Further expansion into local sports rights; what’s likely to be a gangbuster political year; and the advantages of a recently acquired demand-side advertising platform were all major talking points during Tegna’s first quarter earnings call Wednesday morning.
The bright picture of the company’s future prospects was discussed at a time when the company’s quarterly revenues were down 4%, to about $714.3 million, versus same period last year. That was “primarily due to lower subscription revenue partially offset by higher political advertising dollars,” explained Julie Heskett, SVP and CFO.
“First quarter subscription revenue was down 9% year over year, primarily due to net subscriber declines and the temporary disruption of service with a distribution partner in January, partially offset by contractual rate increases,” Heskett added. There were also some year-end adjustments in 2023 that didn’t occur in 2024, further impacting the results.
Heskett noted that Tegna has an opportunity to reprice 20% of its subscribers at year’s end.
All told, the company’s net income came in at about $189.6 million for the quarter, up 82%. The huge increase included a $116 million after-tax net gain from Tegna’s sale of Broadcast Music Inc. (better known as BMI).
On the advertising front, Tegna experienced softness in national advertising, but saw strong performance in several ad categories, including auto, services, entertainment, restaurants, banking and finance. That said, auto’s tier 1 (the manufacturers) is not spending a lot right now, and a slowdown in home sales impacts some companies in the services category, the company’s officials said.
As for political: “We’re feeling very good about the trends as they relate to our footprint,” said Dave Lougee, president-CEO. Tegna stations cover six of the seven swing states that are likely to impact the presidential race: Pennsylvania, Arizona, Georgia, North Carolina, Michigan and Wisconsin.
There are also seven states with hotly contested Senate races, and Tegna stations cover five: Ohio, Georgia, Arizona, Michigan and Wisconsin.
“Because we’re based here in the mid-Atlantic, we have a front row seat to the Maryland Senate race, which we think will be highly competitive for the first time in a very long time,” Lougee said, noting that former Gov. Larry Hogan is the likely Republican nominee. “He’s a very popular moderate, and assuming he gets the nomination, Maryland is likely a significant and unexpected contribution to our political revenues.”
Lougee added that there are fewer governor’s races in presidential election years — 11 in the current cycle. “But we do have the only two races currently called competitive: North Carolina and New Hampshire.”
Tom Cox, Tegna’s SVP, digital, and chief growth officer, noted that the company is starting to capture political dollars beyond its stations’ footprint through Premion, the company’s connected TV ad platform. In February, Premion acquired Octillion, a demand-side platform focused on Local CTV/OTT advertising which allows all advertisers — and certainly those focused on political — to place ads even more easily.
“Ultimately, as the political races get tighter, and the availability of linear inventory gets tighter, we anticipate that those dollars will cascade over to the streaming ecosystem,” Cox said.
Another reason for great optimism on the advertising front is the Summer Olympics in Paris, which will air on NBC. Lougee noted that Tegna has the largest portfolio of NBC affiliates in the country. Because the games will be held in a time zone that’s fairly conducive to live viewing, “we expect enormous levels of engagement.”
Tegna has more reason for sports optimism on the local front. “We recently announced the deal with the National Hockey League’s Seattle Kraken as well as the Seattle Reign of the Women’s Soccer League. We also announced an exclusive broadcast distribution deal in the Indianapolis market with the WNBA’s Indiana Fever and rookie superstar Caitlin Clark,” Lougee said.
“This morning we announced that we’ve signed additional deals taking Caitlin and the Fever games to 11 additional broadcast markets, including her home state of Iowa and our Cedar Rapids and Quad City stations, as well as on stations from Gray, Sinclair, Weigel Broadcasting and Coastal Television,” Lougee added.
He noted that the recent NCAA Women’s Basketball final featuring Caitlin Clark was seen by a record-breaking 19 million viewers on ABC stations, including Tegna’s Des Moines and Quad City stations. Lougee noted that women’s sports still don’t command the same level of interest from advertisers as men’s, but he thinks that will change.
Lougee also said that Tegna is closely watching the bankruptcy court developments with Diamond Sports Group and is “ready to explore additional opportunities that make sense.”
He’s also keeping an eye on the battle over NBA rights, which could result in games moving from Turner Sports to NBC. He expressed optimism that will happen.
Related to that, “we think there was probably way too much concern for broadcasters raised when the sports service now affectionately known as Spulu was announced a few months ago,” Lougee said, referring to the new sports joint venture from The Walt Disney Co., Warner Bros. Discovery and Fox launching in the fall.
“I think this really calls into question what Spulu will be. And I have a hard time imagining how they’re negotiating rights deals.” Lougee noted that all three Spulu investors are “players in the NBA.”
Heskett also talked about cost reductions. “Our previously announced business transformation initiatives are underway and starting to generate savings. These initiatives are expected to be completed over the next two years and generate $90 million-$100 million in annualized expense reductions as we exit 2025. This core business transformation will directly target all other operating expenses outside of programming and Premion. We will gain some initial expense benefits from these initiatives in the second quarter of 2024 and [we] expect our run-rate growth of all other expenses outside programming and Premion to improve sequentially quarter to quarter.”
She also noted that Tegna repurchased nearly $82 million of common stock and retired approximately 5.7 million shares. “Combined with our regular dividend, our total cash return to shareholders in the first quarter was $102 million. We are where we want to be to achieve our promise of returning 350 million to shareholders in 2024,” Heskett said.
During the quarter, Tegna also took possession of approximately 4 million shares, which occurred upon completion of a 325 million accelerated share repurchase program that launched in November last year. The company’s board recently approved an increase in the quarterly dividend, to $0.125 per share, a 10% improvement.
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