TEGNA Inc

Good day and welcome to the third quarter 2021 Tegna Earnings Conference Call. This call is being recorded. Our speakers for today will be Dave Lugie, President and Chief Executive Officer, and Victoria Harker, Chief Financial Officer. At this time, I would like to turn the call over to Doug Kuckelman, Head of Investor Relations. Please go ahead.

Thank you and good morning and welcome to our third quarter 2021 earnings call and webcast. Today, our President and CEO, Dave Luge, and our CFO, Victoria Harker, will review Tegna's financial performance and results. After that, we'll open up the call for questions. Hopefully, you've had an opportunity to review this morning's press release. If you have not 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 include 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 to the most directly comparable GAAP measure in our press release. With that, let me turn the call over to Dave.

Thank you, Doug, and good morning, everyone. During the quarter, Tegna capitalized on continued momentum across our business, building on the trends that have accelerated throughout the year. Strong execution, improved subscriber trends, and broad strength in advertising fueled another record quarter. We achieved record third quarter of total company revenue, subscription, and advertising and marketing services revenues, and remain on track to meet or exceed our full year 2021 financial guidance for all key metrics. Our performance this quarter and expectations for growth going forward are the direct result of consistent performance supporting the five pillars of Tegna's value creation strategy. As a reminder, our five strategic pillars are, one, execute as a best-in-class operator. Two, pursue accretive M&A opportunities, including adjacencies. Three, actively drive growth opportunities through organic innovation. Four, leverage our balance sheet for value creation. And five, generate strong free cash flow and make capital decisions effectively. that support our balanced capital allocation process. These pillars serve as the North Star for our long-term business decisions, and our strong results year-to-date are validation of our strategy and ability to maximize value for shareholders in any market environment. Victoria will cover our results in more detail, but to provide you with context for some of the highlights, total company revenue was up 2% year-over-year. driven by record third quarter AMS revenue and record third quarter subscription revenue. These results stand for themselves, but are even more compelling when you consider the record $116 million of political revenue we achieved in the third quarter of last year. Advertising and marketing services, or AMS revenue, was up 12% compared to the third quarter of 2019 on a pro forma basis. Even when excluding the positive impact of Olympics, AMS was still up 7% on a two-year basis compared to 2019, again, on a pro forma basis. Our advertising market strength and growth at premium put us well ahead of pre-COVID AMS levels, more than offsetting current supply chain issues that are significantly impacting the auto category. And AMS trends remain strong here in the fourth quarter as well. Victoria will cover advertising categories in more detail, but I did want to highlight the broad-based strength this quarter had across even more categories, which supported our record third-quarter AMS revenue. Sports betting is now our seventh-largest category and rising, growing more than 200% over the third quarter of last year, and we expect its growth to further diversify our AMS revenue. Online sports betting didn't exist in our markets three years ago, but has since expanded rapidly. We've now got legalized online betting in 20 states that we reach, and three more are going to be added in the coming months in our footprint with Maryland, New York, and Louisiana coming online in the coming months. Premion, our first-to-market and industry-leading OTT ad platform, continues to deliver differentiated OTT solutions to both local and national advertisers. We continue to experience very strong growth in both revenue and the number of advertisers Premion serves. We expect to see significant advertising demand growth over the next three to five years as consumer adoption increases and streaming grows in the AVOD space. Ongoing systems, processes, and technology enhancements are also driving operational and financial efficiencies at Premion as the business continues to scale. Premion recently received two industry awards in the ad tech category during the Synopsys Digital Awards, including Best Audience-Based Buying Platform and Outstanding Brand Safety, reflecting the value-add solutions that Premion provides to customers in an innovative and brand-safe way. Turning now to subscription revenue. This predictable revenue stream is a key driver of our underlying growth and durability of our business model. Subscription revenue grew 16% year-over-year in the third quarter, consistent with the 16% growth rate we saw in the first and second quarters of this year. Net subscriber trends are showing improvement for both traditional and virtual subscribers, now at a rate more than 150 basis points better than year-end 2020. Last year, we repriced approximately 35% of our subscribers at leading big four affiliate rates, and we have an additional 30% of our subscribers up for renewal by the end of this year. The strong performance of our high-quality local station brands continue to support our high-margin predictable subscription revenue streams. Our Tegna's local and national program combination remains some of the most trusted and desired content across our 51 markets. Victoria will cover our key fourth quarter and full year guidance metrics in detail, but I wanted to note that while we have been dark with DISH since October 6th, DISH subscribers represent less than 10% of our paid total subscribers. And so despite that disruption, as of today, we remain on track to meet or exceed all our key guidance metrics. Technostations also play a critical role in political marketing strategies as the preferred medium to reach targeted constituents in battleground states and every state across our platform. Looking ahead to next year, Tegna is set up to benefit from an expected record midterm political advertising year, and we have raised our internal estimates for next year quite a bit. Nearly all of the U.S. Senate and gubernatorial races that are expected to be the most competitive will be occurring within our footprint. To provide some color on elections next year, we expect Senate races within our footprint in Arizona, Georgia, the competitive Senate races in Arizona, Georgia, Florida, North Carolina, Ohio, Pennsylvania, New Hampshire, and Wisconsin, half of which are open seats where we expect significant competition. Notably, the Kelly seat in Arizona and the Warnock seat in Georgia are both repeats of last year's general election, and both seats saw historic spending levels. At the local level, we expect to see more engagement for the upcoming gubernatorial races given the heightened awareness of local issues due to the pandemic, including safety and education, as well as anxiety around the economy. Engagement and spending at the local level are far higher than they were four years ago, and as evidence of that is this year's $50-plus million of state and local off-year spending we're going to have compared to $31 million pro forma in 2017. Now turning to capital allocation. As a reminder, Tegna's business mix is weighted toward high-margin, durable subscription and political revenues on a two-year basis, which generates strong free cash flow. Augmenting this high-quality cash flow is the continued momentum of AMS revenue, driven by the broad-braced advertising strength I referenced earlier. These cash flows fuel our ability to return value to shareholders through thoughtful capital allocation decision-making. We continue to expect to achieve the high end of our 2020 to 2021 free cash flow as a percentage of revenue guidance of 21.5% to 22%. As we announced in September, Our significant progress on deleveraging, strong performance year-to-date, and strength of future cash flows drove our decision to update the extended timing for completing our share repurchase program. This comes on the heels of the significant increase to our quarterly dividend of 36%, which was paid in July and October. We continue to be active in our approach to capital allocation, and our board evaluates all additional capital allocation options to maximize value for our shareholders. And as always, we remain thankful. thorough, thoughtful in our expense management efforts, staying focused on generating incremental savings through our continued cost management and efficiency efforts. Now, to update you on several strategic initiatives underway at Tegna. Since its launch in 2015, our station's Verify reporting has fought misinformation and disinformation, helping viewers and users distinguish between true and false information. During the quarter, Verify continued to expand across platforms, now averaging more than 5 million unique monthly visitors year-to-date through September and is on a significant path up. This represents a 90% increase in monthly visitors from the same period last year. Locked On, our leading local sports and podcast network with daily shows for all Big Four professional sports leagues and major college programs, also continued to grow during the quarter. Podcasts were downloaded and reviewed more than 75 million times year-to-date, through the end of the third quarter, a 36% increase over last year. Lockdown now also has a large video presence with more than 90 shows on YouTube, and the network recently expanded its original video content with the launch of an insiders program starring retired professional players. Turning now to our ESG efforts, we continue to make significant progress on our diversity, equity, and inclusion objectives and are ahead of schedule in progressing on our 2025 goals. As a reminder, these quantifiable goals were developed in 2020 and publicly disclosed at the beginning of this year. And they hold us accountable for increasing black, indigenous, and people of color representation across our content teams, content leadership, and management roles. We take seriously the important role we have in ensuring our coverage and storytelling reflects all of the communities we serve. Our innovative inclusive journalism program is designed to help us accomplish this through unconscious bias, inclusive reporting, and leadership training. Equally important is measuring that progress, and to that end, we are working with an independent research firm to audit our broadcast, digital, and marketing content across all of our 49 newsrooms by the end of this year. These audits provide actionable feedback to ensure we are making continued progress on fostering a culture of inclusivity and representing the diverse communities we serve, and again, hold us accountable. Our stations and journalists were honored last week at the Edward R. Murrow Awards, and we're especially proud of the team at WWL in New Orleans, who received the Large Market Excellence in Diversity, Equity, and Inclusion Award for The Talk, A Look at the Black Experience in New Orleans. This is the first time this award has been granted by the RTDNA, and we're proud that our WWL is the inaugural winner. In total, Tegna stations received 10 National Murrow Awards, more than any other news organization in the United States. Delivering news that matters and speaks to the heart of each of our communities is at the center of each and every one of our newsrooms. We are proud of the determination and resilience of our engaged employees that enable us to fulfill our mission every day, and they do it well. And with that, I'll now turn the call over to Victoria.