Pure-Play Tegna’s 3Q Revenue Down 10.7%

Tegna this morning released third quarter results — its first full quarter as a pure-play media company — that included total revenue of $464.3 million, down 10.7% from the same period a year ago. But on a comparable basis (excluding political and Olympics revenue), total revenue grew 5.4% to $460.5 million.

Net income from continuing operations was $50 million; adjusted EBITDA excluding corporate totaled $158 million, which resulted in a margin of 34%.

Tegna now reports a new revenue line: advertising and marketing services. This category includes all advertising and marketing-related revenue, including Premion, Hatch, G/O Digital and television.

Advertising and marketing services revenue was 16% lower than last year’s third quarter. Excluding the cyclical absence of Olympic advertising and discontinued digital marketing services plus lost revenue of more than $3 million due to the impact of Hurricanes Harvey and Irma, advertising and marketing services revenue was down approximately 2%, an improvement over the second quarter.

Third quarter total company operating expenses were 8% higher than last year due primarily to substantially higher programming fees. Excluding programming costs and accelerated depreciation due to the spectrum repack, adjusted operating expenses were down 8%.

Operating income was 37.1% lower compared to the third quarter in 2016, due to cyclical trends of political and Olympic revenue comparisons and substantially higher programming fees that drove the increase in operating expenses.

Tegna said its even- to odd-year results are disproportionately impacted by the cyclical drivers of Olympic and political spending due to our high concentration of NBC stations and traditionally favorable political advertising footprint. For 2017, comparisons to 2016 are also negatively impacted by the conclusion of a transition services agreement with Gannett and the absence of revenue from Cofactor, sold in December 2016. Additionally, other factors impacted revenues, such as unanticipated weather events in Texas and Florida in the third quarter of 2017.”

The following summarizes the year-over-year changes in revenue categories:

• Advertising & Marketing Services were down 16% to $277.8 million.

• Political was down 90% to $3.8 million.

• Subscription was up 24% to $178 million.

Further highlights from the 2017 third quarter results:

• Subscription revenue growth — “Year-over-year growth in subscription revenue of 24% provided a stable, significant driver of free cash flow. The company finalized additional over-the-top (OTT) distribution deals with streaming services and network partners fueled by our content, geographic footprint and audience; per-subscriber economic terms are equal to or better than persubscriber economics of traditional MVPDs.”

• OTT advertising business acceleration — “Premion, an innovative solution for OTT advertising that reaches cord cutters, continued to surge, executing 6,500-plus campaigns serving more than 800 clients in 195 markets, with third quarter revenue up 92% over second quarter. Premion is also building on its leadership by allowing others to sell its inventory and creating a data management platform for OTT players.”

• B2B marketing services for advertisers — “Hatch, which provides integrated marketing services, data-driven insights, and creative and customizable solutions for advertisers, continued to gain access to marketing dollars. Third quarter revenue was up 49% versus last year. New accounts increased 122% year-over-year.”

• New content innovation — “Tegna premiered three locally-produced, multi-platform programs as part of its content transformation strategy. This included “Daily Blast LIVE” (DBL), which is a first-of-its-kind program, live in every time zone across 35 markets, with content sourced in real-time from social media.”

• Growing mobile and digital platforms — “Tegna launched redesigned mobile sites in 34 markets, resulting in a 71% sequential increase in mobile video plays compared to the prior quarter; traffic across Tegna digital properties averaged 38 million unique visitors in the quarter, an increase of 16% versus the second quarter of 2017.”

Dave Lougee, president-CEO, said: “Tegna has finalized our transition into a pure-play media company, and the third quarter results demonstrate the power of our model. Our revenue on a comparable basis grew 5%, in line with guidance. We are executing our strategy as a best-in-class operator, transforming our content, sales and marketing offerings and generating strong cash flow.

“As we look to 2018, Tegna will benefit from some substantial tailwinds, including the Winter Olympics and the Super Bowl on our outperforming NBC stations in the first quarter, as well as our favorable political footprint for the mid-term elections combined with execution against our innovation initiatives, will result in a very strong 2018 performance.

“Looking beyond 2018, as the largest owner of big four affiliates in the top 25 markets, Tegna is uniquely positioned to benefit from the anticipated in-market ownership rule changes proposed by the FCC. Our strong balance sheet gives us the flexibility to invest opportunistically in both organic and inorganic growth. All opportunities will be assessed with our usual financial discipline.”

Read the company’s report here.