Good day, and welcome to the TEGNA third quarter 2020 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'd like to turn the conference over to Doug Kuckelman, Head of Investor Relations. Please go ahead.

Thank you, and good afternoon. And welcome to our third quarter 2020 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 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 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 have provided reconciliations of those measures to the most directly comparable GAAP measures in the release. With that, let me hand the call over to Dave.

Thank you, Doug, and good morning, everyone. It's hard to believe it's only been six months since we updated on our Q1 performance, the first quarter that we were faced with any challenges from COVID-19. Since then, several significant events have taken place in our country: continued developments in the global pandemic, racial injustice and demonstrations related to those, severe weather including wildfires and hurricanes in many of our markets, and of course, most recently, last week's election. TEGNA journalists have been there every step of the way in the markets we serve across this country. This includes being actively focused on building trust and combating misinformation during the voting process. One of our greatest responsibilities is being a watchdog for our citizens, and we do that by educating voters through our coverage and by holding elected officials and candidates accountable, so voters are armed with the truth before they head to the polls. Last week, among a sea of misinformation, we informed them about the truth regarding vote counting rules and procedures state by state. News consumers crave transparent, trustworthy content and want help deciphering what's real and what's false in their social media feeds. This year, our journalists took part in specialized training to detect disinformation campaigns to help our audience detect and debunk misinformation surrounding the elections. We created voter access teams in all our markets to provide information on where and how to vote. Additionally, we expanded our Verify initiative by hiring additional regional fact checkers to authenticate topics that need fact-checking, which are submitted by our viewers and users. Verified content on our station sites averages 2.5 million monthly visitors and 830,000 monthly video plays in the quarter, up significantly compared to a year ago—specifically, 234% for monthly visitors and up 701% for monthly video plays. This audience is national, with approximately 15% of our verified visitors coming from outside our markets. Now, through Snapchat, we are reaching a whole new generation with VERIFY; in just three months, we have reached 141,000 VERIFY subscribers on Snapchat with 6.3 million unique viewers. We're also expanding our reach on over-the-top streaming services like Roku and Amazon Fire TV, which currently comprise 70% of the US market. We have just completed an update of all of our station apps on Roku, and we'll launch apps on Amazon Fire TV by the end of the year. Our True Crime Network app is also now available on Roku after an initial launch on Amazon Fire and other platforms in August. Two updates from this quarter that we are proud of highlight our commitment to diversity and inclusion, which have always been core to TEGNA's values. The first is the creation of a Chief Diversity Officer role, which has been filled by Grady Trip. Grady reports directly to me and is working with organizational leaders across TEGNA to execute our diversity strategy. Under his leadership, we have already held more than 25 employee town halls, established local diversity councils, and mobilized an employee-led working group to help provide feedback and input to management on key diversity and inclusion initiatives. Our immediate goals are clear: address diversity in our recruitment and career development efforts, conduct inclusive content and anti-bias training, and further develop our diversity and inclusion policies and practices across the company. The second update is our signing of the CEO Action for diversity and inclusion pledge, joining the more than 1,400 CEOs and business leaders who have committed to addressing this pressing societal issue. We are proud of the inclusive culture that has been a part of TEGNA's DNA for years, but we know there is more work we can, should, and will do to fight systemic racism. Through these two recent actions, we have increased our accountability to support these efforts, and we look forward to updating you on progress in this area going forward. Turning now to our business and financial results. As we noted in our pre-release last month, our record third quarter results are a reflection of the continued execution against our five-pillar strategy and our expansive portfolio of big four affiliates. Through our focused M&A strategy, we have added stations in attractive markets that further strengthen our portfolio and scale, creating significant shareholder value. The strength of our portfolio has never been more apparent with record third quarter political revenue of $116 million and total company revenue of $738 million, up 34% from 2019. Even when you exclude political advertising from the equation, our total revenue still increased 14% on a year-over-year basis. This strategically constructed portfolio allowed us to capitalize on political spending in key battleground states leading up to last week's elections, including but not limited to, the high-spending states of Pennsylvania, Iowa, Arizona, Florida, Georgia, North and South Carolina, Minnesota, Michigan, Maine, and Colorado. And as you may have heard, we are not done. We now have not one but two U.S. Senate runoff elections scheduled for early January in Georgia, where we have two stations in Atlanta and our strong CBS affiliate in Maine, and the spending has already begun. As I'm sure you know, these runoffs will dictate which party controls the Senate, so fundraising and spending will be significant to say the least. Through last Tuesday's general election, we had booked $395 million year-to-date, almost 70% above our prior record in 2018 and well above our most recently updated guidance of $370 million. Turning to our subscription business, it continues to produce a growing and high-margin recurring revenue stream. For the third quarter, subscription revenue of $317 million was a 32% increase year-over-year, reflecting the repricing of 50% of subscribers that took place in the fourth quarter of last year. As a reminder, we have significant upside for continued growth into next year, with approximately 35% of subscribers that will be repriced by the end of this year and another 30% toward the end of next year. Our rate increases are significant and have far offset subscriber declines for the last several years, and our large portfolio concentrated on big four network affiliates positions us very well on retransmissions going forward relative to our peers. For the full year, we now expect subscription revenues to increase in the high 20s percent year-over-year. Significantly, we have seen sequential improvement in subscriber trends for three months in a row. In the fourth quarter, we will begin cycling against our 2019 acquisitions and the initial repricing of that 50% of our subscribers that I referenced earlier. As for political advertising, these high-margin revenues have proven to be immune from the secular and economic headwinds in our ecosystem. Our margins on political are even higher than before, thanks to our in-house political sales efforts, which have saved us $18 million this year and counting. Given our acquisitions over the last few years, we have greater differentiation in our portfolio than in the past, positioning us well for strong and durable political growth in upcoming even years. Our subscription and political revenues will comprise, as we've said before, more than 50% of total 2019 and 2020 revenues, and we expect to see an increasing percentage thereafter. Turning now to non-political advertising. Earlier this year, we noted obvious uncertainty about the length of the recovery period for our advertising business due to the significant impact of COVID-19 felt very much in April. Our advertising and marketing services revenues have rebounded at an impressive pace, including sequentially every month since April. In the quarter, we continued to gain share and generated almost $300 million of advertising and marketing services revenue, which was up slightly year-over-year, resulting in a much stronger prediction of performance than many market participants predicted. This was partially driven by the sales transformation we implemented over the last few years, including bringing our national sales in-house and the strategic benefits of this newly integrated One Team TEGNA sales team. Our ad revenues have also benefited from the return of live sports this fall, especially the NFL and college football. Additionally, Premion, our OTT ad platform, had very strong double-digit growth in the quarter, benefiting from increased viewing on streaming services and continuing to outperform more traditional advertising services. We continue to be thrilled with Premion's performance and trajectory. Turning now to capital allocation. During the third quarter, we continued to prudently manage our expenses as an extension of our ongoing cost containment efforts that were in place well before the pandemic. We reduced our total expenses for the quarter by $28 million from the original plan due to a decline in spending on many non-essential costs. Combined with our strong revenues and the benefits of our recent acquisitions, this helped to drive a 65% year-over-year increase in the third quarter adjusted EBITDA. Year-to-date, through the third quarter, our expenses are now down $79 million from our original plan. In September, we completed our third recent debt financing, which extended our maturities, clearing our maturity profile through 2024. These refinancings have also lowered our overall cost of borrowing. We've also made progress on our priority of accelerating our debt paydown. In the first nine months of this year, we reduced net debt by approximately $400 million while continuing to return value to our shareholders through our regular quarterly dividend, all of which Victoria will cover in more detail in a moment. As we look forward to the end of this year, and I know many people are looking forward to the end of this year, we hope to see a continuing improvement in both the broader macroeconomic backdrop and hopefully, a strong national plan that gets COVID under control. I'm sure you all saw the promising news just this morning about a possible vaccine from Pfizer that's well under production and awaiting FDA approval. Our strategic positioning prior to the impact of the pandemic and the thoughtful decisions we have made to adapt and thrive have resulted in the strong performance we shared with you today. This year has been clear proof of the durability of our business model and how it will continue to drive shareholder value and serve us through any similar challenges we may face in the future. Now I'll turn the call over to Vic.

Thanks, Dave. Good morning, everyone, and thank you for joining us. As Dave discussed, we had a record-breaking third quarter on many fronts due to the strength of our business model and the strategic decisions we have made, not just in these recent challenging months but really since becoming a pure-play broadcast company in 2017. Our diligent M&A strategy has resulted in a very strong portfolio of stations, positioning us well to capitalize on future growth, and the same thoughtful approach to capital allocation decisions has also served to strengthen our balance sheet while growing shareholder value throughout. Now turning to the third quarter consolidated financial results. As a reminder, 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. As a reminder, you'll find all of our reported data and prior period comparatives in our press release. As you saw in our third quarter earnings pre-release a few weeks ago, we've also updated expectations for a few of our key metrics for the balance of this year to help you with forecasting. I'll expand on our outlook in more detail later in my remarks. For the third quarter, total company revenue was up 34% year-over-year. This is driven by record 2020 political advertising revenue, continued strength in subscription revenue, and continued significant sequential improvement in advertising and marketing services revenue. As a reminder, this quarter our comps benefited from the acquisitions that closed on different dates during the third quarter last year. Excluding the impact of political advertising, total revenue was up 14% year-over-year. In terms of the subcategories of revenue, the breakdown was as follows: subscription revenue increased 32% year-over-year, reflecting growth from both our base business and subscription revenue synergies achieved through our recent acquisitions. As I mentioned earlier, we had step-ups in retransmission rates for approximately 50% of subscribers, which repriced in the fourth quarter of 2019. Echoing what Dave said previously, subscribers have also been trending better than expected, with three straight months of sequential subscriber trend improvement. Note that for the fourth quarter of this year, our net retrans growth will be lower sequentially as we have lapped our 2019 acquisitions. However, we do expect to see positive net retrans growth next year and going forward. This continued growth in our high-margin subscription revenues, combined with our expansive political footprint, provides us with strong annuity-like EBITDA and free cash flow production. As evidenced by our financial results this year, this has resulted in a more resilient portfolio than we've ever had before, indicating the ongoing successful execution of TEGNA's strategic plan. In spite of the impact of COVID-19, advertising and marketing services revenue finished the quarter slightly up compared to last year. This is primarily due to TEGNA stations’ strong performance and growing market share, recovery in non-political advertising in many categories, and the return of live sporting events. We also had the partial benefit of acquisitions that closed on different dates during last year's third quarter. I'd also note that our advertising and marketing services revenues have shown sequential positive improvement since the onset of the pandemic in April. To provide some further color on specific advertising category trends: as you'd expect, home improvement, services, banking and financing, medical, and fast food were all up above last year. Automotive and retail are improving, while the categories that continue to struggle this quarter were entertainment, travel, and tourism. Turning now to expenses for the third quarter. Our non-GAAP operating expenses were 21% higher on a year-over-year basis, driven by the impact of acquisitions that closed on different dates last year, as well as programming fees, which include reverse compensation associated with higher subscription revenues. Excluding acquisitions and programming expenses, non-GAAP operating expenses were flat, driven by increases in Premion cost of sales tied to revenue, offset by reductions in operating expenses. As we discussed last quarter, at the onset of COVID-19, we acted quickly to implement cost containment measures, building on efficiencies already in place prior to the pandemic, including reducing all non-essential costs, such as reduced travel and entertainment, and holding off on hiring all non-essential positions. Note that these measures were in addition to the continued streamlining of our business processes and company-wide efficiency efforts, such as our One Team TEGNA sales force transformation, further centralization of master controls, and implementation of our financial ERP platform, all of which have been underway for quite some time. As a result of all of these factors, reported adjusted EBITDA for the quarter was $259 million, producing a healthy 35% margin this quarter, up 65% year-over-year. High-margin political advertising revenue, growth in net subscription profits, and ongoing cost savings efforts all contributed to these strong results for the quarter. I'd like now to touch on balance sheet and liquidity. As previously mentioned, we've taken a series of proactive steps to strengthen our already resilient balance sheet, both before the current market volatility and over the past several months. On September 10th, we successfully completed $550 million refinancing with senior notes due March of 2026. The proceeds were used in October to repay the entire $350 million of our 2021 notes, as well as $188 million of the $325 million 2024 notes, leaving just $137 million due in 2024. The unused borrowing capacity under our revolver stood at $950 million on October 31st. At the end of the quarter, we also had $165 million of total cash on the balance sheet, which is now being used to reduce debt. This resulted in total debt of $3.94 billion for the quarter, producing net leverage of 4.5 times or 4.38 times as defined by our revolver financial covenant. As a reminder, our revolver has our only financial covenant, which caps leverage at 5.5 times based on a trailing eight-quarter EBITDA calculation that also creates cash on hand and other non-cash-based items, like stock-based compensation. As you've seen, we've continued to generate strong free cash flow, a testament to the strength of our financial model, which focuses on carefully managing our balance sheet while investing in strong EBITDA and cash flow-producing opportunities. In the third quarter, we generated $153 million of free cash flow, fully 21% of total revenue. Despite high-margin political revenue, which is paid upfront, third-quarter free cash flow as a percentage of revenue was lower due to deferred tax payments from the second quarter due to the CARES Act, as well as significant cash interest payments. Now to provide a few closing thoughts on capital allocation before I turn to our full-year outlook. As you've seen in recent months and throughout our history, TEGNA has continued to carefully manage our capital and liquidity to provide shareholder value. We have prioritized investments and subsequently restarted accelerated debt reduction while continuing to deliver our regular quarterly dividend to shareholders. We've remained diligent in evaluating areas for reduced or delayed spending where needed and prudent. As I mentioned before, many of our operational efficiency efforts were underway well before the onset of the pandemic, proving now to be an increasingly important part of our ongoing strategy. We shared with you last quarter that we will continue to monitor economic conditions and carefully evaluate whether to reinstate our forward-looking guidance. With recent increases in COVID-19 cases, the full impact of the pandemic still remains uncertain. However, there are a few areas I'd like to provide more color on regarding our outlook for the rest of this year and reaffirm what we've already announced in our pre-release on October 15th. First, as Dave shared earlier, we now expect subscription revenue growth of high 20s for the full year, an improvement from our prior outlook of mid-20s. Second, we exceeded our prior political guidance of at least $370 million through election day with $395 million already on the books last week. With runoff races, we will finish higher yet. These strong results were supported by the expanded competitive footprint in Presidential, US Senate, and US House races. Third, we continue to project full year total capital expenditures of $45 million to $50 million, including approximately $20 million of non-recurring spend, and a reduction from our prior guidance of $62 million to $66 million. Fourth, we're increasing our free cash flow as a percentage of combined 2019 and 2020 revenue to be 20% to 21%, an improvement over the high end of our pre-COVID 2020 guidance of 19% to 20%. In terms of net leverage ratio, we now expect to be 4.2 times or less by year-end, which is well below our financial covenant leverage cap. This, we have reaffirmed and expect full year interest expense to be in the range of $210 million to $215 million. Finally, we project our effective tax rate will remain in the range of 23.5% to 24.5%. Hopefully, that additional color will provide greater context for your modeling and forecasting. And with that, we'll now turn to Q&A to take your questions.

We'll take our first question from Dan Kurnos with The Benchmark Company.

Nice to see kind of the positive continuation of results here. I’ve two higher-level questions, Dave, sort of top of mind here. First, just on the M&A environment, I’d love to see how you’re thinking about that going into '21 post-election? Do you think things start to change? What impact do you see a potential Supreme Court win could mean whenever that gets heard sometime next summer? And then you've had a very long string now of positive connected TV announcements here. You've got Premion doing particularly well still. I think the narrative is starting to shift around how broadcasters can start to improve yields, especially as they shift to connected TV. I'd just love to hear some more color on specifics there. Maybe any granularity on percentage of revenue and how or within the next year or two you think that comes from connected TV, and how you're starting to see yields improve—the growth rates there? Just any more strategy color you could give around that would be helpful, too.

Let me take those in reverse order, just so I can make sure I cover them all. We're still not in a position to give specific numbers on Premion, per se. I think we'll exit the year at a double-digit margin, but that doesn’t mean we’ll finish the full year in the aggregate with double-digit margins. Obviously, the second quarter impact of the business was similar to all advertising business, but it’s got a very nice growth rate. We also have other lines in the pond regarding OTT and connected TV revenues. As announced, we’ve put our OTT apps out there on Roku and Amazon Fire. We're part of a news coalition that’s produced an app already available on Roku, and we will continue to work on a long tail of OTT video applications and strategies. We benefit immensely from being amongst the first to market players on the advertising side. The yield on that is not something we can quantify at this point, but it will be improving. On our own OTT apps, while the numbers will start small initially, the margins are much higher on those things that we own outright. Regarding M&A and the Supreme Court, as it relates to M&A, the story is the same as what we said last time. As Victoria discussed on capital allocation, we have the firepower and balance sheet to be opportunistic if the right opportunity comes along. But our priority continues to be debt payback as we promised before. We’re involved in every conversation out there. The Supreme Court ruling is promising for TEGNA specifically. Just to remind everyone, it’s not about the ownership cap; it’s about the in-market consolidation issue where the current commission had put new rules in place allowing in-market consolidation of two big fours on a case-by-case basis, and that got held up by the Philadelphia court. We didn’t think the Supreme Court would necessarily take the case because they take so few cases, but they did. We expect a ruling hopefully by June or July. If the ruling is in our favor, we could potentially be the largest beneficiary of that regulatory change given our portfolio size. We are very enthusiastic about the developments so far.

I've got to follow up a little bit on that Supreme Court and in-market opportunity. Dave, you sized that up many years ago, but I think you sized it at north of $100 million in incremental EBITDA. Your station footprint was much smaller at the time. Safe to assume that without asking you to update that number specifically, that number is higher today if you get the things we need from the Supreme Court?

I don't want to size it or say that, because there are many variables. What went backward from when we made that announcement back then was the DOJ's tightening definition of acceptable standards as a result of their extensive review of a large failed transaction in our industry. I’m optimistic that a new administration and a new head of the antitrust division could relax that, but we don’t know where those variables net out yet.

Kyle, could you give us same station revenue growth for subscription and AMS and also same station operating expense growth in Q3?

In the quarter, it's high single digits for our advertising and marketing services. Yes, down. I left the minus sign out. But a nice sequential improvement from where we've been.

You mentioned it sounded like Premion is going to end the year with double-digit margins. Could you provide an update on the competitive landscape there? Who are you competing most heavily with for inventory and selling against?

Just to be clear, I want to specify that we’ll be exiting the year with those margins—not that we’ll finish the full year with double-digit margins. There are many players in the space. There’s OTT inventory from publishers, programmatic services, and cable companies. We source our inventory directly from the publishers, so we can ensure they get the ads they want. We're not a straightforward programmatic exchange like in the past.

Could you give us your long-term thinking about growth of gross and net retrans? Thanks.

It looks very good, and it's baked in. We know the variables. To give an exact number is tough, but it’s strong, and it’s in the double digits.

Just two questions: first, can you provide a little more color on your commentary on the ad market? It sounds like every month in the quarter, you continued to see improvement. Has that stayed consistent in October? How much core demand do you think is on the sidelines that may come in now post much of the political behind us? My second question is really just on your thoughts on the NFL. Press reports suggest ABC is now in the running. You have ABC affiliates. I’m curious how that might change your view or positioning on those affiliates. Any color you can share on the NFL would also be helpful.

Regarding the ad market, we’ll be interested to see as well. The uncertainty around the election and COVID has caused people to hold on and wait. With the recent news about vaccine distribution, I think large ticket advertisers are looking for clarity. I wouldn't be surprised if we see heavy ups in December due to all that’s happened in the last week. Auto and retail have really improved, especially given they were hit hard in Q2. Automotive is close to being back to normal levels. On the NFL, we don’t know exactly where it will come out other than we’re highly confident that most of the NFL will stay on broadcast versus some package on cable. As cable loses distribution, it creates a problem for the NFL. The ABC rumors make sense, as there's a conversation now about putting games on ABC instead of exclusively on ESPN. We have quite a few ABC affiliates, so we’ll have a lot of exposure to the NFL, no matter the outcome. We remain very confident.

Maybe first, I was wondering, year-to-date, what percentage of your political revenue came from Georgia? With the senatorial runoffs there, I know it’s difficult to predict, but how big could that be since you have a footprint in Georgia?

I don’t have the breakout of Georgia’s Senate numbers in front of me. There were many massive races in terms of spending, and they were competitive. Overall, we expect that the spending in Georgia will be very large given that it’s for control of the Senate and the big media markets.

I think you have a major distributor that’s repricing either late this year or early next year. Is that factored into your recent upgrades to retrans guidance for this year, or does it more impact 2021 gross retrans?

It’s really all about 2021; it won’t affect our numbers this year.

On Peacock, you’re a big operator of NBC. First, I’m curious about the ad load on live events now like football games or the Olympics next summer. Do you get any share of that? When did your NBC affiliation agreement reset? How is Peacock going to be a catalyst in long-term monetization or in that relationship?

I wouldn’t speak on any conversations we’re having with NBC. We’re currently in negotiations, and our agreement is up at the very beginning of next year.

Dave, I know you don’t want to pinpoint sub loss declines. If I go back to the second quarter transcript, you mentioned it was better than the industry, and you were taking a hit in Q2 from COVID. Now you’ve talked about three months of incremental improvement. Can you provide a frame on that in terms of the improvement you're seeing and how you see it going forward?

Sure. We were concerned about COVID’s impact on the paid TV ecosystem. Where we ended up back in April, we’ve improved and are now better than that in terms of subscriber decline rates. The declines are now closer to 5 rather than 6. Our subscriber base is becoming more durable, particularly the sports fans, who are likely to keep a pay TV package. Overall, the virtual traditional mix is an important part of the equation given the growth of virtual platforms.

If we do no strategic transaction through the end of 2021, what do you think the debt load looks like at the end of 2021? Well, obviously, below 4 times. How much lower than 4 times will depend on whether we reinstate buyback and at what capacity. That remains one of the levers we can pull, depending on the stock price. From a capital allocation standpoint, we’ll balance that with debt payback versus any business investments.

Dave, can you give us a better sense of how TV advertising pacings are post-election? I heard some of your comments earlier, but maybe quantify how we’re looking?

They’re looking pretty good. After the election, we're looking at roughly down mid-single digits, around minus 5%, but improving.

Is auto still a drag or is that beginning to improve meaningfully?

Auto is down, but not a significant drag at all now.

Can you quantify ratings trends for your news in aggregate across your portfolio, particularly for evening news, late news, and morning news as compared to last year?

We see TV viewing overall on our stations is up over last year, with local news continuing to outperform. We have year-over-year growth in evening news viewing. We may have lost some viewership to cable news during the election, but we expect to gain that back as things normalize. Nielsen reported that news is the number one genre for people working from home, comprising 35% of the weekly television time spent. Morning news ratings have seen some loss due to fewer commuters, while late-night viewership has seen an increase as people are staying up later. We expect this will balance out as COVID normalizes.

That concludes today's question-and-answer session. At this time, I will turn the conference back to the speakers for any additional or closing remarks.

Thank you, operator, and thanks, everyone, for taking the time to join us today. In closing, I just want to reiterate again, the resiliency of our business model has allowed us to continue to perform even during these uncertain market conditions. We’re proud of the pivotal role we've played for our audiences across the US this year during these unique times. We look forward to continuing to provide value to our shareholders and all stakeholders in the months and years to come. Thank you for your time. If you have any additional questions, please reach out to Doug Kuckelman at 703-873-6764. Thank you, everyone, and have a great day.

This concludes today's call. Thank you for your participation. You may now disconnect.