Jeffrey Heinz - TEGNA, Inc. David T. Lougee - TEGNA, Inc. Victoria D. Harker - TEGNA, Inc..

John Janedis - Jefferies LLC Alexia S. Quadrani - JPMorgan Securities LLC Barton E. Crockett - FBR Capital Markets & Co. Daniel L. Kurnos - The Benchmark Company, LLC Marci L. Ryvicker - Wells Fargo Securities LLC Kyle Evans - Stephens, Inc. Douglas Middleton Arthur - Huber Research Partners LLC.

Good day and welcome to the TEGNA's Second Quarter 2017 Earnings Conference Call. This call is being recorded. Our speaker 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 Jeff Heinz, Vice President, Investor Relations.

Please go ahead..

Thanks. 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 second quarter results. After that, we'll open up the call for questions. Hopefully, you 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 include forward-looking statements and our actual results may differ. Factors that may cause them to differ are outlined in our SEC filings.

This presentation also includes certain non-GAAP financial measures. We have provided reconciliations of those measures to the most directly comparable GAAP measures in the press release and on the Investor Relations portion of our website. With that, let me turn the call to Dave..

Thanks, Jeff and welcome, everyone. Thanks for joining us this morning. This morning I'll comment on our financial performance at a high level and then discuss developments and initiatives inside the new TEGNA aimed at transforming our business during these dynamic times.

After that Victoria will discuss the financial highlights for the quarter in greater detail. Before I begin, I want to say what an honor it is to serve as CEO of this great company. I'm thrilled to be leading TEGNA as we begin this dynamic new chapter as a pure-play media company.

We are executing on our strategy and vision to drive and embrace change and innovation throughout our business as we discussed at our Investor Day in May and we made good progress during the second quarter. On a financial side, revenues were up. Profitability is strong.

Media revenue growth of 5% was primarily driven by new initiatives and a substantial increase in subscription revenue, which as you know, is contractually recurring providing us a nice diversified revenue stream and stable revenue stream to counter the cyclical swings in Advertising and Marketing spend that are endemic to broadcasting.

Total company revenues were 3% higher year-over-year and Victoria will give more color on those adjustments later on. Adjusted EBITDA, excluding corporate cost, was $186 million for a margin of 38%; a testament to the ongoing to excellence of our best-in-class operations.

We achieved these solid results while improving our balance sheet and continuing to make the necessary investments in the innovative initiatives necessary to drive our future growth.

We are growing revenue share on our Advertising and Marketing Services businesses, accelerating growth in digital across all platforms, maximizing our paid subscriber revenues and investing in new businesses and business models.

We're broadening the definition of the markets we're pursuing and we're broadening the suite of products we're offering to our clients. For that reason and as we signal at our Investor Day, and outlined in this morning's release, we are changing the way we report certain revenue numbers and categories reflecting the changing times.

Our Advertising and Marketing Services category is a reflection of the initiatives and strategies you heard us talk about at Investor Day and earlier. This category includes all of the company's traditional and digital revenues including Premion, Hatch, G/O Digital and other digital advertising and marketing revenues across our platforms.

We go to market with all of our products across multiple platforms. This is how we run the business and how we sell our products. It all ties back to the customer, who along with the consumer, is our true north. We're providing customers with the solutions that work best for them. We're not pushing one product or financial reporting line over another.

The second change you'll notice is that we've renamed our Retrans category to subscription revenue. Our business is evolving and the subscription revenue category title better reflects the future direction of our company, especially as we're about to begin seeing revenue from OTT services from both traditional MVPDs, as well as virtual MVPDs.

To that point, during the second quarter, we negotiated and signed multiple agreements with OTT providers to carry our linear signal, while at the same time completing master OTT agreements with our major network partners. These systems are just now beginning to line up and likely won't provide significant revenue in what's left of this year.

As I indicated before would be the case, the per subscriber economics on all these OTT deals are equal to or better than per sub economics with our traditional cable and satellite partners.

And I think it's really important to note that what these industry-wide negotiations highlighted is that the combined local national partnership of strong stations like ours and their strong network partners is the most valuable linear partner in ecosystem – partner linear product in ecosystem.

This has a lot of positive implications going forward about the future value of our distribution versus cable networks, and the resulting economics that will flow from that consumer-driven change. It also makes us somewhat agnostic when a consumer trades out a traditional pay-TV service for an OTT streaming service carrying our channels.

Now, turning to other significant developments. At the end of the second quarter, as you know, we successfully completed the spin-off of Cars.com into a publicly traded company. And yesterday, we announced that we have completed and closed the sale of CareerBuilder.

Those transactions represent a key financial and strategic turning point for our company. As a pure-play media company, we now have the dedicated resources and strategic focus to capitalize on the unique opportunities ahead of us and we are executing on the transformation plan we started long before the spin of Cars and the sale of CareerBuilder.

Our long-term key to driving market share and growth in our Advertising and Marketing Services business is to improve our audience share on engagement across all platforms and broaden the market we are targeting. We're doing that by making bold changes to our content strategy and innovative data-driven investments and our go-to market sales process.

It's worth nothing that we're making all these investments within our usual rigorous financial discipline by reallocating expenses for these future initiatives. Here's just a few of the examples of the progress we're making.

On the content side, we've made wholesale non-incremental transformations of our local content operations in the markets of Charlotte, Tampa, and Sacramento.

At those stations, we've created true digital first newsrooms using data to better understand the unique needs of each of those markets and creating more engaging content for all platforms and it's working. In Charlotte, we are up in every newscast with adults aged 25 to 54 particularly in morning news, which is up 29% in May.

In Tampa, ratings are up across the board in May, up 100% in the morning news, up 29% in the early evening news and up 25% in the late news. By integrating social and digital alongside broadcast, we've also seen a corresponding growth in digital visitors which are up 41% in May. Video plays are up 48% and social interactions grew more than 300%.

And in Sacramento, we announced last week that we are the first local network affiliate to partner with Cheddar – that's right, Cheddar – a leading post cable OTT network focused on the millennial audience.

Cheddar Local will provide our station in Sacramento with premium business and tech coverage that will appeal to the younger demographic we are reaching, attracting and focusing on with our revamped morning news show there. One of the pillars of our strategic plan is called reinventing local journalism in the digital age.

And so as part of that initiative, we have organized and empowered a new generation of innovators across the company. They come up with the ideas, then we use consumer data to decide what pilots to green light and invest in and it's working, as an example of those ideas.

One of those ideas turned pilot, turned reality is VERIFY which provides unbiased fact checking on a variety of topics often submitted to stations by viewers and users through social media. And as it turns out, our innovators were visionaries because they came up with VERIFY before fake news ever entered the current vernacular of our country.

By design, VERIFY is platform-agnostic. Segments can air during a broadcast. It can be shared on social and mobile. And as I mentioned, viewers and users submit the issues and stories they want us to fact test. Since we began offering VERIFY just 60 days ago, we've had more than 8 million page views across our platforms and millions of visitors.

This data-driven audience-centric approach extends to social. We're launching new digital content models as well. This quarter we launched the first of our new digital content verticals, HeartThreads, a new national social brand dedicated to sharing the best stories about the best of us across the country.

These easily shareable stories are designed specifically for Facebook reaching new audiences and deepening connections with existing ones. Since its launch in June, we posted one video a day. Together, they produced 38 million video streams on Facebook in just 57 days.

Another key component of our content transformation strategy is the creation of unique, live and original programming to combat changing viewer habits away from non-live programming traditionally inhabited by pre-taped syndicated programming and towards live event style programming.

It also is talking about taking our future into our own hands when it comes to programming. This fall, TEGNA will launch three new original programs; two daily, one weekly. These programs, two of which we've announced, will enable us to reach new audiences and leverage our cost across our many markets.

In September, we are launching Daily Blast LIVE known as DBL, our groundbreaking 30-minute news and entertainment show. Produced out of our station in Denver, DBL as it's affectionately known, it's first of its kind format means the show is always live in every time zone, something unprecedented in TV syndication.

We are producing seven live half-hour feeds per day while also streaming live twice a day on Facebook and for an hour on YouTube. Because it is live, the content comes from our viewers through what is trending at that moment on social media.

Today, almost all our audience has an Internet-enabled smartphone within a few feet of them while they watch TV, and Daily Blast LIVE is programming to that return path device. And because DBL is live in every time zone, no two shows will be exactly alike. What is being discussed during one half hour may completely change the next.

Being constantly live also opens the door to significant sponsor content dollars not available in traditional newscast or other traditional shows we don't own ourselves.

We also announced Sister Circle, a live, original daily talk show that's targeted towards an audience that is currently underserved on daytime TV African-American women, an audience we over index in, in many markets.

Sister Circle will air beginning September 11 in 12 TEGNA markets and on TV One, a very successful cable network that offers a broad range of programming for a diverse audience of adult black viewers. TV One will air the show live to its 59 million households every morning.

This is the first time TV One is signed with a local station group to carry their original programming and we're pleased to have them as our distribution partner. Through our deal with TV One and across our TEGNA households, Sister Circle will reach 60% of U.S.

TV households and since DBL and Sister Circle are produced by and at TEGNA stations and not in Hollywood, the cost structure is substantially lower as well as receiving tax incentives in Denver and Atlanta for our production and bringing them jobs.

The other key driver of our strategy is innovation in the technologies and marketing services we utilize to grow market share broadly defined. Back to Premion, as mentioned in the release this morning. It's a star. Premion is our new OTT ad services initiative that is a first mover, meeting an unmet need in the rapidly growing OTT space.

Premion is the first solution to provide local and regional advertisers access to long-form OTT content. We're capturing an entirely new source of revenue with this business. We launched Premion in just the fourth quarter last year. Since then, it has surged to nearly 2,000 campaigns serving 372 advertisers across 190 markets.

Remember, we're only in 38. Our team has put together the technology to serve ads across multiple providers and platforms and we have the high-class problem of keeping up with the demand. Second quarter revenue was more than double the first quarter.

We've already got $20 million on the books for the year out of nowhere in December, and we're well on our way to hitting or exceeding our target for full year 2017. On the more traditional side of our business, we are rolling out that proprietary software – pricing software we've been talking about this quarter.

It looks great and we are beginning to marry it to third-party attribution data, making it a compelling sales proposition for our stations and clients. Again, a first mover in the local broadcast space. Lastly, before turning the call over to Victoria, I want to spend a few minutes talking about capital allocation and industry consolidation.

We expect to continue returning capital to shareholders through a regular cash dividend of $0.28 per share annually. But as we outlined at our Investor Day, our first priority for the cash we generate is to invest in our business, to drive profitable growth.

Our second priority is to manage our leverage levels in order to increase our financial flexibility for future investments and M&A, which brings me to the opportunities we see in the changing media landscape.

Our highly efficient, best-in-class operations coupled with our scale and financial firepower position us to play an active role in either the vertical, horizontal or both consolidation that we believe will happen over time in our industry.

Thanks to our financial discipline, we have a fortress like balance sheet to give us the flexibility to act opportunistically.

With our track record of reaching and exceeding synergy targets ahead of schedule, we have a proven ability to create significant shareholder value through strategic, accretive M&A whether vertical or end market consolidation.

Both scenarios are attractive to TEGNA, not just because of the traditional revenue and cost synergies, but because of the additional synergies produced by leveraging our innovative strategic initiatives across greater scale.

These are exciting times for the team at TEGNA, and we intend to leverage our scale and innovation to drive growth and shareholder value for many, many years to come. Now, to discuss our second quarter results, here's Victoria..

Thanks, Dave. As Dave already noted, the second quarter was an eventful one for TEGNA. We completed the spin-off of Cars.com at the end of May and just yesterday announced that we along with the other owners completed the sale of CareerBuilder retaining a 12% minority ownership stake on a fully diluted basis.

Before I cover consolidated financial results and capital allocation during the quarter, I'd like to review several special items.

Given the transactions we had underway during the quarter, we recognized approximately $20 million in non-operating special items or about $0.07 a share due primarily to costs associated with the spin as well as non-cash impairment charges. In addition, we recognized deferred tax benefit of approximately $4 million or $0.02 a share.

Beyond this, during the quarter, our efforts to right-size the support costs for our ongoing business as well as creating shared centers of excellence resulted in severance and relocation expenses that negatively impacted our operating expenses by approximately $3 million or $0.01 per share.

All-in, special items negatively impacted EPS from continuing operations by about $0.06 a share.

Turning now to second quarter consolidated financial results, keep in mind all of my comments today will be focused on non-GAAP performance from continuing operations in order to clearly provide financial insight into the drivers and the results of our ongoing business.

However, as a reminder, you can find all of our reported data and comparatives in our press release. Now turning to total company results. As you saw in the release, TEGNA will report one segment going forward which will include media and a remaining small digital marketing services contract that was previously reported in the Digital Segment.

Beyond this, our historical financial results include the impact of a transition service agreement with Gannett, which concluded in June of this year, as well as Cofactor, which was sold in December of 2016, both of which were previously reported in the Digital Segment. These unfavorable comparisons will continue through the second quarter of 2018.

Despite these impactors, total company revenue for the quarter was up 3% year-over-year, totaling $489 million. Excluding the impact of digital marketing services and Cofactor, Media revenue was up 5%, at the high end of our prior guidance.

Total revenue growth was driven by a 24% increase in subscription revenue as well as new initiatives like Premion and Hatch. This was partially offset by lower Advertising and Marketing Services as well as vertical revenue.

Operating expenses were 10% higher in the quarter due primarily to substantially higher programming fees including reverse compensation costs driven by payments to NBC for 11 of our stations that began this year as well as our continued investment in new initiatives. Net of this, operating expenses were down for the quarter.

Despite the substantial increase in programming fees, our continued focus on efficient operations resulted in adjusted EBITDA of $171 million, margin of 35%. And excluding corporate expenses, which are just over $14 million, adjusted EBITDA was $186 million, driving a very strong 38% margin.

Now, as we look forward to the third quarter, total company comparisons – revenue comparisons will be unfavorably impacted by the absence of record Olympic revenue in 2016 and substantially lower political advertising than a year ago, as well as the impact of a transition services agreement and the absence of revenue from Cofactor.

As a result, total company revenue is expected to decline in the high-single digits to low-double digits in the third quarter of 2017 compared to the same quarter year ago.

However, on a comparable basis, excluding the impact of nearly $100 million in Olympics and political spending as well as the conclusion of the Gannett transition services agreement and Cofactor previously reported in the Digital Segment, total company revenue is expected to increase in the mid- to high-single digits year-over-year in line with second quarter.

Keep in mind, because only half of our advertising revenue comes from our NBC stations with Olympics and Super Bowl in conjunction with our strong political footprint, we have and will continue to have the largest swing in even to odd year revenues amongst our pure play peers. Now, turning to liquidity and capital structure.

Excluding discontinued operations, capital expenditures totaled $8 million during the quarter reflecting investments in development in our programming and news content as well as infrastructure to improve operating efficiency.

During the quarter, we strengthened our balance sheet and enhanced our firepower as a result of the transactions we completed.

Spin-off of Cars.com generated tax-free distribution of $650 million, majority of which was used to retire the drawn amount under our revolver, driving (21:17) approximately $12 million in interest cost savings in 2017 as with any new borrowings. At the end of the quarter, long-term debt was $3.35 billion resulting in a leverage ratio of 4.4 times.

In addition, as Dave mentioned, yesterday, we completed the sale of CareerBuilder. Gross cash proceeds from the sale of $250 million are expected to generate approximately $220 million net of taxes and other adjustments.

With those proceeds, in October, we plan to prepay some of our fixed rate notes due in 2020, which will reduce interest expense by $3 million per quarter through the second quarter of 2020. TEGNA also remains an ongoing partner in CareerBuilder with a 12% ownership stake on a fully diluted basis, and will have two board seats.

Free cash flow for the quarter was $67 million. As anticipated last quarter, second quarter 2017 cash flow from operating activities and free cash flow were lower year-over-year and sequentially through the initiation of reverse compensation payments associated with 11 of our NBC affiliates.

In addition, new tax legislation moved the timing of tax payments from March to April 15, which also impacted sequential cash flow comparisons. This has been an exceptionally productive period for the company.

From the spin-off of Cars.com and the sale of CareerBuilder to investments we've made in innovative content and sales initiatives you've heard from Dave. While TEGNA is a pure play media company, it has evolved on a number of fronts.

One thing that has not changed and will not change is our disciplined approach to capital allocation and our focus on operational excellence. We remain fully committed to our strong balance sheet to ensure we have the necessary capacity to grow our business in these dynamic times.

Our financial strength and flexibility continue to enable us to seize attractive opportunities within this sector, while investing in innovation and initiatives, which will grow revenue and cash flows well into the future. Now, let me turn the call back to Dave for some final remarks..

Thanks, Victoria. So we're pleased with the results for the quarter as I expounded upon earlier. We're very excited about what the future holds given the culture of innovation that's taken hold across our company.

One final note, as a reminder, looking ahead to 2018 in addition to the acceleration of our initiatives, we have some unprecedented tailwinds specifically a trio of big revenue events that we've not had in the same year in a long time, that will specially benefit TEGNA in 2018 for the reason Victoria mentioned that our very large NBC portfolio and a great political advertising footprint.

For the first time in a long time, we'll have both the Winter Olympics and the Super Bowl on our strong large market NBC stations in the same year, and in fact, they'll be in the same quarter, the first quarter. With both the Olympics and the Super Bowl, our stations regularly out-index the country in ratings and revenue and that won't change.

And second, as I referenced on Investor Day, 2018 is setting up to be an unprecedented off year election as you can probably tell from the noise.

How our footprint will line up on competitive House, Senate and gubernatorial races remains to be seen because in this political environment, 1 year is like 5 years, 10 years ago, but so far it looks very good and we expect it will be very good for us by the end of 2018. With that, I'd like to open it up to questions.

Operator?.

We will go first to John Janedis with Jefferies..

Thanks very much. And Dave, thanks for all the clarity on the initiatives. Can you talk a bit more though about the underlying outlook for TV ad growth for the third quarter? Between the changes in terms of reporting the subscription line and the comps, it's kind of hard to tease out.

And along those lines, can you speak to local compared to national?.

Yeah.

John, I'll just simply say that we saw marginal improvement from first to second and our advertising services were large and we see and we think we're also going to see marginal improvement in the third quarter as we indicated in the guidance that Victoria gave when you factor out the noise of Olympics, political and these other factors that we talked about.

I think that, yes, there's probably – national as we had always forecasted hence our local initiatives is not as strong as local, and I would – so and that has been the case for some time..

From your comments, is the assumption that political and Olympics, is that all incremental? Or how do you think about that when you share the numbers for the outlook?.

Yeah. You know for almost all – most of the political, almost all of the political is incremental for how we price because we've gotten really good at pricing it.

There is that six week period between Labor Day and Election Day, John, when we do have some displacement but a lot of their political now is spread more evenly across the year, and that's pretty much 100% incremental.

I think Olympics, we vary between 50% and 55% based on the year, is the number we use, it's not an exact science but that's a probably a pretty good governor..

All right. That's helpful. And maybe Dave you spoke to industry consolidation in your remarks.

Is there still the plan to be a consolidator, and can you give us an update on what you're seeing in the marketplace?.

Look, I think, obviously, the Sinclair-Tribune deal is out there going through the regulatory pipelines of the SEC and the DOJ. I think a lot of people are waiting for clarity on the end market rules that the FCC will likely issue an order on in September.

They'll probably circulate the order and people will get to see it two or three weeks before they act on it. So I think they're waiting for clarity on that, but everyone is assuming there will be some significant relaxation of the end market rules and obviously the UHF discount which is already in place, John, provides vertical opportunities.

I think the thing for us to remind you is that, at 25% on a discounted basis, we still have vertical room.

And as we said at Investor Day, regardless of what the rules become on end markets, we are also – given that we're a large market operator with a lot of standalone big fours, we especially stand to benefit from the ability to consolidate end market in the markets we're in..

John, let me also – just to reiterate what we said on the Investor Day, we are fully preparing ourselves to be poised to act on opportunities. We have a balance sheet that's certainly been bolstered by the transactions that we just talked about, including doing what we said we would do on debt paydown but also increasing our firepower.

I think the other, you'll note in our numbers, we had also extended the current financial covenant relative to our leverage levels so we have capacity and the ability to act as the market opens up..

Okay. Thank you. And maybe if I could sneak in one more.

Are there any OTT agreements left to negotiate? And, Dave, can you talk about the opportunity as you think about it? Meaning ultimately do you think that they grow the overall TV universe for you?.

Yeah. I think that's a great question and I think it's a very good possibility. I think that there's actually three dynamics that are happening is that some cord cutters are going to over-the-air, right, so those are non-pay homes for us, not good on one hand. The flip side is, in an over-the-air home, our percentage of viewing dramatically increases.

But I think that the movement like I said earlier from a MVPD service to an OTT service, that's – we're agnostic on that. I think the OTT providers do believe that they're going to bring in a lot of younger consumers who heretofore will not pay $88 a month or whatever it is for a cable service but will pay $30 for a skinny bundle.

So, there's a lot of assumptions out there that it will expand the market – the pay marketplace but remains to be seen..

Thanks very much..

We'll go next to Alexia Quadrani with JPMorgan..

Thank you very much. Just a quick follow-up first on the commentary you gave about core TV advertising. I know you don't want to get too specific when you said you're hoping to see some improvement. I think you saw some in Q2 and you hope to see more in Q3.

Do you know if it'll turn positive or it's likely to turn positive in Q3? And then, do you think we're sort of beyond most of sort of the U-verse advertising headwind or is that still sort of ongoing?.

Actually for us, it's not – it's, yeah, you're right it's U-verse at AT&T. I was thinking Fios. We have a little more of that to go and thanks for the question, Alexia, because that is part of the headwind we faced in second quarter, is that we're still cycling through this AT&T U-verse homes and there appears to be more of that to go.

So, it definitely has hurt us in the media telecom space. I think the issue on overall ad spend in the third quarter is going to be a function of automotive. Look, it's no secret that automotive has hit a cyclical slow spot. New car sales have slowed down and that's affecting advertising. Nobody should be fooled differently for the entire industry.

And so we – a lot will depend on how auto holds up and recovers. But long term, I'm not worried about auto because television is an important part of any auto buy. Furthermore, the marketing services and initiatives we've created positioned us to take an increasingly larger share of the auto pie out of our markets..

And then just one quick more question if I can. We've actually seen a huge surge in cable news ratings since the elections which seems to be ongoing.

Have you – is that been the case for your local news as well? Have you seen a pickup in viewership, or you've unfortunately seen more competitive pressure or have you seen some share loss to the cable news on your local news?.

I think only in a handful of markets, and it's really a morning news issue. I think there are people waking up to the cable news 24-hour offering of Trump. And certainly, there's a hardcore group of those, more in some markets than others like you might expect, like D.C. or Seattle, places like that. But overall, no.

I mean, our ratings are – local news ratings remained the highest rated shows in our market, and in our case very much so. So, yes, I think it's chopped into a little bit, the mornings, but it's got an unusual circumstance for obvious reasons..

All right. Thank you very much..

Thanks. Thanks, Alexia..

We'll go next to Barton Crockett with FBR Capital Markets..

Okay. Thank you for taking the question. I wanted to ask a little bit more about the pace of potential, kind of, rule change and that showing up in your M&A, kind of, approach. And I guess a couple of things. One is, you gave us a sense of when we might see a rule, kind of, circulated and addressed at the SEC.

What's your sense of how long it would take after that in a base, kind of, scenario to actually have a rule change effective such that you're actually able to go out and start doing market consolidation? Is this a multi-year process or something that could move pretty quickly?.

No. It can – the order, this is not a quadrennial review, where there'll be an NPRM and then there's months and months of comments. It's a petition for reconsideration of the previous quadrennial review.

So the order could go on place right away, but to be frank, Barton, I think you would assume that public interest groups will likely appeal it, and then the issue will be is there a stay or not. If there's a stay, the bad news about the stay is that will delay the M&A, maybe the good news is, a stay pushes the legal process through faster.

If there's not a stay, I think you start to see deals go through. And remember it's not just necessarily acquisitions, it can be swaps. And I think that once there's clarity about the in-market rules, a lot of groups that maybe are semi-engaged right now in the in-market consolidation will become much more engaged, some already are..

Okay. That's helpful. And I guess switching gears a little bit, I'm following up on Alexia's question about the U-verse and TV ad trends.

One thing you had flagged is you had thought that the ramp-up of some of the SVOD services over-the-top, I think in particularly YouTube TV was something that could drive some incremental ad spend and competitive responses.

Not seeing YouTube TV go into more markets is that playing out what you expected or is that still kind of on the come?.

Yeah. Actually I mentioned in my script too, I think it's on the comp just because and they're all later to market than they intended to be, both because of – frankly, they had to have Austin results so it's not – they're using different and difficult technologies, there's no uniform technology being used.

I mean, YouTube is building out receivers in every local market, others are going to encoders that are placed at stations, I won't go into the weeds, but I don't think you'll – I just don't think there's time left in the year for them to get enough subs to have a meaningful impact on our numbers, but I do, you know, query what it'll be in two, three, four and five years.

But again, we feel like for the earlier question it'll be agnostic to positive and worst for us on our subscription economics..

Yeah. But to be clear, I mean, I was asking about ad spend. You were talking about those guys marketing their services.

Are you seeing that in any competitive marketing response?.

I apologize for it. I misunderstood the question. I apologize. Not yet, but we expect it.

They're not – they're still, I know from our own contracts and we – we're amongst the first markets to go because it's the large markets that are going to go first and query whether some of them I don't know when they'll go to the smaller markets, but they're not lit up yet. So....

Okay. Great..

Once they're lit up, we'll see and just like a lot of those types of dollars, we don't get a lot of transparency ahead of time on when they're coming. But I – it just makes intuitive sense to us that TV will be the place to market TV..

Okay. Great. Thank you..

We will go next to Dan Kurnos with The Benchmark Company..

Thanks. Dave can you talk a little bit more about Premion. I'm just curios and sort of a different OTT question other side, obviously it's been six months and you're seeing some traction there.

So, maybe just give us some color on how you're seeing that ad market develop and remind us where you're at on the programmatic initiative there?.

So, yeah. Glad to talk about Premion. Again, we were a little delayed get to market last year just because of the not small challenge of putting together. There were appropriate technologies but our team really did an incredible job in a small amount of time. And a year ago in July, we had one campaign.

And as I told you, we've got these couple of thousand campaigns and $20 million; so pretty nice run rate and it's nothing but up because we're adding program providers and OTT providers like Pluto, Crackle, Xumo, PlayStation Vue, Sling.

Even if we didn't add another programmer, that inventory on those services is going up every day because of consumer changes. So, the inventory is going up and we will add more services. We've created a tremendous amount of credibility. I'll tell you one by – I'll take you through if I can find it here in my notes, the story I love.

I won't give the name of the advertiser but it's a Tier 2 automotive company and we closed the deal in January of 2017 for $3.1 million – so a local sales person in one of our large markets got to a regional agency, sold the proposition. That person had influence over multiple markets. We sold $3.1 million for 115 markets.

By the end of the quarter, we had 98.5% success on the delivery of that campaign which was our largest fear given the technology. And then that advertiser added another $1.4 million in 15 markets in May based on our credibility and the results that they were seeing. And that same Tier 2 advertiser changed agencies.

You know in the old world when an agency would change, oops, there goes the business. That agency said, please add more markets..

It's helpful. On the programmatic side, do you have that in place? I know that Jim was talking about developing some demand side stuff..

Yeah. So, he is working on programmatic for his platform. Writ large, we are spending time and effort on a programmatic answer to video advertising writ large which means giving the advertisers the ability to buy both television and digital video through a platform. That's an ecosystem issue that's larger than TEGNA.

We are looking at it as a potential business just we're – frankly, as I'm sure some others are too. But we are bullish on solving for the agency's needs and the friction points that the old style of selling creates. So we're not as far long as we would like to be on that because there's a lot of cooperation that needs to happen in the industry.

But I think there's a clear understanding between our peers and especially the agencies that need to be there. So where there is a need, I think it'll happen..

Great. And then just one housekeeping question. Victoria, you restated Q2 up by about $18 million. Thanks to the digital shift, obviously Cofactor and the marketing services agreement. Is that kind of – what's the Q3 base? Is that a similar run rate for, you know, call it 2.7 for Cofactor, the remainder for Marketing Services.

Is that incremental to Q3, and we should think of that as a Q3 base?.

Yeah. That's about the same on a run rate basis..

All right. Thank you..

We'll go next to Marci Ryvicker with Wells Fargo..

Thanks. There are so many moving pieces, Dave and Victoria.

Can you talk about how we should think about your prior annual guide that you gave on your Investor Day in the context of the updated revenue base of $2.04 billion in 2016?.

Sure. Sure. And I guess keep in mind obviously we've been talking about total company. We have the moving parts, as you mentioned, relative to digital but I think it's important to keep in mind some of the comments that Dave made earlier as we've indicated so far.

The second quarter ad trends improved somewhat over the first quarter, but through the first half of the year, they're softer than we had forecasted then. They're moving to the back half.

We're seeing some marginal improvement in ad trending as well as some accelerating performance in the initiatives that Dave also referred to, but it's really too early to tell if the overall consumer and ad spending is going to match the full year expectation..

Okay. So in terms of the absolute numbers you gave, are those restated or I guess – are you reconfirming those? Just trying to figure out..

Yeah Marci. Hi, Marci. We are not....

Hi..

... restating. What we're saying is that given what's happening in auto and others, we're going to have to see how the third quarter develops to provide clarity on that..

Okay.

And then curious why you're keeping a 12% interest in CareerBuilder? Why not just sell the whole thing?.

I think as we walked through the puts and takes relative to the negotiation of the value, relative to where CareerBuilder is, the pivot, the business on top of the service, we felt there was upside opportunity for us as an equity holder.

Obviously, it's a distraction from our core business now, but we felt that it was worth continuing ongoing stake and eat the returns from that business as it grows over time..

Okay. And then the last question is on the OTT stuff.

I'm assuming that there really is nothing OTT related in the subscription line at this point?.

No. There's zero right now in our revenues to-date. We have recognized zero at this point, Marci. We will recognize some in the back half of this year, but to the earlier question, it won't be material..

Okay. Thank you..

For this year..

Got it. Thank you very much..

Okay..

We will go next to Kyle Evans with Stephens Investment..

Hi. Thanks.

What's the third quarter base number that we should use for Advertising and Marketing Services and how do you see that trending in the current period?.

I think what we said, Kyle, is that when you factor out the noise of political and Olympics and the Cofactor and the other stuff that on a media base that you're looking at, we're looking at mid- to high-single-digits..

Which is in line with the second quarter..

Okay. I was asking for the third quarter 2016 base number..

Oh.

You mean the dollar number?.

Yes..

Okay. Let us get back to you. Do you have a second question? We'll get them before....

Yeah, I got two more..

Two more?.

Yeah, two, if that's all right?.

All right..

At a conference late last year, you guys talked about OpEx guide for the Media segment of up 20% year-over-year.

Has that guide changed in your mind on the reclassification or is that how we should still be thinking about operating expense?.

You're talking about operating expense inclusive of programming?.

Yes inclusive..

Full-year OpEx?.

Yep..

Yeah. No I think....

Well, I think – yeah. I think it looks like probably when you take out programming expenses – actually, no, with program expenses, it's actually going to be lower than that now. Probably closer to $10 million and $20 million..

Okay. Lastly, Dave you talked about $100 million in new initiative revenue this year at the Investor Day. It sounds like you've got some good momentum on Premion so far.

Is that $100 million still the goal and how much of that came through in the first half of 2017 just on the new initiatives?.

It is the goal. We've got some puts and takes. Look you know, the one thing I'd say about our initiatives, the good news is we've learned that the strategic thesis of all of them is good. So we're on the right track but some are performing better than others. Premion is really performing well.

A couple others are little behind, but yes, net-net, we're looking $100 million..

Got you..

And your earlier question, Julie, what the – you were looking for total company revenue last year in the third quarter?.

I'm looking for the newly defined Advertising and Marketing Services line a year ago..

I'm not sure we have that right now. Kyle, we will call you back..

Okay..

We'll make sure we give it. It's new to us too. I want to make sure we give you the right number..

Appreciate that..

I think we have time for one more call..

We'll take our last question from Doug Arthur with Huber Research..

Yeah thanks. Victoria, just continuing on a familiar theme here. If you look at Advertising and Marketing Services in Q2 it was down 5.6% you say in the footnote adjusted for various transitions in digital it was down 3%.

I guess first question is, how much of the non-Cars classified digital – the former Digital segment is actually in this number? How does the Gannett transition agreement impacted – how did it impact in the second quarter. You said it was terminated in June.

And if you could quantify that impact ballpark for the third quarter on the Gannett transition? Thanks..

For the third quarter, Doug?.

Both Q2 and Q3..

So Doug, there's a table on, I guess, it's table six talking about the various impact where it's relative to Cofactor as you point out is lapping in December.

The CFA terminated in June, so it was partially in the quarter bell so subsequent, and then we also have additional marketing services; a piece of it was remaining in the Digital segment now that we're only reporting one segment is obviously moving over to it, but it's a fairly small piece of the business..

So I think we got the numbers here though to your question. Doug, I think that the numbers that have been, that have gone away that weren't in media last year but that we're still – now that we're full holdco TEGNA we're cycling against are about $16.5 million in the third quarter..

Okay.

Any ballpark on the impact of the transition with Gannett in the third quarter? I mean, you sort of talked to the percentages?.

That's the number I'm giving you. I'm sorry.

You're talking about the impact of the discontinued Gannett services?.

Yeah. That's the number you gave me..

Oh, you mean inside, I don't have the break up, but the bottom line is the net of Cofactor and Gannett and the discontinued former Gannett-related services total up to $16.5 million..

Okay. Great. I'll follow up with Jeff. Thanks a lot..

Okay. It is confusing and we got four quarters to cycle through this. So we'll work our best to provide clarity every quarter..

Okay. Thank you, everyone. Appreciate it. It's my first call as a new company CEO. We look forward to answering all your questions. As always, you can call Jeff Heinz with questions and I think you all have his number. Thank you, operator..

Thank you. This does conclude today's conference call. Thank you for your participation. You may now disconnect..