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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day everyone and welcome to the TEGNA Second Quarter 2019 Earnings Call. This call is being recorded. Our speakers for today will be Dave Lougee, President and Chief Executive Officer; and Victoria Harker, Chief Financial Officer.
At this time, I would like to turn the call over to John Janedis, Senior Vice President of Capital Markets and Investor Relations. Please go ahead, sir.
Thank you, Abany. Good morning and welcome to our second quarter earnings call and webcast. Today, our President and CEO, Dave Lougee 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 the opportunity to review this morning's press release. 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've provided reconciliations of those measures to the most directly comparable GAAP measures in the press release and on the Investor Relations portion of our website.
With that, let me turn the call over to Dave.
Thank you, John and good morning, everyone. As you saw in earnings released this morning, our second quarter performance was strong, with all of our key operating metrics finishing in line with the guidance we announced last quarter. Our subscription business continues to provide us with a high degree of visibility and the strength and durability of our future cash flow streams. And we continue to execute on our capital allocation and M&A strategy, as exhibited by the acquisition of Dispatch Broadcast Group’s dominant stations, which I'll discuss in more detail later.
We remain committed to creating long-term value for our shareholders by bringing TEGNA's operational expertise to the stations we acquire, expanding our presence in strong political advertising markets and serving customers through innovative content and marketing, marketing leading advertising solutions across multiple platforms.
For the second quarter TEGNA's total reported company revenue was $537 million, up 2% year-over-year, and in line with the guidance of low-single digit growth we provided last quarter. Our revenue growth was driven primarily by advertising marketing services, and a 30% increase in subscription revenue, which more than offsets the $22 million reduction in political advertising compared with last year.
As Victoria will discuss later, our underlying advertising and marketing services revenues continue to improve sequentially, up 3% in the second quarter, with demand from advertisers broadening across several categories. We've also had an active quarter and year on M&A front, we announced an agreement with Dispatch Broadcast Group to acquire leading NBC and CBS affiliate stations WTHR and WBNS and Ohio's premier sports radio stations on June 11th.
With the addition of these stations, we have further built out our portfolio of leading big four affiliates and brands in top markets. When the Nexstar and Dispatch acquisitions are completed, TEGNA will own or operate 62 stations in 51 markets reaching 39% of all U.S. households.
Also, we closed on the previously announced acquisition of the approximately 85% of multicast networks Justice Network and Quest that we had not previously owned. Through this acquisition, we provide unique ad supported programming to millions of television homes across the country and serve an increasing number of over the air viewers.
Now, I'm going to turn to our subscription revenue business. It continues to provide us with growing and predictable cash flow, which is supported by both ongoing rate increases and existing agreements and step ups in renewals. We are particularly enthusiastic to enter a period in which the vast majority of our subscribers are up for renewal. Specifically, 85% of our subs will be renegotiated and repriced between the fourth quarter of this year and the end of next year.
And on the other side of the net retran equation, we now have clear visibility into that as well. With the recently announced CBS agreement through 2022, we now have long-term affiliation agreements in place covering nearly 99% of our households.
Turning now to political. We continue to strengthen our position for next year's presidential elections through our strategic acquisitions, and strong foothold in key battleground states. Our announced acquisition of the Nexstar-Tribune divestiture stations provides us with 11 stations in eight markets, including two stations each in Pennsylvania and Iowa, both big presidential battleground states obviously. And following the close of the Dispatch stations where we added dominant number one rated stations in Indianapolis and Columbus Ohio, TEGNA stations will cover two thirds of all TV homes in Ohio.
Our portfolio of very strong stations including those in these many battleground states are primed to benefit from expected record levels of expenditures next year. And as a reminder, we still expect the subscription and political revenues I just discussed to make up approximately half of our total two year revenues beginning with the 1920 cycle and an increasing percentage thereafter. A dynamic that will allow us to drive shareholder value regardless of any cyclical variability in the spot advertising market.
Now, I'd like to share some updates on our strategic content and program initiatives in the second quarter. As part of our ongoing commitment to content innovation and building on the success of the BOMBER podcast we announced last quarter, TEGNA's VAULT studios released two new prime podcast projects, True Crime Chronicles and Bardstown built on real life cases investigated by our award winning reporters and are tailor made for the wide and diverse audience of true crime fans, which is a large group. These programs leverage our vast library of news archives or exclusive IP as I like to refer to it, that across all of our markets.
Our Live socially driven daily blast live show continues to experience strong audience growth across both traditional and digital platforms. For the main suites the show posted 17% growth in women 25-54 and a 54% growth in Facebook video views.
On the journalism front, we continue to earn nationwide recognition with TEGNA stations receiving 10 National Edward R. Murrow Awards for Excellence in Local Journalism, more than any other group. TEGNA also received 91 Regional Edward R. Murrow Awards, the most in its history. This is a true testament to our commitment to excellence in journalism. And we remain dedicated to maintain this key differentiator of our business.
Our clearly stated purpose is serving the greater good of the communities we serve. And I would argue that our passionate commitment to local journalism and the First Amendment has never been more important to our democracy than it is today. We have and will continue to innovate, to seek opportunities to take advantage of emerging trends and consumer TV behavior. And our commitment to ongoing investments in high quality monetizable content have positioned us to capitalize on these trends.
While we are pleased with all of these strategic initiatives have delivered to our customers and shareholders to-date, we continue to look for new ways to augment our portfolio, which reaches audiences nationwide.
Finally, I would like to highlight our announcement from last week, that as part of our sales force transformation, we will be taking our national sales in house with the creation of a new unified single in-house national sales organization beginning next month. This change will better align our sales efforts to go -- and go to market strategy. As we embrace automation of the business that is more commoditized, and free up our talented sales force to develop more solutions and results for our national clients.
In closing, I'm very pleased in our accomplishments through the first half of 2019. One, we've announced or closed on nearly 1.5 billion of acquisitions that are immediately accretive to free cash flow. Two, as a result, we've also added five political battleground markets. Three, the advertising market has improved through the first half of the year, with several of our top categories positive during the quarter and the outlook for the third quarter is a continuation of this improvement due to the combination of increased demand and also due to market share gains because our content and sales transformation initiatives are working.
Four, we have increased visibility on net returns by renewing our CBS agreement through 2022 and now have big four agreements covering nearly 99% of our paid subs going out to 2021 and beyond, ahead of the large retrans renewals cycle, I spoke to earlier. And five, we are in the early stages of leveraging our own archived content across multiple platforms. All are remaining on track to hit our financial and leverage guidance.
I’ll now pass the call over to Victoria to cover our financials in more details. Victoria?
Thanks, Dave. Good morning, everyone. And thanks for joining us. As Dave mentioned, we're excited about all of the growth initiatives we have executed on this quarter organic as well as M&A. In my remarks, I'll cover the expected impacts of both as well as update you on our planned capital allocation going forward.
But before I cover our consolidated financial results, I'd like to review just a few special items for you, which had just a small impact on the quarter. These include $5 million in acquisition related fees and severance cost of $1 million, partially offset by $4 million in reimbursements for spectrum repacking.
Non-operating items included an income gain of $7 million, primarily related to the write-up of our previous investment in the Justice Network and Quest, triggered by our acquisition of the remainder.
Now on to the second quarter consolidated financial results. Keep in mind, that most of my comments today are focused on TEGNA’s performance on a non-GAAP basis, providing you with clear insight into our financial drivers, business trends and operational results. Also, as a reminder, our revenue results this quarter do face a tough year-over-year comparison, due to $26 million political advertising last year, a common cyclical event to odd year trend, you'll find all of our reported data and prior period of comparatives in our press release.
Now for revenue results. Total company revenue for the second quarter on a reported basis was up 2% year-over-year right in line with our low-single digits guidance. As you’ve seen from our press release, this was primarily driven by subscription revenue, which grew $27 million during the quarter. When excluding political advertising impact total revenue was up fully 7% year-over-year, well in line with our prior guidance.
This is a direct result of our subscriber growth trends which continue to be stable. These high margin subs produce annuity like cash flows, which allow us clear forecasting visibility. As a result, we continue to expect another year of healthy revenue growth in 2019 and are confident in our mid-teens growth guidance for the year.
Now turning to advertising and marketing services. As expected, advertising and marketing services revenue increased 3% year-over-year, which marks a sequential improvement over first quarter 2019 as well as year-over-year. This reflects strong underlying TV advertising trends accompanied by solid growth by Premion.
To provide some further color on specific advertising category performance trends, which vary by sector as always, the stronger categories this quarter included professional services, banking, media and telecom, packaged goods, utilities and education. Other quarter such as auto and restaurants were lower in the quarter, reflecting trends in those sectors.
Moving now to expenses, as expected, our operating expenses were 4% higher this quarter at the low end of our mid-single digits guidance. This increase was driven primarily by higher programming fees, partially offset by our ongoing streamlining of our business processes. As a reminder, these programming fees include reverse compensation paid to networks. When excluding programming costs, expenses were down slightly also in line with our guidance.
During the second quarter corporate expense was $10 million, down $1 million from last year, reflecting our successful efforts to reduce the cost of managing the business overall. As a result, adjusted EBITDA excluding corporate expenses was $179 million, producing a solid 33% margin. During the second quarter, we generated $52 million of free cash flow, roughly 10% of revenue in line with projections previously incorporated in our two year guidance range of 18% to 19% of revenue.
Our debt increased during the quarter by approximately $60 million to $3 billion, primarily due to withdraw on a revolver to fund the Justice Network and Quest acquisitions, producing net leverage of 4 times. As previously discussed, we continue to use our free cash flow and our $1.5 billion revolving line of credit to invest in both new products and initiatives as well as to fund acquisitions.
Later this fall, we expect to refinance some of our existing debt maturities taking advantage of historically low interest rates. The proceeds will then be used to replenish some of the drawn revolver, which we also plan to extend one year to 2024 with no change to its size.
Now turning to M&A. As Dave noted, we've been very active on the M&A front this year reflected the announced acquisition of two dominant TV stations and two radio stations from Dispatch Broadcast Group for $535 million earlier this year -- or earlier this quarter. In addition, the $77 million acquisition of Justice and Quest Networks also closed this quarter.
As a reminder, the Dispatch transaction provides us with the number one rated TV stations in both Indianapolis and Columbus. For 2018-19 EBITDA multiple of 7.9 times including run rate synergies. We expect the transaction to close very shortly, with the Nexstar divestiture stations expected to follow later this quarter. We plan to fund all three transactions with the use of available cash and borrowing under our credit facility.
All of these transactions are immediately free cash flow accretive and EPS accretive in less than 12 months. Reflecting our strong financial discipline, and the compelling value of strategic fit, the cornerstone of our M&A strategy.
Now turning to third quarter and full year 2019 guidance. In an effort to help forecast our future results we’re again providing several key quarter ahead financial guidance metrics. Just as a reminder, again, the third quarter of last year included $60 million of political advertising and approximately $6 million of Premion revenue, which was subsequently adjusted out.
We expect third quarter total reported company revenue to be down low-single digits, excluding the impact of political ad revenue from last year's third quarter, and $5.8 million in Premion adjustments we expect revenue growth to be in the high-single digit range.
I would add that this does not include the immaterial impact from Justice Quest or the acquisitions that have not yet closed. We will provide updated guidance on our third quarter call in early November, which reflects the impacts of all closed transactions and provide prior period pro formas as well.
From an expense perspective, we expect third quarter to increase in the mid-single digits driven by higher programming fees, or flat to up slightly excluding programming expense. Midway through the year, we are on track to meet all of our previously discussed guidance elements for the year.
Key organic guidance metrics for the full year in 2019, including -- include the following key elements and remain unchanged since our prior updates. One, we expect to see full year subscription revenue of mid-teens percent based on sub trends and timing of MVPD renewals. While only 15% of our subs renewed last year approximately 85% of our subs are up for renewal by the end of 2020.
Corporate expenses are expected to total approximately $45 million. Depreciation is projected to be in the range of $55 million to $60 million with amortization of approximately $35 million. Interest expense for the year is expected to be in the range of $190 million to $195 million. We expect capital expenditures between $70 million and $75 million, which includes recurring CapEx of approximately $35 million to $40 million, and about $35 million in non-recurring projects, including mandatory channel repacking, our headquarter’s relocation, which was completed in the first quarter, and a new facility in Houston, which was completed in February.
We expect the effective tax rates to be at the low end of the 23% to 25% range. And beyond this, as we previously disclosed, we plan no additional share repurchases until we delever from funding our new acquisitions. For 2018-19, we project free cash flow of 17% to 18% of revenue on a two year basis, and 18% to 19% of revenue for 2019-20.
In terms of capital allocation, building now on Dave’s comments regarding the current M&A environment. As we previously discussed TEGNA follows a disciplined capital allocation framework that balances our desire to enhance our growth profiles through strategic accretive acquisitions with our commitment to a strong balance sheet, organic growth and return of capital to shareholders through dividends and delever.
Capital allocation decisions are always tightly aligned with maximizing shareholder value. And we consistently allocate capital to the options that offer the highest medium to long-term financial results. As Dave noted earlier, we continue to participate actively in M&A processes for assets that are a fit for us within current industry regulation, and frameworks. And we have ample capacity under the cap even after including our recent acquisitions to execute on our strategy further.
Our recent acquisition demonstrates the efficiency of our buying power. For about $1.4 billion, we acquired approximately an annualized $500 million in revenue and $200 million in EBITDA on a two year average basis, with about $100 million in free cash flow, while only retiring three points of cap headroom.
We clearly remain laser focused on creating incremental shareholder value with every opportunity we create. Beyond this, our second quarter results as well as our outlook for 2019 demonstrates that we're making strong progress in diversifying our organic revenue and cash flow streams, reaffirming our confidence in our long-term strategy.
As a result, the continued growth of less cyclical profitable businesses only serves to enhance our ability to create shareholder value with even greater transparency, with M&A providing an important opportunity to leverage our operating scale through enhanced content and efficiencies. We could not be more confident in the runway this provides into 2020.
With that, I'd like to open it up to questions. Operator?
Thank you. [Operator Instructions] And we will take our first question from Marci Ryvicker with Wolfe Research. Please go ahead.
The markets been pretty nervous about net retrans trends given reported pay TV sub declines, coupled with some high profile carriage disputes. So Dave, can you update us on subscriber trends, maybe touch on large versus small markets? And then as you mentioned, you have a lot of retrans contracts coming up. So how should we think about pricing power? And then I have a follow up. Thanks.
Okay, good morning, Marci. Thanks. So our paid subs are right in line with where we thought they would be. As we said, last year after we'd have eight straight positive months, we're now just slightly into the negative category. And this is both traditional and virtual combined. So we are right in line with where we thought we would be. And we are, frankly, because of our nature of our portfolio to your second question, I think performing better than the industry overall.
Yes, that gap between large and small markets continues to exists. It's narrows a little bit because as the virtual MVPDs have gotten into the smaller markets, but I think it's got a lot to do, I wouldn't also characterize it just between large and small. I would categorize it between sort of the household income of those markets, and the economic strength of the markets versus non. And for instance, I'll just pick one market, in the second quarter Houston was up in total subs as an example. So there's kind of a tale of a few different economic cities in there.
As it relates to -- you asked about pricing and about the retrans disputes this summer. Let me talk about the retrans disputes this summer. Obviously, we're not involved in those, but there's a couple dynamics there. One is August is not typically a good month to resolve a retrans dispute, per se. So, I think just I would make that comment, generally writ large, just because it's sort of a -- it's not a month of a lot of active programming people on vacations, et cetera, et cetera.
And I do think there's actually a little bit of a political dynamic to some of the retrans disputes right now because the satellite home reauthorization act, I think I just screwed that up known as STELA, it's up for every five years and that's up in next year and typically, the MVPD industry tries to use that piece of legislation to get its nose under the tent on messing around with retransmission consent, which we're confident they won't. But I think they believe those disputes create some of the noise that actually help them on that cause legally.
As it relates to our subs Marci, so of that 85%, 50% of them will be by the end of the fourth quarter this year, and in every case -- and 35% next year, and in every case we'll have significant step ups because we did those deals a few years ago, they're already by definition, quite a ways under market. So I think the noise out there is a little bit of huffing and puffing, bottom line is the strength of our portfolio will have very nice step ups in year one of those increases and good escalators going forward. And you had another question.
Thank you. Yes, just you mentioned you're taking your national sales in-house graded just a while back, it was a little bit choppy for them at the start. So just wanted to know how we should think about the potential impact of national spot? And then what percent is national spot as a percent of total spot maybe of total revenue, just to figure out?
It's in the 30s that which we call national Marci because in the past that definition has been whoever whatever business was handled through a third party rep, but grade really had a different portfolio. So they had a different strategy. Our strategy doesn't look like Grace [ph], we have a lot of large agency business, this is actually not going to be negative to EBITDA on any way on our businesses it’s actually should be positive immediately and going forward both on the expense but especially on the revenue side.
What we're really aiming to do is take the friction out of the system to the agencies to actually give them less points of contact, and then also to expedite the automation of the commodity business as I said, faster. And that is going to happen and the response from the agencies to what we have announced to them has been tremendous.
Thank you.
We'll take our next question from Alexia Quadrani with JPMorgan. Please go ahead.
Hi. This is David Karnovsky for Alexia. Dave, can you just provide some additional commentary on the auto in the quarter? We did see recover start after April. Just wondering if you've seen this reflected in the advertising demand at all?
Yes, auto was about where it was in first quarter. I mean, for us, I mean, it's not violently down. It's -- you call it mid-single digit. But -- and we'll come back to it. But the most I guess the biggest story about auto is how little story it's become relative to our overall advertising and marketing services. We've seen our best quarter in quite some time and as we indicated in our guidance, we're projecting more sequential improvement. So I could talk more about that later.
I think in the car space, I think it continues to be an issue from what we can tell but there's a little bit of a myth around SAR because a lot of is fleet sales, right. So fleet sales don't bring with it that, that extra dollar of advertising for the Tier 2 and others. So I just don't -- I think it's a little misleading. So I think on a relative basis when you take out fleet sales, sales remain sluggish.
Okay. And then just on the expense guidance ex-programming cost, you got it to flat to up low-single digits relative to down one in Q2. Just provide some color on how to think about the sequential increase in the quarter? And then for corporate expense the full year guide does seem to apply slight pickup in the back half, just looking for some inside into what's driving that as well? Thanks.
Well, just to rebase line, so for the second quarter ex-programming we were down slightly, and then also ex. the new acquisitions, the small ones that we had as well as programming we were down about 3.3%. So that just gives you sort of a perspective for second quarter, we just gave you a third quarter guide, which is not ex. those elements, obviously. And we've got a little bit of linkage relative to just this question a couple of other costs.
Beyond that, in terms of the expense baseline, we continue to drive into the back half, some of the corporate expense reductions, as well as the new system that we're implementing. So that when we bring on the new acquisitions, we've got reductions that will hit in the first quarter of 2020.
Okay, very helpful. Thank you.
We'll take our next question from Doug Arthur with Huber Research Partners. Please go ahead.
Yes, just one question, Dave. It's been kind of quiet on the deregulation front recently, as you look out to 2020 and beyond anything to sort of materially update us on in terms of what the FCC may be working on at this point?
Yes, I think the cap is kind of in a sluggish spot right now. I think with the STELA bill coming up, I think there are some dynamics in that relative to the industry itself and that about the good time. So I'm not terribly confident something happening before the end of this year, still believe that very good chance next year, there'll be a change in the cap, obviously, the current structure of the discount embedded with a cap has to be dealt with at some point. But I think that it's unclear right now what that timing will be. But I think would be a better chance in the first half of next year than the second half of next year.
Okay, thank you very much.
Next question will come from David Joyce with Evercore ISI. Please go ahead.
Thank you. I was wondering if you could provide some more color on Premion, in terms of how that contributed to the AMS growth in the quarter. And then just housekeeping item, on when you think the pending Nexstar-Tribune closings might be, is that still possibly August event given the DOJ approvals? Thank you.
You bet. So Premion was a contributor to our AMS growth, absolutely. We've got nice, strong double digit growth, year-to-date, and in the quarter on Premion, it's performing very, very well. But still, as a percentage of our overall business, it's just, we got a lot of advertising dollars, obviously. So we really -- we had a really good quarter on both counts what we -- what you would traditionally call core that we don't call out anymore, but core trends, as you refer to them are also very strong for us as well. But Premion is doing very, very well.
Second question on Nexstar. Honestly, we don't know, we don't know till we know, the -- and a lot of lot of those issues are really Nexstar is got to resolve those whatever issues there remain to be done. And I don't know that there are any with the FCC, our indications are it's pretty clean. And we've got the DOJ approval. So we don’t know what will close this month or not. Because August tends to be a quiet month and a lot of people in DC not working. But we shall see.
Thanks. And then finally, if you could just comment on how things have been trending with the ATSC 3.0, new trialing with your partners?
Yes, I think there's a lot of progress being made on that front. So we're now in the transition phase, we're working with -- through [indiscernible] and other large broadcasters to try to really focus on transitioning the top 30 markets, a lot of that has to do with when some of those markets are being repacked as part of the spectrum option. So -- but it -- I would say it's actually ahead of where if you'd asked me three years ago where I thought it would be, but they're still going to take some time, obviously, given the repacking, and the transition plan, which involves a lighthouse mark stick in each market to get done. But some markets will get done a lot faster than others.
Great, thank you.
Thank you.
Moving next to Kyle Evans with Stephens. Please go ahead.
Hey, thanks. Dave, there was a time when we were as a group kind of excited about end market M&A. Any new views on deregulation in that area?
Yes, as I said before, Kyle, I think the last couple of earnings calls obviously, the -- sort of the position, that DOJ started taking on the industry, following the failed transaction of last year, has put a crimp on that for the time being, I think over time, it's absolutely going to happen and will be very poised to participate. But we are not building our -- or all of our growth right now is not built around that, when it does happen, we're poised to take advantage of it. But I think in the current regulatory environment moment and sort of temporarily parts.
Got it. We went through a period of sub growth on retrans were slightly read today and we're looking at kind of a sequential down subscriber rev in the quarter. What is your -- if you kind of squint and look out at the back half of this year and next. What do you expect sub count to do?
Actually, let me make sure -- I think if you're referring -- if you are referring cloud to our having a lower growth number in second quarter, there’s a little noise in that number. So I think we were plus 18, is that right in the first quarter. But 3 -- three of those points where we had KFNB in San Diego for the full quarter, and we didn't and we only had it for six months last year. So on a -- if you were to -- on a pro forma that's a plus 15. And, so a plus 13 in second quarter is about exactly what we would have expected because that's normally the sequential trends we have, we have seasonality in our sub counts. So they’re plus 15, plus 13, is right and where we thought we would be.
So really there's no new -- I think the point about the sub trans issues for us, is as we've talked about it on the revenue side. The escalators that we are getting will get both on step ups and annual increases will far offset sub trend declines. Because as a reminder, and as an industry, but especially for groups with strong stations like ours, you still have this issue, where call it 15% to 20% of subscriber revenues go to the big four broadcasters, while we still have 35% or so of the viewing. That delta is at work in the marketplace today and is working like it should be.
Got it. Do you have -- do you want to share any outlook on that? Or is that you want to leave it there?
No, we're not giving any outlook. But I think I used the words enthusiastic in statement. So we're nicely positioned, Kyle, really nicely positioned, given the amount of subs we have up for repricing. And the fact that we have absolute firewall on what a reverse comp will be. We've clear knowledge of what that is uncertainty for some time.
Great. Where are you able to take costs out of the business ex-programming? And how much of that is left? That's my last question. Thank you.
There's no end to innovation. Technology continues to do wonderful things. So we continue to innovate, we're doing right now relative to rolling up on the finance side. Doing some things we are over time as the price of technology comes down.
We'll probably be able to -- it costs a lot of money to move a TV station, but we've got some real estate we could get out of as cost finally come down on broadcasting infrastructure. And there are still some -- frankly, the national sales thing I just discussed. The amount of kind of -- just the kind of an old model, which orders were handled was a lot of just a lot of people touching it. And, on that area get large, while our in house sales strategy is not cost driven, it actually will be an efficiency as well going forward.
Kyle, this is Victoria just to expand on that a little bit. We have beyond the ERP implementation that we've got going on for next year, which contributes to the cost saving synergies that in the new acquisitions as well. We continue to invest in things that like healthy living for our employees, which will reduce our medical costs.
We've got a plug and play set of centralized systems and platforms now relative to cash management. So a lot of the things that you would think of as sort of support our infrastructure for us at TEGNA that we're now importing for the stations that we’ll be acquiring are beneficial both to the employees as well as reducing our cost base and importantly, freeing up for cash flow.
So I think that there it becomes a much more modular plug and play with the new acquisitions that way.
Great, thanks so much.
Our next question will come from Jim Goss with Barrington Research. Please go ahead.
Thanks. Dave, you outlined a number of the key content and programming initiatives. And there are different attitudes and strategies toward content within the broadcasters. I'm wondering if you might talk a little more broadly about what your strategy and philosophy is regarding programming? What the nature, size, breath and economic value could ultimately be? Is it just a service side show supportive? Or is that a separate business that will take on a greater presence over time?
Thanks for the question, Jim. The answer to your last question, it's both, right. So let's just take the true crime initiative, right. It's not really just a podcast initiative. That's our first foray. But the fact of the matter is, what we're planning to take advantage of is the fact that, you're going to have what I would call a nuclear war and scripted programming between the Netflix's and Disney's new service and AT&T's new director consumer service, we're not going to play in that game.
But they will need other programming, like reality programming, like say Making of a Murderer or the Ted Bundy special on Netflix. We have archived content, exclusive archived content on 4 out of 10 unsolved true crimes in America. So we’re sitting on that library of IP content, and that will really turn into a video production business that will not require some big studio and investment. There is reality producers all over the country that are available. We've got the just former head of the Independent Producers Association, leading the effort for us.
And so that'll be a side business where we’re selling programming to big players and ecosystem. Within our own stations the primary focus initially around content innovation was -- there was just, I think too many people in the industry, we just said, well, this is all secular and declines in linear viewing. So a piece of it is, but a lot of it we consider self-inflicted. Local TV newscast did not innovate a lot in the last 25 years.
So we have had a lot of benefit, as I've talked to you about before, about an innovation process that allows the local markets to really do some smart things in how they go to market. And, we've got examples of newscast that where we've literally taken a number one newscast in the market, the station went to market a whole different way. Last three quarters of its original audience and gained back 150% of its audience and got eight years younger on average. That's real money, even if the core market were declining, that gives us a share increase, and that's 95% margin money.
And then on like Daily Blast Live is a show that with each acquisition, we are now adding programming to those new acquisitions at zero marginal cost and being able to reduce the syndication expense that might exist on those stations. So it's goodness all around. And the side benefit, which does mean money over time, and starting to now is that giving or having a very focused companywide innovation ideation process where it's driven by the staff level, they get to participate, they get to own pilots, they get to feel like they're part of change results in a more innovative culture, both on digital platforms and all platforms, at our stations as a result.
So I appreciate the question, because I think from a strategic standpoint, as fragmentation increases, and distribution advantages start to decay over time being very, very -- more and more important for local media outlets differentiate themselves on content.
Okay, thank you for that. Just one other area, regarding the M&A that you were talking about. Do you feel any added pressure for M&A as a result of the 2020 political comments, so you can take greater advantage of it? And also will that M&A focus on that certain traditional range of market sizes? There's - those geography and political weigh heavily on such decisions?
To your first question Jim, no, we don't feel any pressure to do any more M&A, our political footprint is fantastic, actually. And so we've got now states we have before that are going to be massively competitive, let’s just take Arizona, which really we've never used a ton of money in. And now we're going to have, it's going to be a presidential battleground state. And it'll be one of the top three spending states in the Senate. And there's only two markets and we're in both of them. So our current footprint we know -- so, no pressure to do M&A to get a higher share of political.
As it relates to going forward, I'll stay inside our knitting, we don't -- we're not looking for stations and markets 100 plus, we like Big Fours and you've probably noticed, we've really focused on three of the Big Fours for the most part, and we’ll continue to do that. But, we'll just continue to be opportunistic, but no pressure to do anything.
And I just want to add to Victoria's point about the cap, right. So we're at -- specifically with the discount we're at 31.8%. So using capology, as we affectionately refer to it around here, and it is sort of like that a sports team’s salary cap. Would you adjust stations that’s 14% of the country that were under the cap. So we do look at acquisitions relative as Victoria said, to how much cash flow, how much EBITDA do we get with each point under the cap. And that's a big criteria we use for M&A.
Just one other thing Jim, in terms of our leverage and our ability to use our firepower in addition to the cap itself. Even when we close all of our transactions that we've previously announced will be under 5 times. And as you can tell from what we said previously, given the cash flow inherent in our 2020 results, political and otherwise, we very quickly do leverage of about 4 or 4.1 time. So the capacity to do more M&A is it strategically arise is obviously there both with leverage as well as the cap.
Okay, thanks very much.
We'll take our next question from Craig Huber with Huber Research Partners. Please go ahead.
Yes, I got a few questions if I could. The advertising number Dave in the quarter that we just finished excluding small acquisition, what was that percentage change year-over-year place?
So adverting and marketing services, asking what?
Yes. Yes, excluding the small acquisition you guys did earlier in the year, what was that percentage change year-over-year?
It was up low-single digits, yeah low-single digits.
And then you what's the TV advertising pay scenes or just the total advertising pay scenes for the third quarter on year-over-year basis, excluding the acquisitions that have closed?
So they're good. Obviously we've closed July and it was very -- it's very good. So they are positive. And then even though the quarter was late, as it always is, but they are good, and they are better than second quarter.
So is that up like 3%, 4%, 5%, you're suggesting, or, what was that?
Given -- not give the number of forward looking on advertising, marketing services, but they're positive, and they're good and they're better than second quarter.
Okay. And what is your updated take Dave, on auto TV advertising. It seems like you're kind of suggesting negative trends here it might alleviate a little bit here in the second half of the year. But what is holding it back here just kind of go through the various issues at the auto dealer level on the regional and the national level please?
Yes, I think -- the only -- first of all, it's not yet it's not terrible, right, it's just not positive. But, the only answer I have Craig is the one I gave earlier, which we seem to see is that the SAR numbers are artificially inflated by fleet sales, so real sales, at the dealership level are not up.
And as we all know, it's kind of a one for one correlation with sales. So you've seen it not just in TV, you've seen it in other forms of media that get auto advertising as well. So we're not unique. And in fact there's even -- there's digital platforms that are down significantly more than we are.
And then also Victoria, if I can ask you a housekeeping question. Once these two large acquisitions close, what do you think your annualized amortization expense on your P&L is going to be?
We're going to update all of that, so you'll see a pre and post amortization EPS number, but we'll do it all together, once we get to close. We've got -- we're right now going through the process.
Okay. My final question, Dave, is, what is the average percent change right now of the ratings at your local news across your portfolio. In the most recent period, you can talk about. What's the sort of range or it’s down year-over-year if you will?
I don't have a number for that, Craig. We have -- given the size of the company we actually have three different forms of the Nielsen methodology out there. So we don't even -- we're not even able to sort of do that any kind of meaningful way. So it varies, but we -- I would just say, overall, we have good trends in the markets that matter. Two or three years ago, we hit some big markets, and through some acquisitions, we're headed in the wrong direction.
So, we have good trends, especially as you look at the share of our viewing, right, you might have a market where hot levels may be down 4% year-over-year in terms of overall view in the market, but weekly up. And we've seen some nice increases in the big markets that matter.
Okay, great. Thank you.
Thank you.
We'll take our next question from Michael Kupinski with Noble Capital Markets.
Thank you, and thanks for taking the question. I remember a time in the past, where broadcasters were to actually be a little bit more vocal to the networks regarding ratings performance and how some of the money was actually being -- immersed comp being spent, in terms of programming initiatives.
And I was just wondering, in terms of these network reverse comp that you're currently paying, how are you holding the network's speed to the fire in terms of the ratings performance from the network side? And then the prospect of where those dollars are allocated towards programming initiatives that might be interesting to tag now?
That's a great question, so that conversation does take place, believe me, it just doesn't find it’s behind closed doors. It's not something we do publicly as a company we've had between relationships and our size, we've had access to all the networks relative to programming. And believe me, we do have those conversations.
But for the most part, I'm going to call out any individual network or I actually believe we're pretty aligned. I think that, the networks have found that NBC, as when they first bought, the NBC portfolio, I think they were focused on the cable assets and broadcast that turned out to be the pleasant surprise.
So I think that -- and as cable -- Michael, as cable loses total subs. The broadcast networks are becoming a larger and bigger distribution source for them. So it's very important for them to have programming it's going to work and I think a lot of that investment also comes down to sports. And I think they are going to be as invested in sports as they ever have been. And there we are very much aligned.
Got you. And at this point though, you don't have. Are you giving specific ratings performance guidances to the networks? I mean, because in the past, you would say that we're looking for a particular share. Anything specific like that or is it just more okay. We want to invest in sports, because we know we get programming there or get viewers there. I mean, is there any other initiatives that you're looking for outside of sports that you would like the networks to move towards?
So look, each of our network, yes, not just about sports, look to take their news programming, right. It's a lot of our day parts. So, when we are sitting down with our network partners, we are very focused on their performance, in particular, day parts, especially say the morning newscast and things like that. So it's not just around prime. And, I mean, for instance on our NBC portfolio the today's show is very important to us.
And, we help them make money, and they help us make money. I think our stations perform at the very high end, relative to that show. So we're -- it's a good question, we're very much and you're right as reverse comp has increased it's only given us more leverage and entree to have a say on that stuff. But I think the good news is, for the most part, with most of the networks, we are now well aligned more aligned frankly than we might have been 9 or 10 years ago. When, even NBC was sort of running the cable prior to the Comcast days.
Got you. Thanks for answering the questions. Appreciate it.
Thanks, Michael.
We'll take a question from David Heber with Wells Fargo. Please go ahead.
Good morning, everyone. Thanks for taking the question. Just a couple on the balance sheet. Do you need to come to the debt markets for funding of your acquisitions? I think you said you would use existing liquidity. And then secondly, the near-term maturities you mentioned, how much runway would you like to create? And I think this also gives you an opportunity to reassess your capital structure. So would you anticipate doing anything meaningfully different perhaps looking at the secured debt market? Thank you.
Sure, no. And we've got plenty of room under revolver relative to the transactions that we've already announced so we’re using a combination of draws and revolver as well as cash on hand. Given where interest rates are though, it does provide us with an opportunity to go after market and do some refinancing and extend some of our maturities at lower costs. And we'll be looking to do that as I mentioned earlier.
We don't have anything substantially different in mind in terms of our structure. We are looking at the revolver, as I mentioned earlier, to extend it a year. Now that we've got through 2024. Now that we've got additional EBITDA -- revenue and EBITDA from the acquisitions. But keeping at the $1.5 billion sort of size. And until we go to market, those kinds of things really can't comment on governance and structure, but at this point, no significant material changes to our plans.
Okay, thank you. And I just had one big picture question. Now that you've been building some scale with the virtual MVPDs, are you getting any sort of real time data on viewership? And anything more particular around the reach of younger demographics on those platforms? And thanks again for the questions.
Yeah, that varies by our -- varies by the provider and by our network affiliation. So in some cases, yes. And in some cases, not as much as we'd like.
Okay, thank you.
Thank you.
And this does conclude today's question-and-answer session. I'd like to turn the call back over to John Janedis for any additional or closing remarks.
I'll take it up. Thank you again, folks for taking the time to listen to our call today. To conclude, we're pleased with and encouraged by the strength of TEGNA's business, which is supported by our strong subscription revenues we just discussed, and our valuable affiliation agreements.
As we look forward, this paired with our discipline and active capital allocation and M&A strategy will continue to position us for success through the end of the year and well beyond. If you have any additional questions we’re unable to cover today, please reach out to John Janedis at 703-873-6222, 703-873-6222. Thank you again, everyone. And thank you, operator.
You're welcome, sir. And this does conclude today's conference. Thank you for your participation. You may now just connect.