and Tier 2, but also sprinkled into Q3 I'm sorry, in Tier 3. Moving to Q3, it has improved. Olympics does improve that substantially.

Speaker 4

But even when we factor out what we believe is that incremental part of auto, we still believe that the core auto we see as flat to up slightly just pacing in Q3.

Speaker 6

Okay. And then just big picture here, I guess, Dave, on the economic front, I mean, given all the markets you guys are in, are you how are you personally feeling on the U. S. Economy now versus last time we spoke 3 months ago? Better, worse?

Speaker 2

Well, I think it's what we saw before, right. I think it's what we saw with National was an early precursor of what everybody's seeing nationally now on public on jobs data and stuff. That said, my personal view is that it's everything that you read. It's kind of like this it's just kind of like a little bit of shaky, but potentially optimistic moments where depending on which way it could go that a soft landing is still possible. The great debate, whether the Fed's dropped interest rates low enough or not, but I think we'll see I think the job market is changing, but will that flatten out or get worse?

Speaker 2

And I think that's where advertisers are with a large holding companies or others, it's just nobody's really clear. But I don't think there's certainly there's not a definitively negative view, but there's no definitively optimistic view. There is a definitely, I think, a concern and but a bit of wait and see.

Speaker 6

But that's interesting. But relative to your commentary, remember, from 3 months, so it sounds more on the negative side you're describing things. Is that

Speaker 2

Yes. I think what we do what I said in my notes and what Julie has talked about with national has spoken for itself, right? This national is not a TEGN issue, right? I mean, we're obviously more exposed to it given our large market stations. So but that auto certainly, as we talked about in the quarter gotten worse, we'll see where it ends up in the 3rd.

Speaker 2

But yes, I think that there definitely is some cooling down of what was a pretty it was a lot of money got put in that system during COVID in 2021 and 2022. A lot of Fed money got put in the system and it's working itself out and we shall see. But yes, I would say, I don't know that I'm more pessimistic. I just think what we're seeing is what we saw I don't know that I'm more pessimistic. I just think what we're seeing is what we saw before.

Speaker 2

And but what happened in the market Monday doesn't give you a confidence. They recovered yesterday. And so I think it literally Craig, don't read too much into my comments. I'm just like everybody else. It's kind of like let's wait and see.

Speaker 2

TETNA, I think, is well positioned either way.

Speaker 6

And my last question, if I could squeeze this in. What percent of your viewers in your markets right now are watching your content over the year as opposed to through an MVPD? What's that rough number?

Speaker 2

It's a great question, Craig. That there's not terribly awesome data collection on that nationally. I'll just leave that alone without talking about vendors or anything on that. But it makes if you look at the audiences we know we have through Comscore on the Olympics on our NBC stations and then you look at what you know mathematically has been the into sense to me, obviously, that there's probably more over the year viewing than is known, but we don't have great I'm just going to be frankly honest with you about this and it's an industry issue that does need to get worked on. There's not perfect data on that.

Speaker 6

Okay. Thanks, guys.

Operator

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Dave Lougee for closing remarks.

Speaker 2

Well, I'll keep them short. But once again, I want to thank the investment community and all of our stakeholders for their support over the past 7 years. And most importantly, going forward, I know that TEGNA is in great hands with Mike Stive and this great management team. Thank you everyone and have a great day.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

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Earnings Conference Call
TEGNA Q2 2024
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