Good day and welcome to the TEGNA First Quarter 2019 Earnings Conference 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, Capital Markets and Investor Relations. Please go ahead, sir..

Thank you. Good morning and welcome to our first 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. Following a record fourth quarter for revenues and free cash flow, we had a productive first quarter of 2019.

This includes both organic and inorganic growth, supported by our continued strength of subscription revenues as well as the acquisition of 11 local TV stations and the announced acquisition of multicast networks, Justice and Quest earlier this week and M&A is where I'd like to begin.

In March, we announced the largest acquisition since we became a pure play in June of 2017. It's the purchase of 11 Nexstar and Tribune stations and eight markets being divested as a result of the Nexstar acquisition of Tribune.

These stations are an excellent fit with our portfolio including Big Four affiliates in each of those eight markets and that includes too Big Four affiliates each in Pennsylvania and Iowa both key presidential battleground states, further strengthening our positioning for the election next year.

They are also a very efficient use of cap space for us, as we expand our portfolio. On a UHF discount basis, the stations will increase our reach by only about 2%, but will add nearly $100 million of annual EBITDA on a two-year average basis including the synergies.

Victoria will cover the financial details of transaction shortly, but I want to reiterate our enthusiasm for this acquisition and the value it will create for our shareholders. Earlier this week, we announced the acquisition of the Justice Network and Quest Networks.

We've been minority equity owners of these networks for some time and we got into them because of their very well thought out programming strategy which has proven to be very successful and extremely cost efficient.

And over-the-air audiences have increased by more than 48% over the past eight years and that's the majority the viewing comes on these channels and these networks will continue to benefit from that secular tailwind. Moving on now to the financial highlights for the quarter.

Out total reported company revenue grew 3% year-over-year to $517 million at the high-end of expectations. Revenue growth this quarter was driven primarily by an 18% increase in subscription revenues for a total of $242 million of first quarter record as well as organic growth in our sales, digital and content operations.

Our subscription business continues to price us the stable and predictable cash flows supported by rate increases in existing and future agreements.

Related to that, one trend I want to highlight is the continued stability of our paid subscribers, a credit to our attractive footprint in large markets and our large portfolio of markets with strong population growth characteristics, such as Texas and the Southeast.

Adding to that, between the fourth quarter of this year and the end of 2020 next year, we will have repriced approximately 85% of all our subscribers.

That combined with our previously announced affiliation agreements with NBC and ABC due early 2021 and late 2023 respectively, give us both stability and clarity of the growth of our retransmission consent revenues and profits.

And while 2019 is not an election year, I want to reiterate that we anticipate a record level of political spending overall next year for all the obvious reasons outlined on prior calls.

Our expectations remain that high margin subscription and political revenues will account for roughly half of total year revenues beginning – on the two year basis beginning with the 2019-2020 cycle and increasing thereafter.

These predictable revenue and cash flow streams will continue to grow in importance as drivers of our business over time, and will enhance our ability to create shareholder value regardless of the economic backdrop.

Now, I would like to provide an update on our content innovation efforts, which are showing results with audience share increases in key large markets. In November-February ratings periods, more than half of our large market stations are up in the morning and late local news, in the key demographic of adults age 25 to 54.

Daily Blast Live, the only live program in syndication continues to grow. Produced out of our station in Denver, DBL’s ratings have increased 31% year-over-year and again in adults 25 to 54, a significant accomplishment. I'm proud that our team is constantly being recognized for producing relevant and creative programming for viewers.

Just a couple weeks ago, we were honored with 91 regional Edward R. Murrow awards more than any media company in America and many of those 91 awards were a direct byproduct of our disciplined content innovation efforts. In addition, four TEGNA stations were awarded, were awarded Walter Cronkite Awards for Excellence in Political Journalism.

Again, more than any other news organization in the country and KING our station in Seattle also won a prestigious Peabody Award for the ongoing multi-part investigative series of special education in Washington state called Back of the Class.

We have a portfolio of strong local news organizations across of the third of the country and that number is growing. And interestingly these stations own an unparalleled video and audio archive of solve and unsolved crimes. A genre of programming that continues to resonate with audiences on multiple platforms.

And that's partly why we purchased the Justice Network. To capitalize on these unique archive assets are IT, as I’d like to call it. We recently launched VAULT Studios, a digital initiative leveraging this deep reserve of archive content.

VAULT’s first investigative podcast series called BOMBER leveraging the archive assets from our station in Austin, Texas debuted last month – debuted in March and for weeks was one of the most listened to news and politics podcast on iTunes.

Looking forward, there will be new business opportunities of the VAULT initiative and the Justice Network acquisition that will allow us to capitalize on these exclusive archive assets.

Returning to M&A, we’ve had a busy and successful year today in which we've announced or closed on more than $900 million of attractive assets that fit our strategic plan and financial requirements. As we noted in the last quarter, we expect 2019, 2023 cash flow on a two-year basis to be 18% to 19% of revenue.

And our recent acquisitions further support that guidance. Additionally, we will pay down debt following the close of the purchase of the 11 Nexstar divestitures and we expect to return to leverage to below four times by the end of 2020, absent any further M&A.

We've spoken a number of times about our discipline M&A process on this transaction along with the recent purchases of WTOL and KWES are prime examples of how we target accretive acquisitions that fit our strategy and benefit our shareholders.

Going forward, while we await a decision from the FCC on whether to raise the cap it's worth reminding everyone we still have a lot of room under the cap given the UHF discounts still in place specifically following this – this acquisition of the Nexstar divestitures, will be at 30.5% on the cap on a discounted basis.

In closing, we are pleased with the progress we've made this quarter provided by stable subscription revenue growth and execution over M&A strategy. Our expanded geographic footprint, favorable mix of subscription and political revenues, and consistent content innovations continue to differentiate us and support our growth. Thank you.

And I’ll now pass the call over to Victoria..

Thanks, Dave, and good morning, everyone. Thanks for joining us. As Dave mentioned, we’re excited about both the organic and inorganic growth initiatives we’ve executed on so well this quarter. In my remarks, I'll cover the expected financial impacts of both as well as update you on our capital allocation plans going forward.

Before I cover our consolidated financial results, I'd like to review just a few special items with you. For the quarter, these included $4 million of spectrum repacking reimbursements and a $3 million gain from our real estate sale both of which reduced to operating expenses partially offset by $4 million in transaction related fees.

Non-operating items include $12 million net income primarily related to the sale of our remaining interest in capital raise. I'd also like to give you an update on Premion to provide some color and context. From an operational perspective, Premion market demand is strong reflected in strong double-digit revenue growth during the first quarter.

Our properties and platforms have been strengthens to keep up with this demand. As we anticipated in our last earnings call, during the first quarter we issued $12 million in cash refunds relating to the specific systems issue which impacted fourth quarter revenue by $16 million.

I'm pleased to say the 2018 system issue is behind us and first quarter campaigns were delivered as expected. Now onto the first quarter consolidated financial results.

Keep in mind that most of my comments today are focused on TEGNA’s performance from continuing operations on a non-GAAP basis to provide clear insight into the financial drivers of our operational results. You'll find all of our reported data and prior period comparatives in our press release. Now for our results.

Total company revenue for the first quarter on a reported basis was up 3% year-over-year which is at the high end of our guidance range. As you’ve seen from our release, this is driven by subscription revenue which grew $36 million.

Total advertising revenue declined $23 million year-over-year largely due to the absence of $16 million of incremental revenue from last year's Olympics and Super Bowl which ran in our 17 NBC stations and nearly $5 million in political advertising revenue during the same quarter last year.

From a total revenue perspective, excluding cyclical impacts of these three items, revenue was up 8% year-over-year also at the high end of expectations. Notably from an advertising and marketing services revenue perspective, when adjusted for Olympics and Super Bowl, constant tax revenue was flat till last year.

Now I’ll provide some further color on specific revenue category performance trend. Again adjusted for the Olympics and Super Bowl impact, several categories were up this quarter including professional services, banking and home improvement.

Other categories such as auto and education were lower in the fourth quarter, reflecting macro trends in those sectors. As Dave mentioned, our subscriber growth trends also continue to be solid. As we've discussed before the stable high margin revenue stream produces annuity like cash flows, which was clear forecasting visibility.

As a result, we expect another year of healthy revenue growth in 2019 and remain confident in our previous subscription revenue guidance of mid-teens percent increase for the year.

Moving now to expenses, as expected our operating expenses were 5% higher this quarter or on a GAAP basis or 6% higher non-GAAP, primarily, driven by higher programming fees. As a reminder these fees include reverse compensation paid to networks. Excluding higher programming costs, expenses were flat.

During the first quarter non-GAAP corporate expense was $11 million, down nearly $2 million from last year, reflecting our ongoing efforts to streamline our cost of managing the business. As a result the Justice EBITDA for the quarter, excluding corporate expense was a $164 million, producing a solid 32% margin.

We generated a $109 million of free cash flow, roughly 21% of revenues fully in line with the projections incorporated in our two-year guidance range of 18% to 19%.

Also in line with our ongoing commitment to a strong balance sheet and growing firepower, during the quarter we reduced debt by $53 million to $2.9 billion and in that quarter with net leverage of approximately 4 times.

As you saw again this quarter, the strength of our cash flows continues to allow us to both to de-lever and invest in new products and initiatives while finding new acquisitions.

Now turning to M&A, as Dave noted, we’ve announced acquisitions of more than$900 already this year, including the Justice and Quest multicast network, announced earlier this – earlier this week and a 11 Tribune and Nexstar stations being divested by Nexstar.

As a reminder, this $740 million transactions announced on March 20, represents the single largest acquisition since becoming a pure play in June of 2017, providing us with 11 additional stations in eight markets.

The purchase price reflects the 2018-2019 EBITDA multiple of 7.7 times including run rate synergies, more than 70% of which are mechanical [Indiscernible] to retrance contractual after acquired rate. This multiple equates to 6.7 times when including the benefit of tax savings.

We expect the transaction to close in the third quarter of 2019 and is being funded for the use of available cash and borrowing under or largely undrawn $1.5 billion credit facility.

Beyond this, TEGNA will pay approximately $77 million in cash with approximately 85% of the Justice and Quest networks that we do not currently own, valuing them at a $91 million.

While the previously captured the value of our stake in the multicast channel financial results below the line in equity, following close we will fully consolidate all of their financial results in our operating P&L.

In summary, both of these acquisitions perfectly reflect the financial profile and strategic fit that are the cornerstones of our M&A strategy, both our free cash flow at EPS accretive nearly immediately.

All of the acquired stations have strong margins and will produce free cash flow in the same range as our base business, once part of our portfolio. Now turning to second quarter and full year 2019 guidance.

As a reminder, the second quarter of last year included $26 million of political advertising and approximately $4 million of Premion revenue that was originally booked in that quarter but later adjusted out in the fourth quarter due to systems issue.

Excluding political and the $4 million Premion revenue adjustment, we expect second quarter revenue growth to be at the upper end of mid-single digits. On a reported basis, total revenue is expected to increase low single digits.

In terms of expenses, we expect second quarter to increase in the mid-single digits down slightly excluding programming expense. Key guidance metrics for our base business for a full-year 2019 remain unchanged. As a reminder, here are the highlights which can also be done in our press release and on our IR website.

Full year subscription revenue up mid-teens percent based on some trends and timing of NCPD renewal, 50% up for renewal by year end, an additional 35% in 2020.

This results in full 85% of our paying subs repricing by the end of next year, full year corporate expense of approximately $45 million, full year depreciation projected to be in the range of $55 million to $60 million with amortization of approximately $35 million, interest expense for the year that is expected to be in the range of $190 million to $195 million.

We also 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 headquarters relocation which was completed in the first quarter and a new facility in Houston that was completed in February.

The effective tax rate for the year is expected to be 23%, 25%. Beyond this, as previously disclosed, we plan no additional share repurchases until we de-lever from funding the new acquisitions.

As a result of all this we project free cash flow as a percent of revenue on a two -year basis to be in the range of 17% to 18% for 2018 and 2019 and 18% to 19% of revenue for 2019 and 2020.

Building down on Dave's comments regarding the current M&A environment, TEGNA follows a disciplined capital allocation framework that balances our desire to enhance our growth profile through strategic, accretive acquisitions.

We continue our commitment to a strong balance sheet, organic growth and return of capital to shareholders through equity appreciation and dividends. Capital allocation decisions are driven by our focus on maximizing shareholder value and we consistently allocate capital to those options which offer the highest medium terms to long-term returns.

As Dave noted earlier, we continue to participate actively in M&A processes for the assets that are fit for us. We have ample capacity to execute on our strategy further. And even with our recent acquisitions under the current regulatory framework.

We have demonstrated historically that we can and do drive significant synergies from acquired assets and have the firepower to fund both innovative, organic initiatives as well as strategic acquisitions. We remain disciplined investors laser focused on creating incremental shareholder value.

In summary, our first quarter results as well as our outlook for 2019 demonstrate that we are making significant progress in strengthening and diversifying our revenue and cash flow streams, reaffirming our confidence and our long-term strategy.

As a result the continued growth of less cyclical and highly profitable and cash flow producing businesses only serves to enhance our ability to create shareholder value. We are very excited about the opportunities ahead. With that, I’d like to open it up to questions.

Operator?.

[Operator Instructions] And our first question today we'll hear from Marci Ryvicker with Wolfe Research..

Hi. This is Seth [ph] filling in for Marci. I had two questions on the regulatory front. The DOJ just recently hosted a workshop into the definition of the TV ad marketplace.

Can you share your takeaways on the event and maybe some color on the timeline of what is next in terms of the process and also your view on whether the FCC will raise the national cap – national ownership cap this year? Thank you..

Thank you. Good morning Seth.

So yeah, the Department of Justice to their credit held a panel last Friday and the representatives on the panel were executive from Facebook the Head of Sales for Comcast, the General Counsel for the NAB and myself, and just for everybody's benefit to the stage referencing is it's a -- it was a panel on the video -- the definition of video marketplace driven by the fact that broadcasters specifically are being continue to be help to a while well-intentioned quite outdated reality of the actual marketplace.

So I give credit to an attorney general and head of the Antitrust Division Delrahim for holding the panel and the content of the panel was a unanimous view. Just because we are all in the market and we recognize it is now one interchangeable marketplace out there for advertisers.

And that was -- that was that was turned out to be zero disagreement about that amongst the panelist, so I would hope that the DOJ got a lot letter -- heard that message loud and clear.

But it is unclear to us and they have not indicated to us what next steps they'll take, but it certainly cannot hurt because you know they did sort of go backwards on this whole issue as a result of the failed transaction last year that everybody knows about it. On the cap, we remain to you know we're waiting and watching and to see.

We I know the Chairman wants to do something about it and – but we don't have intelligence with you know to be able to confirm that it will get acted on this year. I certainly – we certainly know we can confirm it's under consideration. We don't have confirmation that will happen this year.

I think that the other piece of it is you have the quadrennial review coming up next year and they'll be a lot of action and comments regarding that and broadcasters will be yeah added to that, the DOJ definition of the market needing to change, the FCC is very open minded to needing to change their definition of the market.

So I think there's a lot of moving pieces that will net positive for the industry, but the timing is unclear..

Got it. Thanks..

Thank you. Next we’ll move to Alexia Quadrani with JPMorgan..

Hi. Thank you. This is David Karnovsky for Alexia. Can you discuss a little further the acquisition of Justice and Quest.

You know how much potential do you see in the over the air audience and is there anything you plan on changing for these channels from a programming perspective?.

So no, only that as we do create programming in our own markets that's complimentary like on this unsolved crime.

John Wrote will you know we'll be able to substitute that into the markets where we put it in, but it is a very lean well cost effective operation of just a few people and we're going to run it – continue to run it that way separately and we’re going to run out of our Atlanta TV station because the current group is based in Atlanta and your other question about, I apologize David was what?.

Just the potential you see in the over the air all-in?.

Yeah, I just think that it's, that audience is growing dramatically, you can see it in just the sales results of those multicast networks which a lot of it is direct response advertising and it works. So I think as what's kind of lost a lot in the marketplace and the discussion around cord cutting is there's actually a lot of cord shaving.

And so under Nielsen’s definition if you get rid of three cable boxes in your house and go down to one cable box because you still want to keep sports or something like that, you're still registered in Nielsen as a cable or satellite home.

But for the consumer a lot of those consumers will then go find antennas for those other TVs and so on any TV that is being, that is being utilized over the air, there are a lot less channels and then so those channels get a tremendous amount of viewing those over the years set.

So it is, it is just absolute sort of like our premium and OTT business, we’re just drafting on a natural tailwind of a growing audience..

Okay. And then just on your subscription guide and you saw 18% growth in Q1, I think in Q4 you get the partial benefit of some renewals, just given the full year guide of mid-teen, I’m wondering if this assumes any pick-up in subscriber declines in the next few quarters or there are some seasonal factors to consider? Thanks..

Well we all have seasonal factors in our numbers but as far as our guidance here, we're continue to be comfortable with that. We never modeled, even though we were pleasantly surprised last year by a string of months where our total subscribers were up. We never modeled that for this full year and so we are comfortable with our guidance..

And next move to David Joyce with Evercore..

Thank you. Couple of questions on the advertising and marketing services side.

On the traditional linear advertising, what are you seeing in particular markets, is there much difference between your larger and smaller markets, any timing shifts of when that ad campaigns are coming to you and then on the Premion side, appreciate some of the color earlier, Victoria along there with the double-digit growth, but are – where are the pockets of strength there.

What are some of the things that the marketers are looking for with that over the top service?.

Great. Thanks for the question David.

On bottom line, on advertising and marketing services, what I would say right now is for us kind of we gave a little color in Victoria's comments in first quarter, it's actually very noisy for us to get actual numbers for categories because the Olympics incremental discussion is really an art more than a science for the operations, so it's always difficult for us in Olympic quarters, but so I was just looking forward to second Q, second quarter, what I say is that it's a tale of two cities, and no pun intended.

Your first question is, your question is spot on, for us, we are doing much better in our largest markets than we are in our smallest market, so which is a bit a bit of a turn of the tide from some previous years.

And in fact, our best performing stations right now in traditional advertising are our markets, our stations in the top 10 markets of which we have 4 and our smaller markets are performing a lot tougher.

We believe some of that is actually really economically driven to some extent based on those market places and then also others maybe ask for the question but I’ll just offer unsolicited caller two are on categories.

In the second quarter, we are also – we have far more many up categories than down, so we're seeing a lot of help in some tremendous categories, but auto is down and it is not I mean it's now down dramatically. But it's down and it's not any – it's not any secret why.

I think they just came out now that the most recent SAR Report was the lowest SAR since February of 2014 so it's a direct by product of sales. So -- but for but for auto, we'd probably be same one of the strongest performances is in years relative to the quarter. But, but that is what it is on auto..

And are you seeing an incremental on the Premion?.

Yeah. I apologies – yeah and on Premion on what advertisers are looking for is they're looking for both reaching new audiences that aren't on traditional TV and they’re spending a lot of their time on over-the-top platforms and they're looking for targeting, right which we can both we can offer both.

So, that's – that's a – and we, we are not using third-party ad exchangers, we're directly sourcing our content from the publishers, from networks like A&E and Discovery. So we're offering also real quality inventory. So those, those are the three I would highlighted..

And just to interject a little bit there. And again this is sort of in the category of projecting out to the rest of the year relative to Premion. We’ve just talked about the $4 million that came out of the second quarter results relative to the revenue adjustment we made for the systems issue.

For the third quarter, that number will be about $6 million and just slightly less than that for the fourth quarter about $5.5 million. So, you need to keep those in mind relative to the total reported results as we go through those quarters. They were all taken in the fourth quarter last year, but obviously impact the quarterly comps as we go..

Okay, great. Thank you..

And we'll move on to Kyle Evans with Stephens..

Hey, good morning. Thanks for taking my questions..

Good morning, Kyle..

Thanks. You mentioned repricing 85% between now and the end of next year.

Could you talk a little bit how we should phase those into the model over the next two quarters?.

Yeah, sure. Specifically, Kyle, we’ll have – we'll do 50% this year by the end of the fourth quarter, almost all of that happening towards the middle of the back half of the quarter, and then we'll do 35% at the back end of next year..

Thank you..

Roughly..

Roughly? Got it. You have historically given more sub-count kind of clarity than your peers..

Yep..

It sounds like the six months of growth is now very stable, sounds like it's very close to zero number.

Could you talk a little bit more about what you're seeing by DMA size, and any other trends that you're kind of seeing underneath that flat number?.

Yeah. So the trends our DMA size is absolutely larger is much better than small on two counts. Both the traditional – the traditional MVPDs for us are much more stable in the larger markets than they are in the small.

But the – in the virtual MVPD, that growth has been more of a larger market, some of that's now starting to trickle out for the smaller markets, but I'm not clear yet whether all the services are going to be offering that out there.

And the other trend which is no surprise, because you can see at the public numbers is, the traditional loss is around the satellite side, right, almost exclusively. And for us, the game companies are doing a pretty good job hanging in there with consumers..

Got you. On Premion, I think Victoria said solid double digits.

I was wondered if you guys could put maybe a little tighter growth brackets around that and then from a higher level how does operating scale third-party add networking over the top and streaming TV help inform the rest of your business, what are you seeing there that maybe those that don't have that business wouldn't be able to see?.

One, first question, yes. So we’re not – as we said last quarter we’re going to continue right now. We're not going to give you know exact guidance on it, because frankly we're – we've got good – we have – we do have good strong double-digit growth and we'll continue to.

But we've got a lot of moving parts in it, so we're you know as I said in the past we're just kind of letting it grow and will probably in later quarters maybe give some more guidance. We'll continue to say that we'll exit the year at you know maybe mid-teens on a margin basis, but we continue it.

I don't think we see any value in any – we're not getting credit for it on our stock price, so we're you know we're running it as a continue to run it as a growth business but it's doing very, very well.

You know I think your question about what we see and then you say third-party it's all, I mean you mean it with a new business it's our business and it's with probably what we get to see is a lot of consumer and advertiser trends, right.

So to your question it does sort of help inform us on some of our other sales, go-to-market strategies because it's given us a firsthand look at a lot of consumer and advertiser trends are..

Any change to the competitive landscape there for Premion?.

They’re competitors out there – increasing competitors out there as we all [indiscernible] the new, but at the same time inventory and demand are both exploding at the same time. So there's a lot of room for people out there.

I would say what differentiates us and we will this we think will benefit us more over time because here in the early days, both in terms of advertiser sophistication especially the local market is that we're not a programmatic buy.

There are a lot of competitors out there in our own space including broadcasters that are selling at exchanges, right, third party out exchanges which can low cost effective to the advertiser. But we believe over time that space will become commoditized and programmatic and that's not what we're doing.

So, that would be my comments relative to the competitive landscape..

Great. I appreciate. Thanks..

Thanks, Kyle..

[Operator Instructions] Next we’ll move to Craig Huber with Huber Research Partners..

Good morning. Thank you.

First question, this acquisition of the Justice Network and Quest, can you just size the revenue sources at roughly say $35 million of revenues earned and how would the margins relative to your corporate average? And I guess on the same lines, Dave, what was the attractiveness to you, that acquisition for you?.

Your revenue numbers would be a little higher than that. Well, I can't give you exact numbers because they are not going to be reported as a segment but just at a starting basis, they would be a bit higher than that but they've got nice double growth characteristics to both revenue and EBITDA, Craig.

So, right now, they're not material to the company rate based on the size but they're just, if they were TV stations, we'd be thrilled to have them because of their growth trajectory..

Okay. And then also….

About your margin question, they have good solid margins, broadcast like margins..

Great. Thank you.

And then, can you comment Dave on your 2Q TV ad pieces for your core excluding the acquisitions or anything that's sort of flat slightly up year-over-year? How is that trending please?.

Yeah. See, so two pivots still early as I gave color commentary earlier on categories, I say that flattish to up a little bit is what we're sort of seeing relatively on a pace basis. So which is good, given what I commented on auto. So but, and we have tremendous – a number of categories that are very healthy.

I mean I'll give you a long list of media and telecom services, banking and finance, packaged goods, retail is up, utilities, education, home improvement, and entertainment, just – so there's a lot of categories that are solid. But as I mentioned, auto is a weight on it right now..

And then your digital advertising trends for your TV stations.

How is that sort of tracking? I know there's a lot of noise in the first quarter, but it is sort of up say mid-single-digits? How is it tracking please?.

Yeah. We don't break them out, but digital continues to grow nicely..

Okay. Thank you..

Thank you, Craig..

Next we’ll move to Kyle Evans with Stephens..

Hey, thanks. A just a quick follow-up, you mentioned down auto multiple times.

Could you put some brackets around that decline?.

Yeah, I would just say single-digits, not high single-digits, but it's just you know it's down, down a low to mid-single digits roughly but it's early in the quarter and move money is moving around right, so that can change but that would be where I'd put it..

Any here to take a guess at what do you think it will run the year at..

No Kyle, I – we will -- No, I would just be, it would be it would be, it would just of us. I mean wait, I don’t think they have an idea what their ad budgets are going to be. So you know, yeah, so – but again it's being driven by car sales not by a secular issue in media. Right.

And I feel very confident about our broadcasting share of that pie, and frankly TEGNA’s share of that pie..

Great. Thank you..

And you know the one thing I would comment on auto is reflecting my earlier comments is, it is a small and large market issue for us too there. We actually are seeing really solid sales, Texas especially because as you may know in the sector trucks are selling really well with gas prices and stuff like that.

And you know – but our smaller markets are really hurting on, auto with a one exception of Abilene San Angelo where the fracking and oil business is growing so fast that they can't build enough hotels and -- but keep in mind in terms of contract it’s a much smaller proportion of our total revenue and even of our advertising marketing services today than it was even a year or two ago..

Point taken..

Next we’ll move to Michael Kupinski with Noble Capital Markets..

Thanks and thanks for taking the questions.

Going back to Craig's question on the multicast stations, I know this is a relatively small acquisition for you guys, but what is the reason that you decided to consolidate these stations now? Are you planning to build upon the offering to adding more networks? And if you can just give us some thought about the percent of the nation that the current networks cover?.

We’re roughly – we are close to 80 on Justice and growing fast on Quest, I forget the exact number, but part of the – so the part of the industrial logic is, this is utilizing our spectrum, right. So we already own the distribution. We're growing with the number of stations we’re purchasing, right.

So we get that – if it's not on those stations already, it's added distribution and added, just -- it’s added revenue out of the sky for those stations. So and hence it is -- in terms of diversifying our portfolio over the year it’s going to continue to grow right. And these are well-programmed network.

So it's just -- it's a real simple financial play for us. It's – and it’s inside our knitting. We know exactly how to run the business and it's incredibly cost efficient and it's frankly got very, very nice growth profile..

But in terms of the investment, it is obviously operating very well today. It’s got very strong margin. So there is no plan for a significant OpEx or CapEx….

Yeah. It’s run very lean and it will continue to be. So that's why – and that's also to her point, one of the really attractive models of it..

Got it. And then Dave, in the past calls and in this call you indicated about TV ownership cap when talking about how you thought that it might be lifted. It seems like the – at least the FCC indicated that it may take an active [indiscernible] to ownership cap. It wanted to see what your thoughts were about that.

And then also with the UHF discount rule in place, does this make UHF stations more valuable than maybe VHF stations and do you believe that there might be a pipeline of M&A opportunities for UHF stations? Maybe if you could just talk a little bit about the attractiveness of that opportunity?.

Sure. Look the active Congress conversation is not new. I mean, Commissioner, Riley, who is in favor of lifting the cap has said he feels he might take an active Congress but that wouldn't stop him from voting on the cap .So that’s – that dialogue has been out there for a while.

But I think others in the FCC believe they absolutely do have the authority and again the timing of it, it's not a matter of if but when we think will be done. As far as UHF stations go, it’s a good question in the sense that when I talked about, we still got8.5% under the cap.

Obviously when I'm buying stations if we buy UHF we're sort of getting more. You know I do look at – we do look at sort of return on investment per you know percentage point under the cap, but that wouldn't make us choose a UHF over the what's more important is the characteristics of the station, right.

And what that asset value is and how it resonates in the market, but so we certainly look at that and we look at acquisitions, but it doesn't – it does not drive the decision but I understand the question..

Got you. Thank you..

And next we'll hear back from Craig Huber with Huber Research Partners..

Thank you, again. Two folds if I could. Your company for years has been really good on the cost containment side including recently here. I'm just curious your guidance in the first quarter is basing for slightly up cost excluding program.

What sort of areas as a company you’re attacking to keep that cost base low or is it just sort of across the board and I have a follow up?.

Sure, Craig. This is Victoria and I’m happy to address that. In terms of the corporate and that which continues to come down quite nicely really since the time of the spin in June 2017 when we setup the company as a standalone broadcast company.

We've been attacking the corporate has become the shared service center relative to a lot of the back office functions, so we are consolidating a lot of the non-consumer, non-customer facing aspects of the business and that has continued to come down in over $10 million really since that time.

In terms of and become more efficient more effective in terms of how we can build on new acquisitions at lower cost right from the start.

In terms of the business, in terms of each of those stations, they've done a very nice job in terms of managing their P&L both in terms of creating more efficient effective position descriptions in terms of the rules themselves as well as working to consolidate some of their purchasing. So, it's been a very broad effort.

In support of really our M&A strategy while creating a lower cost structure..

And as we have purchased more stations, Craig, we actually, our marginal cost in the centralized efforts continue to go down too. So, we're able to apply that to those stations.

And in many cases where we've already got existing centralized shared services, new technologies becoming available that we're applying which allow us to reduce our OpEx there. And we're also, our CapEx has some noise in it because we've got repacking and things like that, some onetime issues.

But in terms of normal CapEx at the stations, we've been very much embracing new technologies and cheaper technologies and taking what's really already a very low cost basis for CapEx and even getting that down on a per station basis..

And on – that’s a – as a great example of that, we're rolling out SAP across the company this year and well that's not a new technology, the current iterations allow us to save almost $2 million a year in license fees alone right out of the box once it's implemented.

So again, its, new order technology but it will create a much more efficient, effective, financial support platform for the whole company..

And just for one more comment on, it is not just about cost efficiencies, it's about good allocation of cost, right. Because in our business, we want from a Six Sigma’s perspective, we want all of our task across, in a perfect world allocating to creating good products and doing a great job of sales.

And so, the more that we can move all of our costs to those two areas, the better return on investment for all of our expenses..

And then, Dave, I have a broad question here. As you sort of talk to and visit with your various TV stations and your customers in various markets out there. How are you feeling about the U.S.

economy right now, I mean you talked about a large market versus small market, but do you see any major dichotomy there, separation between the state how well the economy is doing in local small market versus large market which is in general how do you feel about the U.S.

economy, put aside we hear from economists and the pundits out there, what are you seeing out there?.

In general, I feel fairly optimistic when you look at the unemployment rate and you look at consumer expectations et cetera. I actually feel very good.

I think it, you are starting to see in the TV industry a reflection of two Americas, right, there, you know the public dialogue about large coastal cities and big urban centers that are doing well relative to small town America, I think that growing gap in income in overall health and economy is starting to be reflected in the large and small market dialogue?.

Right. Thank you. Operator And that will conclude today's question-and-answer session. At this time, I would like to turn the call back over to Dave Lougee for any additional or closing remarks..

Thank you very much. So in closing, we are pleased with the progress we've been making this quarter and highlighted by again a stable subscription revenue growth and execution of our M&A strategy, so we will continue to build on all of that and have more good news to give you on our next call next quarter. Thank you, everyone..

And that will conclude today’s call. We thank you for your participation..