TEGNA Inc (TGNA) Q4 2018 Earnings Conference Call Transcript

TGNA earnings call for the period ending December 31, 2018.

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TEGNA Inc  (NYSE:TGNA)
Q4 2018 Earnings Conference Call
March 01, 2019, 8:30 a.m. ET

Contents:

Prepared Remarks:

Operator

Good day, and welcome to the TEGNA Fourth Quarter 2018 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.

Jeffrey R. Heinz -- Vice President of Investor Relations

Thanks. Good morning, and welcome to our fourth quarter and 2018 full year 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 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 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 over to Dave.

David T. Lougee -- President and Chief Executive Officer

Thank you, Jeff. And good morning everyone. 2018 was a great year for TEGNA and we ended the year on a very positive note, achieving record fourth quarter revenues and free cash flow. For the fourth quarter, total reported Company revenue grew 31% year-over-year to $642 million. Fourth quarter revenue was driven by a $40 million or 22% increase in subscription revenue and $130 million increase in political revenue. When excluding political advertising, non-GAAP revenue was still up 5% year-over-year, in line with our expectation of mid single digits growth.

Our portfolio is evolving toward a higher percentage of subscription and political revenues, and we continue to benefit from the strength of our stations and industry-leading subscriber trends. Comprising approximately half of total Company revenue in 2018, our subscription and political revenue streams, was both experienced record fourth quarters were key drivers of the 16% increase in full-year total Company revenue.

Our sub trends continue to be a very positive story and a key driver of TEGNA's shareholder value. The combination of continued increases in our existing agreements and approximately 65% of our subscribers that will have been repriced between the fourth quarter of '18 and the end of this year, as well as long-term affiliation agreements with NBC and ABC, through early 2021 and late 2023 respectively give us excellent visibility into the growth -- continued growth of the stable revenue and cash flow streams.

And significantly, I'm pleased to be able to report again, that TEGNA's paid subscribers again, combination of traditional MVPDs and virtual MVPDs increased year-over-year for the eighth consecutive month, a trend unique to TEGNA.

I'd highlight that these high margin revenue streams, subscription revenues and political spending are largely immune to any external macroeconomic pressures, giving us a natural barriers and strong predictable free cash flow. Going deeper on political, we achieved all-time records in political revenue of $140 million for the fourth quarter and $234 million for the full year, 51% and 47% higher respectively than the prior mid-term election cycle in 2014.

As I alluded to last quarter, there are two key trends that reaffirm our confidence for future political growth in 2020. It starts with the fact that our strong stations are ground zero for political advertisers, as '18 approved. And as '18 also approved, there is a new normal of high voter passionate engagement and in turn a new normal in the levels of fundraising and spending.

Advertising spending for presidential candidates next year is expected to reach an all-time high, and our local stations with our strong local news, will continue to be the preferred platform to reach targeted constituents, simply put, our audiences' vote in very high numbers. These dynamics combined with our strong presidential station footprint gives us confidence and unprecedented high margin political spending in 2020.

And speaking of our stations, they are the most honoured and innovative stations in the country, and we are leveraging their strength for future organic growth in 2019 and beyond. Our content innovation efforts are expanding and growing the audiences we reach. And on the client side, we continue to expand further into our local markets, with an unprecedented suite of customer products through TEGNA Marketing Solutions and our Premion OTT Advertising Solution. Together, our focus on expansion of both our consumer and client base is bringing us new audiences and new dollars.

Moving now to our capital allocation philosophy. We filed with disciplined process in evaluating opportunities to create value for our shareholders. On the M&A front, we are strategic in our analysis and proactive in our pursuit of opportunities, with the completion of the acquisitions of WTOL in Toledo, Ohio and KWES in Midland-Odessa, Texas. We now cover a third of all US TV households and as part of our Texas strategy, a state with one of the strongest growth trajectories if not the strongest in the country, we now cover 87% of Texas.

In the quarter, we also deployed record free cash flows to reduce debt under $3 billion, and an increased flexibility to comp -- to capitalize on future internal and external investment opportunities. Going forward, we'll continue to focus on innovation and execution to drive growth and value creation for our shareholders.

Before, I turn the call over to Victoria, I'd like to share some important -- couple of important business updates from the last few months, and including the beginning of this year. In December, we reached a multi-year carriage agreement with Dish TV and in January with Verizon Fios. Both of these agreements underscore the continued strength and growth of our subscription business. And as I referenced earlier, we renewed our affiliation agreement with ABC, nearly five-year agreement through late 2023 to further solidify our very strong Top 4 affiliate portfolio.

In closing 2018 was an exemplary year for TEGNA. Our unique and evolving mix of high margin subscription and political revenues and strong free cash flows, have positioned the Company to create value throughout market cycles and reinforce our operational excellence. As a reminder, we fully expect that our high-margin sub and political revenues will account for approximately half of our total two-year revenue beginning in '19/'20 and a higher percentage thereafter. We have best-in-class strategic initiatives in motion to support organic growth and we continue to maintain a strong balance sheet and we'll continue to execute our disciplined M&A strategy to drive long-term value.

And with that, I'll pass the call over to, Victoria.

Victoria D. Harker -- Chief Financial Officer, Executive Vice President

Thanks, Dave. And good morning everyone, thank you for joining us. As Dave mentioned, our record fourth quarter results reinforce our operational excellence, as well as confidence in our strategy.

Before, I cover our consolidated financial results and capital allocation for the quarter, I'd like to review just a few special items with you. Special items for the quarter included FCC spectrum repacking reimbursement of about $2.4 million, which reduced operating expenses. This was offset by non-operating expense items of $4.2 million, which included $2.2 million of transaction fees primarily related to our Toledo, Ohio and Midland-Odessa, Texas television station acquisition and $2 million impairment charge related to an equity investment.

Before I discuss our financial results, I'd like to address the Premion refunds that we announced in December 2018. Our internal team proactively identified system issues that affected certain 2018 Premium Audience Selects targeting segments and determined they had not been delivered correctly. In turn, we corrected the issue immediately and decide to issue full refunds to entitled customers, totaling $16 million for the year. The financial impact of the adjustment is reflected only in our fourth quarter 2018 results and also includes a total reduction to revenue and EBITDA of $10 million for previously reported quarters.

This adjustment obviously was not reflected in our guidance given in November, but does affect the reported growth rates for the quarter. The cash refunds issued to customers will impact the free cash flow during the first quarter only, by roughly the same amount.

Now, on to the fourth 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, which provides clear insight into our financial drivers and operating results. Also as a reminder, our advertising, marketing services revenues exclude political advertising, which we've broken out separately, you will find all of our reported data and prior period comparatives in our press release.

Now, for the results. Total Company revenue for the fourth quarter on a reported basis was up 31% year-over-year, which is at the midpoint of our 30% to 32% guidance range provided last quarter. As you've seen from our release, this was driven by political and subscription revenues, which grew $130 million and $40 million respectively. Total revenue without the benefit of political was up 5% year-over-year despite being negatively impacted by political displacement.

Also keep in mind that the 31% total Company revenue growth rate is on a reported basis, including the $10 million Premion revenue adjustment from prior periods. It's important to note that as per that adjustment revenue growth would have been 33% ahead of guidance. As Dave mentioned, the net year-over-year subscriber growth trends we've seen over the past eight months give us great confidence in the ability and stability of our subscriber rate. As we've discussed before, these sticky and high margin subs produce annuity like cash flows, which allow us strong forecasting visibility. We expect another year of healthy revenue growth in 2019 and are providing subscription revenue guidance of our percentage increase in the mid-teens for the year.

Turning now to political advertising. As Dave noted, our full year 2018 political revenue of $234 million was the highest level in TEGNA's history thus far, including any presidential election-year and 47% higher than the prior mid-term election cycle. Political revenue in the fourth quarter was also a record $140 million, net of $5 million in Premion adjustment, substantially higher than the 2014 election, up fully 51%.

As expected, strong demand for political advertising leading up to the election impacted the level of non-political TV advertising. Advertising and marketing services revenue was 7% lower in the quarter compared to the fourth quarter of last year due entirely to crowd-out. When adjusted for this, advertising and marketing services revenue was up slightly, an improvement from prior quarters. Notably, December, which was not impacted by crowd-out experience and even grow stronger advertising and marketing services growth rate up low-to-mid single digits.

Additionally, the out-of-period Premion adjustment is worth three points of advertising and marketing services. When adjusting for both political displacement and the Premion adjustment, advertising and marketing services revenue in the fourth quarter was up low-single digits.

Now to provide some further color on specific revenue category performance trends. Several categories were up or flat within the quarter when adjusting for political crowd-out. Retail, services, medical, media, telecom, entertainment and home improvement were all positive. Other categories such as automotive, restaurants and package goods were lower in the quarter but showed improvement from prior quarters.

Lastly, we continue to see strong demand for Premion, evidence of this is -- that this unique offering remains a solution for advertisers looking to gain OTT inventory access and premier targeting and reporting capabilities.

Moving now to expenses. Given our record political advertising, we expected to see higher fourth quarter non-GAAP operating expenses, driven by cost of sales. Beyond this, our operating expenses were 16% higher this quarter on a GAAP basis, primarily driven by higher programming fees. As a reminder, these fees include reverse compensation paid to networks, which increased alongside growth in subscription revenues.

On a same-store basis, excluding higher programming costs, investments in Premion, content transformation and increased cost of sales tied to revenues, cost were only up, less than 2%. On a full-year basis, operating expenses increased 11% year-over-year equivalent to about 1% increase on a similar same-store basis when you exclude the aforementioned items.

During the fourth quarter, corporate expense was $11 million, down from $12 million last year. For the full-year, corporate expenses on a non-GAAP basis and excluding depreciation were down 11% year-over-year, totaling $47 million in line with guidance of under $50 million.

Adjusted EBITDA for the quarter was a record $273 million, fully up 61% and well ahead of consensus. Adjusted EBITDA, excluding corporate expenses, was $284 million, producing a very healthy 44% margin. As a result, we generated $167 million of free cash flow, a record for the fourth quarter. A record free cash flow quarter was driven by significant high margin political and subscription revenues -- as well as subscription revenue. In continuing our commitment to maintaining a strong balance sheet we reduced debt to $2.9 billion, ending the quarter with net leverage of approximately 3.9 times. The strength of these cash flows will continue to allow us to pay down debt and invest in new products and initiatives, while funding new acquisitions.

Now turning to first quarter and full-year 2019 guidance. In effort to help you forecast our future growth, we're providing several key quarter ahead and year ahead financial guidance metrics. As a reminder, this quarter we won't have the benefit of Olympics revenue across our NBC stations and political advertising as we did last year, both of which we over indexed. Also, Super Bowl this year aired on CBS stations versus NBC last year, our CBS portfolio reaches two-thirds of the households that are NBC portfolio regions.

As a result, we expect first quarter total reported Company revenue growth to increase low single digits, excluding the comparative impacts of cyclical events like the Olympics, Super Bowl and political revenue. We expect revenue growth to be up in the mid-to-high single digits range. From an expense perspective, we expect first quarter to increase mid-single digits or flat-to-up slightly excluding programming expense. However, excluding Premion investments and acquisitions, all other operating expenses are projected to be down mid-single-digit percent.

Here are some key organic guidance metrics for the full-year in 2019. We expect to see full-year subscription revenue up mid-teens based on sub trends and the timing of MVPD renewals, which occurred in the back half of the year. Corporate expenses are expected to total approximately $45 million. Our expectation for depreciation is in the range of $55 million to $60 million and amortization to be up roughly $35 million. We expect interest expense to be in the range of $190 million to $195 million. We anticipate capital expenses between $70 million and $75 million, which includes recurring CapEx of about $30 million to $40 million and about $35 million in non-recurring projects, including $17 million in mandatory channel repacking, our headquarters relocation and a new facility in Houston. And our effective tax rate is projected to be about 23% to 25%.

We project free cash flow of 17% to 18% of revenue on a two-year 2018 to 2019 basis and 18% to 19% of revenue for 2019 to '20. Lastly, we expect to end the year with leverage of approximately 4 times. As a reminder, over 90% of our debt is fixed at attractive rates and therefore not at risk in a rising interest rate environment.

Building on Dave's comments regarding the current M&A environment, segment continues to follow a disciplined capital allocation framework that balances our desire to enhance our growth profile for strategic accretive acquisitions with our commitment to a strong balance sheet, organic growth and return of capital to shareholders through dividends, delevering and opportunistic share repurchases. Capital allocation decisions are driven by our focus on maximizing shareholder value and we consistently allocate capital to the options that offer the highest medium to long-term returns.

As Dave said, we continue to participate actively in M&A processes for assets that fit for us within current industry regulatory constraints. We've demonstrated we can drive synergies from the right assets and have the financial and balance sheet strength to fund them. However, we will always remain disciplined as to our valuation with our primary objective being decreased incremental shareholder value on top of what we can achieve organically.

In summary, our current results as well as our outlook for 2019 demonstrate we are making strong progress in diversifying our revenue and cash flow streams and reaffirm our confidence in our long-term strategy. As a result, the continued growth of less cyclical profitable businesses only serves to enhance our ability to create shareholder value. We continue to believe the stability and growth potential of our business is under-appreciated and are excited about the opportunities ahead.

With that I'd like to open it up to questions. Operator?

Questions and Answers:

Operator

Thank you. (Operator Instructions) And we will take our first question from Marci Ryvicker with Wolfe Research. Please go ahead.

Marci Ryvicker -- Wolfe Research -- Analyst

Thanks. I actually have two topics. So the first one is on Premion, and I just want to know or understand exactly what happened? And I think I get the financial impact for the fourth quarter where you took a $16 million charge for the year, $10 million was related to previous quarters, so only $6 million for the fourth quarter, but Victoria, I did not understand what you said about the first quarter impact if there is one. And then there is any of this change your outlook on Premion for 2019 or beyond?

David T. Lougee -- President and Chief Executive Officer

Hi, Marci. Good morning. Thanks. So let me take sort of, I'll call the first and third question there and then Victoria can talk about the first quarter issue. Simply put, one of the products that we launched last year did not fully deliver the impressions that we promised, even though total impressions were delivered, that was discovered internally and we immediately reported it ourselves and made the decision rather than try to go back through what impressions were delivered or not, what the right thing to do was simply give full refunds to our advertisers, and that's what we chose to do. So -- but the issue has been fixed and all 2019 campaigns will be delivered and sold.

So now talk about the future of the business. Actually, we're more bullish now on it than ever for obvious reasons, right, with consumer changed to OTT platforms, the opportunity is bigger than it's ever been, right. And so we're really, really excited about what we're seeing. We obviously did have a little hiccup at the end of the year. So we are recalibrating what the year is going to look like, we are not going to provide guidance at this time, we broke it out last year to give the market a sense of the size and growth since it was new to TEGNA but we don't report it as a separate line item, but the business is performing very, very well and we see very strong double-digit growth in the business this year and we expect to exit the year with the mid-teens margin on the business overall.

Victoria D. Harker -- Chief Financial Officer, Executive Vice President

And Marci, just a follow-up on your point and you had it exactly right, relative to the P&L impact for the fourth quarter, it was about $10 million from prior periods and about $6 for the fourth quarter and all of the -- P&L impact is taken in the fourth. So we didn't push it back to prior periods, and it had the results of impacting what would have been a 31% to 33% growth rate became 31%.

My point in terms of first -- there's no further P&L impact, it was just a reminder that the actual refunds being given to advertisers would flow through into the first quarter and it's roughly in the double-digit sort of $10 million to $12 million some of its cash, some of its may call, but just as a reminder for your modeling purposes, but that would -- cash basis in the first quarter.

Marci Ryvicker -- Wolfe Research -- Analyst

Okay. Thank you. And then my second question is unrelated. But given, Nexstar, Tribune and now Cox has been acquired by Apollo, how do you think about the M&A pipeline for TEGNA specifically and maybe for the entire environment for the space.

David T. Lougee -- President and Chief Executive Officer

Yeah. Well, you didn't ask, but I will say, I think, private equity environment space sort of reinforces the value of the broadcast business model, which I think is another positive -- understanding of the future value of the sector. I won't speak specifically to the Nexstar divestitures, but there is a lot in the pipeline right now and we're not concerned about the pipeline over time. Marci, a pretty -- think it's much better chance than not that this year, the cap will be raised by the FCC and whatever that number is, let's say -- it's been a less ballpark of between 50 and high 70s (ph), let's say, either way, it's going to open up new opportunities for new collaborations and combinations. So, in the scheme of things that cap changes, probably not very far away. So, overall we're not concerned in the long term.

Marci Ryvicker -- Wolfe Research -- Analyst

Great, thank you.

Operator

And our next question will come from Kyle Evans with Stephens. Please go ahead.

Kyle Evans -- Stephens Inc. -- Analyst

Thanks for taking my question. You gave a lot of crowd-out adjusted numbers for the quarter. Victoria, could you help us understand exactly how you are calculating those numbers?

David T. Lougee -- President and Chief Executive Officer

I'll take that one, Kyle. Good morning. So, bottom line, we've got (inaudible) in that credit note right there, right. So we are -- it's a rough estimate, Kyle, obviously, it's not a -- it's a little bit of an art more than a science, but we roughly put it to be about 7 points against advertising and marketing services. So as your next question sort of where do we see, how the quarter was without it?

Kyle Evans -- Stephens Inc. -- Analyst

Yes.

David T. Lougee -- President and Chief Executive Officer

Yeah. So, we actually saw some more sequential improvement. I think that we -- especially when we look at December, December was up in sort of low mid-single digits, which had none of those impacts. Auto, when we do the adjustments for the political piece, just continue to sequentially improve a little bit and improved a little bit more in the fourth quarter, it wasn't up for the quarter, but it wasn't down much. And it was up in December, exiting the year. And we saw a lot of strength in a lot of other categories where we hadn't before. So overall, based on what we can tell, when we exclude for crowd-out it looked it was a positive trend.

Victoria D. Harker -- Chief Financial Officer, Executive Vice President

And Kyle, just as a reminder, we had in our previous earnings call, we had estimated that 7% to 8% in terms of the crowd-out and that's basically what we saw, so we're just reconciling for you in these buckets basically net of that crowd-out that we previously estimated that's what the impacts would have been. So, in total, our advertising and marketing services up low-to-mid single digits, net of the out-of-period Premion adjustment, it was worth about 3 points of that.

Kyle Evans -- Stephens Inc. -- Analyst

Okay. Dave, you just said that you thought we could get the cap rates, I think we all kind of collectively thought we would get it last year, and we were wrong. Can you probability weight that and maybe talk about what do you think is changed or what might have the committee thinking different?

David T. Lougee -- President and Chief Executive Officer

(Technical Difficulty)

Kyle Evans -- Stephens Inc. -- Analyst

I think I'm having some technical difficulties on my side, with my phone here, I'm sorry. I'll get back in queue.

Operator

(Technical Difficulty)

And Kyle, if you'd like to redo your question?

Kyle Evans -- Stephens Inc. -- Analyst

Dave, I think you heard my question, I just didn't hear your response.

David T. Lougee -- President and Chief Executive Officer

Well, which one...

Victoria D. Harker -- Chief Financial Officer, Executive Vice President

We didn't hear the second question.

David T. Lougee -- President and Chief Executive Officer

I don't think, we heard the second question, I apologize.

Kyle Evans -- Stephens Inc. -- Analyst

So, my question was, why do you think Pai and the Commission are going to do the cap rates this year, we all kind of expected it last year and we didn't get it, we were all wrong, just kind of trying to get you to probability were your thoughts on a cap rates little bit more?

David T. Lougee -- President and Chief Executive Officer

Yeah, I think last year there was a lot of noise -- there was a lot of noise in the system about one particular transaction, obviously, that is going through the pipeline and gotten a lot of noise, both in the press and in the DOJ and even at the FCC, that kind of potentially slowed that down. But now, I think, it's important to the commission to -- actually, they've got a general review coming up at end of this year, anyway, and I think they want to do it separate from that and they need do it separate from that. And I think they don't want to get into the political cycle of 2020. So, I think that the commission would be poised to act this year and your probability weighting -- put it well over 50% in our view. I apologize for the technology problems by the way. Sorry, Kyle.

Kyle Evans -- Stephens Inc. -- Analyst

I'm glad, I didn't cause them. We used to hear quite a bit about Hatch and G/O, I know you guys have kind of consolidated those, there's a name change, I saw kind of a reduction in force in the 3Q, can you give us an update on your digital marketing services?

David T. Lougee -- President and Chief Executive Officer

Yeah, the only reduction in force was just to a reallocation of resources toward the products that were creating the higher margins. So we just downsize a couple of small products that weren't producing good yield for us, but we already coordinated what used to be called G/O Digital and Hatch into one coordinated group for our clients and from both have the above market strategy and fulfillment, call TEGNA marketing solutions, which I referenced in the script. (Technical Difficulty)

Operator

Please standby, we are experiencing some technical difficulties.

And please go ahead.

David T. Lougee -- President and Chief Executive Officer

Hi, operator. This is Dave Lougee. We apologize for the, whatever the technology problem is, as Victoria referenced in her script, we move to our new corporate headquarters as part of our corporate downsizing everything has been working perfectly until this call. So with that let's recontinue. Kyle, did you -- were you able to hear my answer or not?

Kyle Evans -- Stephens Inc. -- Analyst

I was not.

David T. Lougee -- President and Chief Executive Officer

I apologize, but you can hear me now. Right?

Kyle Evans -- Stephens Inc. -- Analyst

Yes, sir.

David T. Lougee -- President and Chief Executive Officer

Yes. Simply put, there were shortened version of it. I think the infamous transaction last year that didn't go through created a lot of noise in the system and the press, the DOJ and then sort of the created a little bit of paralysis at the FCC values that as my word, but this year we have much better than 50-50 confidence that they will do something with the cap this year and they want to do it. Presumably, well ahead of the election cycle next year.

Victoria D. Harker -- Chief Financial Officer, Executive Vice President

Kyle, just to close a loop on your question on reductions in force that was in the third quarter, it wasn't just in the G/O Digital, we also have the ongoing back office consolidation and streamlining that we're doing. So there were also reductions enforced related to that.

Kyle Evans -- Stephens Inc. -- Analyst

Okay, thank you.

Operator

And we will take our next question from Steven Cahall from Royal Bank of Canada. Please go ahead.

Steven Cahall -- Royal Bank of Canada -- Analyst

Hi, can you hear me? Okay.

David T. Lougee -- President and Chief Executive Officer

We can.

Steven Cahall -- Royal Bank of Canada -- Analyst

Great. Two for me. Maybe first, your 2019, '20 free cash flow outlook as a percentage of revenue, it looks to be pretty strong. I was just maybe wondering if you could let us know what your political assumption was in there, I'm guessing that's driving some of that? And then one of your peers called out some weakness at one of the auto OEMs. I was wondering if you could just maybe touch on auto as a category, a little bit and if there's anything in particular you're seeing at the OEM level worth calling out? Thank you.

David T. Lougee -- President and Chief Executive Officer

Let me take the second one first. At the OEM level, we're actually seeing some good players being up in the Tier 1 side, but Dodge, Jeep or Chrysler is probably the one you've called out before that's been affecting us all year because without that the category would be positive and of itself. And your other question was around -- yes, around political. So we're not guiding to political as to a number, but you would be right, as I said in my script that we believe it's going to be a very strong year for political, which is high margin, as is our subscription revenue business, which we're going to see some significant increases on as well.

Steven Cahall -- Royal Bank of Canada -- Analyst

Thank you.

David T. Lougee -- President and Chief Executive Officer

Thank you.

Operator

And we will take our next question from Dan Kurnos with the Benchmark Company. Please go ahead.

Dan Kurnos -- The Benchmark Company -- Analyst

Great, thanks. Good morning. Dave, I guess maybe it's sort of a timely question here, just on Premion with kind of the refunds you had to issue due to the sort of the tech issue or whatever you experienced, there's no, you're not seeing any backlogs in the marketplace from that, there is no lack of confidence I'm assuming, and even though you're not giving guidance, can you at least sort of directionally help us think about expectations for growth for Premion this year?

David T. Lougee -- President and Chief Executive Officer

Yes, actually, I appreciate the question because the fact of the matter is our clients were very appreciative of the way we've handled it and many of those clients have already booked orders for this year and have kept them and other clients have come back with even larger orders. So we actually earned -- as you probably know, trust and credibility in the digital advertising space is at a premium and that's always been frankly one of the hallmarks of our business because unlike competitors who outsourced the third-party programmatic services and other, we get our inventory direct from a select group of publishers that we pre-qualify. So our advertisers are 100% confident that they'll be advertising in the environment -- the kind of environments they want to be advertising in.

So it's actually -- certainly wasn't a way we wanted to build our trust, it over again but it's turned into very much into a positive. As I said earlier to Marci's question just why we recalibrate, we're not at the point of giving guidance relative to the full year. But like I said, we're very confident, very strong double-digit growth overall and the demand for the product is stronger than ever for sort of the obvious consumer marketplace reasons.

Victoria D. Harker -- Chief Financial Officer, Executive Vice President

Just to give a little more color to Dave's point and I've answered Marci relative to the cash refunds, which we flowing through in the first quarter just case in point, most of them are through agencies, much device but we did get a number of requests for credits and or goods instead of cash. So sort of preparation and continued confidence in the product, and so that the total number of -- from a cash refund standpoint will be lower than the P&L impact.

Dan Kurnos -- The Benchmark Company -- Analyst

Got it. That's helpful, thanks. And then, I mean, Dave, look, obviously you guys are outpacing the industry from a sub perspective, I'm assuming that's mostly because of your large market footprint, but we've heard varying degrees of problems from the satellite providers and there's been some flow-through on linear for some of your peers, but generally speaking sub trends have been healthy. You guys have clearly outperformed that, what gives you sort of the confidence and or visibility that embedded in your guidance, which I think is pretty reasonable on the retrans side that sub trends sort of stay healthy through the balance of this year?

David T. Lougee -- President and Chief Executive Officer

Yes. So to be clear, we're not saying for sure that we'll continue to see year-over-year growth on total subs, right. But I think what we are clearly seeing is that wherever the industry is at, or those going to be a growing CAGR gap between us and the industry were large and that because of our large market profile we will have a lot more stability than people really assume because it is a -- quite a different story for our large markets compared to our smallest markets where -- which is not in the smallest markets aren't much of our sub count overall. Again, we're not saying positive overall, we're just saying that we're going to have a different trajectory than a lot of (Technical Difficulty).

Dan Kurnos -- The Benchmark Company -- Analyst

And then just maybe one more if I could. Since you're in opine on the FCC mode today, I guess, just out of curiosity, do you suspect that they will eventually rule out Gray's acquisition of Sioux Falls because that could theoretically set precedent for you guys to go after two Big Fours (ph) in a market, even though clearly there are economic benefits to Gray making that acquisition and it's clearly a much smaller percentage of revenue in that market?

David T. Lougee -- President and Chief Executive Officer

Yeah. I have no point of view or opinion on specific matter involving the other company, Dan.

Dan Kurnos -- The Benchmark Company -- Analyst

Yeah. But, just in general you think they'll rely -- they will actually start allowing two Big Fours in markets, it was really more of the general question?

David T. Lougee -- President and Chief Executive Officer

Yeah. I can't speak to that as a result of that I think the two Big Fours in market have been more or a little bit held back temporarily by some more of DOJ activities, but on that fronts, it was heartening to hear that head of the Antitrust Division is going to hold a public hearing, I think on May 3, if I recall, suggesting that broadcasters may have a point that the current DOJ Antitrust Division's definition of the video marketplace is outdated and that as -- for instance, the big Internet players should be considered when considering the definition of market. So I think that's pertains to be a good sign, potentially releasing that (inaudible) on the two Big Fours over time.

Dan Kurnos -- The Benchmark Company -- Analyst

Got it. Great. Thanks for all the color.

Operator

And we will move on to our next question from David Joyce with Evercore ISI. Please go ahead.

David Joyce -- Evecore ISI -- Analyst

Thank you. If you could please provide some commentary on other aspects of the addressable advertising like where you are in the tip initiative. When do you think that will start having an impact on your ad sales? And then just more broadly, are you seeing a shift of advertisers who had been allocating to digital wanting to come back to TV for the broad reach? Thanks.

David T. Lougee -- President and Chief Executive Officer

Yeah. To the back end of that question, I don't think we know yet, because I don't think we have yet -- we're going to it, but I don't think we've yet successfully solved the problem for all the agencies as an industry. The good news as we can, but it's a little bit, it's taking obviously, technology to get there, that's why the tip initiative has been so important. The tip initiative has been very successful in creating open standards, so that it's not -- no single platform is the gatekeeper.

On the buy side, the agencies have been using a company called Hudson MX, which they have -- we're starting to put a lot of money through. It's now -- upon us to start to create the same efficiencies on our end, but I think you'll see, I can't say how much dollars will move this year in '19, but I know that there is a lot of consensus among the Broadcast Group's, it's really about the large markets in the near term where the big national dollars are, and I think there is a very growing consensus among those companies, as well as the agencies that it's in our mutual best interest to get this figured out.

So, I think the tip initiative has been working sort of on the technology piece. And now, we need to work on the business rules and business terms as an industry.

David Joyce -- Evecore ISI -- Analyst

Great, thank you.

Operator

And we'll move on to our next question from Craig Huber with Huber Research Partners. Please go ahead.

Craig Huber -- Huber Research Partners -- Analyst

Great. Thank you. My first question, if I could, what percent of your paying subs are for renewal this year and what about next year, please?

David T. Lougee -- President and Chief Executive Officer

We've got about -- by the end of this year, mostly in the fourth quarter at the end of the year, Craig, about 50%.

Craig Huber -- Huber Research Partners -- Analyst

And what about next year. Please?

David T. Lougee -- President and Chief Executive Officer

Yeah. On the next year about another 35% I believe. So between the end of this year and the end of next year, which is important to note to the question asked earlier about our free cash flow as a percent of revenue will be repricing 85% of our subs between the end of this year and the end of next year.

Craig Huber -- Huber Research Partners -- Analyst

And just some clarity, you're suggesting nearly all that 50% is in December this year or is there some more earlier on?

David T. Lougee -- President and Chief Executive Officer

I'm not, I'm not. So there is a little bit of it that will be at the beginning of the quarter, less than half. So there will be some impact in the fourth quarter, the majority of that though won't be impacted till next year.

Craig Huber -- Huber Research Partners -- Analyst

I'm sorry, I'm just so unclear, that mean it's almost all in the fourth quarter, you sort of...

David T. Lougee -- President and Chief Executive Officer

There will be no impact on any of those subs in any quarter, but the fourth, but of the 50% probably about a third at most will impact the fourth quarter.

Craig Huber -- Huber Research Partners -- Analyst

I see, OK. And then on, maybe I missed this, but your total paying sub count in the latest period, what was the percent change year-over-year, please, with and without the OTT subs?

David T. Lougee -- President and Chief Executive Officer

Actually, I don't have the breakout right now with and without the OTT. But I'll give it, the total numbers can -- again work these are in a bit of in arrears, but we've been averaging in different months between plus 1.5 to plus 0.4, they've been varying month by month.

Craig Huber -- Huber Research Partners -- Analyst

Okay. And then also, can you just talk a little bit further if you would the outlook for advertising -- core advertising in the first quarter year-over-year. I think, a year ago, you said the Super Bowl and Olympics was $24 million incremental a year ago, but maybe with or without that adjustment, I'm curious how things are pacing for ad revenues?

David T. Lougee -- President and Chief Executive Officer

Yes. So the Olympics last year and against a little bit of an estimate, but we put that at about $14 million incremental for us last year. Craig, I remember, that's what we get on our NBC stations minus what we lose on our CBS and ABC stations. And then the Super Bowl was -- the NBC last year, which we have more homes. So, we did about $2 million more last year on the Super Bowl than we did this year, so the net impact for the two events together, we're putting a roughly $16 million as a negative impact quarter-to-quarter.

Craig Huber -- Huber Research Partners -- Analyst

And then, how is the core advertising?

David T. Lougee -- President and Chief Executive Officer

It is , again we've got a lot of noise because of the Olympics, but overall, notably we're positive in January and March. And auto, which continues to incrementally improve. We're positive in those months. With auto, we think we're probably exclusive of the sports events around flattish on auto for the quarter, and notably, Media and Telecom is a lot of turnaround from us, I don't know about the industry. But we've got a lot more competition in the video space with OTT charter and COGS now and home improvement, banking, finance, medical, package goods and travel tourism are all very, very strong as well.

Craig Huber -- Huber Research Partners -- Analyst

And then my last question if you sneak it in Dave, you mentioned you've expected subscription revenues up mid-teens this year, what about the net retrans for the year?

David T. Lougee -- President and Chief Executive Officer

Expect that to be up in low double digits as well.

Craig Huber -- Huber Research Partners -- Analyst

Right. Thank you.

Operator

And our next question will come from Michael Kupinski from Noble Capital Markets. Please go ahead.

Michael Kupinski -- Noble Financial Group -- Analyst

Thank you for giving me the opportunity. Other broadcasters have indicated CapEx, upgrades ATSC 3.0. At this point, have you allocated any CapEx upgrade to stations?

David T. Lougee -- President and Chief Executive Officer

We have . We just -- we've got a few stations in for this year, we've already part of Phoenix test. We got about $2 million total allocated right now, that might flow a little bit based on the timing of some market tests. But we are prepared to be opportunistic as we see the opportunity to move to a change markets.

Victoria D. Harker -- Chief Financial Officer, Executive Vice President

When I talked about the recurring versus non-recurring CapEx, the bulk of the $35 million sort of non-recurring -- the $70 million repack but there was a little bit as Dave mentioned as well.

Michael Kupinski -- Noble Financial Group -- Analyst

Got you. And how many stations will you have upgraded then?

David T. Lougee -- President and Chief Executive Officer

I don't have the number off the top of my head. I think it'll be around 5 to 6 probably by the end of the year if I recall, so we counting Phoenix, which we did last year. But that number could change again depending on opportunities. It won't have a significant -- even adding a few stations that will not have a significant impact on CapEx overall, if we have to wholesome dollars from somewhere else to do it.

Michael Kupinski -- Noble Financial Group -- Analyst

And of course, you just renewed your ABC contract, can you update the time line for the other networks?

David T. Lougee -- President and Chief Executive Officer

Yeah. We've got CBS up at the end of this year and then, as I said before, we've got NBC up in early '21 and ABC in '23 and Fox, what you -- it's less than 2% of our homes is actually up middle of this year.

Victoria D. Harker -- Chief Financial Officer, Executive Vice President

And then just as a reminder, if people weren't writing that down, we have updated on the website on our investor presentation.

Michael Kupinski -- Noble Financial Group -- Analyst

And the Company's guidance, corporate expenses for 2019 still coming down a little bit, is that still flowing through the corporate headquarters and reductions there or can you -- is there any other color that you can add there?

Victoria D. Harker -- Chief Financial Officer, Executive Vice President

No, it is. It's basically the ongoing consolidation and back office support. In addition, once we fully run through the double rent for our new operating facility here approximately 10% that's another $2 million or so of reduction year-over-year in expense.

Michael Kupinski -- Noble Financial Group -- Analyst

And so we should still see our corporate expenses in 2020 to be kind of flat to down?

Victoria D. Harker -- Chief Financial Officer, Executive Vice President

Yeah.

David T. Lougee -- President and Chief Executive Officer

Yes.

Michael Kupinski -- Noble Financial Group -- Analyst

Okay. And then following on Marci's question about the M&A environment, the Company previously talked about swap opportunities, can you talk about station swaps at this point, is that still on the table?

David T. Lougee -- President and Chief Executive Officer

Yeah. I think it is. To the earlier question about the Big Fours opportunity, I think the little bit of the paralysis on that relative to the issues I said earlier, probably slowed that down a little bit. I also think because there is vertical M&A happening out there right now and there are opportunities. Groups are kind of looking at that vertical M&A, but I do think, as you will more and more, you may see opportunities for groups to do things together, but they've got overlaps, there needs to be divestitures and swaps could be a way to get that done. But I think right now because of the vertical M&A focus and I think a shared industry belief that the cap is going to get raises as the people are focused much more on vertical right now.

Michael Kupinski -- Noble Financial Group -- Analyst

Got you. Thank you. That's all I have. Thank you.

David T. Lougee -- President and Chief Executive Officer

Thank you.

Victoria D. Harker -- Chief Financial Officer, Executive Vice President

Thank you.

Operator

And our next question will come from Doug Arthur with Huber Research. Please go ahead.

Doug Arthur -- Huber Research Partners -- Analyst

Yeah, thanks. There was a lot of discussion. I think about political in 2020. Given the heated environment, could you see a better kind of off-year political number in 2019 than you have traditionally or is that not realistic?

David T. Lougee -- President and Chief Executive Officer

We're not -- it's a great question, Doug. We're not forecasting it. I think when we are as good as our presidential footprint is we don't have a lot of exposure to the very early primary markets, right now we don't have, we got a little bit of money in Maine from New Hampshire. But we're not in the Maine and we're not in Boston, in Manchester. So I think if you're in those markets, you see stuff in the fourth quarter of this year, but I wouldn't be surprised if toward the end of the year, there's even presidential stranding for states after that, that starts in December but we're not counting on it.

Doug Arthur -- Huber Research Partners -- Analyst

Okay, and then Victoria, in terms of the cadence of subscription or retrans, you had a nice step-up in the fourth quarter, you cited escalators and OTT. I mean what sort of was the primary driver of the pickup in growth in the fourth quarter, I mean clearly most of your big renewals are on the comment this point?

Victoria D. Harker -- Chief Financial Officer, Executive Vice President

Yes, we had a renewal relative in that period and I think we've previously discussed that externally as well.

David T. Lougee -- President and Chief Executive Officer

Yes we had disagreement, as well as -- but the disagreement was retroactive to its expiration date, which did affect the quarter, Doug.

Doug Arthur -- Huber Research Partners -- Analyst

Okay,addition of Verizon, -- I get it where Q4 impact and I mean is the OTT, I mean, you obviously you've talked a lot about the sub impact of that, is that a meaningful driver of these numbers at this point?

David T. Lougee -- President and Chief Executive Officer

It's not a huge number overall to our dollars, but it's meaningful to the gap with traditional MVPD, its Craig's question earlier, because it is helping. Our traditional sub losses are not the same as other companies, but again because of our large market exposure, but we also have more virtual MVPD than others, but its still on a relative basis, it's not that large.

Doug Arthur -- Huber Research Partners -- Analyst

Okay, great. Thank you.

Operator

And we will take our next question from Jim Goss with Barrington Research.

James Goss -- Barrington Research -- Analyst

Thank you. I think back to the time as network television viewing was declining in terms of numbers of people are viewing individual shows and there is a scarcity premium for the advertisers that cause them to pay higher prices. I'm wondering if all the trends you're seeing, including the OTT, subscription aspect it's stabilized your viewing, has had any impact on ad rates?

David T. Lougee -- President and Chief Executive Officer

I think ad rates were a function of supply and demand in the quality of the programming, Jim. So I think as it relates to network programming per se, it's absolutely true that there are more and more options for consumers for scripted programming, right. And so I can't speak to the network's ad rates, but we still get very good rates for premium prime time programming, but a lot of that program doesn't have the same ratings it once did a few years ago, right. So, but the big event still though, right, you still got a great premium for the Grammy's, the Oscars and live sporting events like the NFL etc.

So on a cost per point basis, on a cost per viewer that we still get very good rates because even with reduced ratings of network programming, it's still by far the broadest reach vehicle to advertisers. And as a reminder, tying that question together with the subscription trends, individual cable channels are losing distribution at very fast paces, so there's growing CAGR in GAAP and delta of distribution between broadcasters and cable channels and that's got implications on where ad dollars go overall. And a reminder for us that network prime exclusive of sports is now down to like around 11% of our total revenue, 11% to 12%. So we are not affected by that. Our local news is really not as exposed to some of those same trends and we continue to get very good rates for that.

James Goss -- Barrington Research -- Analyst

And sort of inter-related vein, aside from the local news and some of the other daytime you've had programming initiatives like DBL, life and a few other things, are there -- can you talk about how that is capturing a bigger share of the potential ad dollars, net of whatever programming costs, you might have. And also are there other programming initiatives you are working on to sort of supplement the initiatives you've announced at this point?

David T. Lougee -- President and Chief Executive Officer

Yes, we are looking at other programming initiatives that are not to be announced yet at this point, but we do have some interesting ones in the pipeline. We are always -- and we are going to be very focused on targeted content opportunities, because we do see some unique opportunities in the marketplace. We'll talk -- probably talking a more about on upcoming calls. DBL is doing well, you have to be patient with shows like that, I guess, just looking at the ratings last night of that around our markets in February. And we're seeing some nice growth in daytime, which is not an easy place to find an audience. Performance is better in some parts of the country than other, but it's growing. And so for us, it's not a significant investment and of course it's replacing prior programming costs.

So we're being patient with it and we also think that as we do M&A, the ability to leverage that initiative along with our other strategic initiatives, it's very cost effective and strategic play for us.

James Goss -- Barrington Research -- Analyst

All right, thank you.

David T. Lougee -- President and Chief Executive Officer

Thank you.

Operator

And we will take our final question from Barton Crockett with DCF Stocks. Please go ahead.

Barton Crockett -- DCF Stock -- Analyst

Great, thank you for taking the question. I just wanted to see if you are able to provide a little bit of quantification around your comment that your subs are growing. Can you give us a sense of how much, and is there been any change in the pace of growth over the past few months. And could you unpack a little bit about what's happening with traditional versus the new kind of online bundles and is there -- I think your revenues are sub count is something on a lag, is there anything you see -- I know this gets to a point, you can't really raise earlier about the projection for the year, but is there anything you see that would cause that trend, it's sub growth to be somewhat different as we look into the first quarter?

David T. Lougee -- President and Chief Executive Officer

Yes, I think we're only about a two to three months lag. So I don't know. We do have seasonal cyclicality, it's always worth but that doesn't look exactly like the MVPD. So our sales have to take that into account. We've got people in the Tampas and Phoenixes that are there in the winters and not the summer and so we've got some cyclicality and it doesn't always looked like the MVPD is for that reason, plus we're on a 60-day lag sometimes, but in terms of the overall trends. So, yes, our traditional is declining. Although the rate of that decline is not increasing and then add in. So it started about a year ago. The virtual MVPD subs. And so we've seen again over the last eight months, a pretty steady trend. We got -- eight months ago, we had a plus 0.3, we had a month with a plus 1.1, we had a plus 1.5, we had a plus 0.4. So you have that -- you have all the months in the last eight months have been in that range. And it's not been a downward trend, right. But that being said, based on what the MVPDs have been reporting on the traditional side, we are prepared for the fact there could be some increase, and the rate of decline in the traditional and we take that into account into our assumptions, but my earlier point is regardless our trends will be better than people think.

Barton Crockett -- DCF Stock -- Analyst

Okay, that's great. Thank you.

David T. Lougee -- President and Chief Executive Officer

Did that help?

Barton Crockett -- DCF Stock -- Analyst

Okay. Appreciate it.

David T. Lougee -- President and Chief Executive Officer

Thank you.

Victoria D. Harker -- Chief Financial Officer, Executive Vice President

Thank you.

David T. Lougee -- President and Chief Executive Officer

All right. With this, no more questions, thank you everyone for joining us. And to conclude, we had a very successful year as indicated by the results we just went through. Our revolving mix to these higher-margin revenue streams that we just talked about in detail and our sustained execution of our organic and inorganic growth opportunities and initiatives position us to grow significant share value for our shareholders. So we look forward to speaking with you on our first quarter earnings call on a different phone system. If you have additional questions please reach out to Jeff Heinz at 703-873-6917. Thanks everyone.

Operator

And this concludes today's conference. Thank you for your participation and you may now disconnect.

Duration: 61 minutes

Call participants:

Jeffrey R. Heinz -- Vice President of Investor Relations

David T. Lougee -- President and Chief Executive Officer

Victoria D. Harker -- Chief Financial Officer, Executive Vice President

Marci Ryvicker -- Wolfe Research -- Analyst

Kyle Evans -- Stephens Inc. -- Analyst

Steven Cahall -- Royal Bank of Canada -- Analyst

Dan Kurnos -- The Benchmark Company -- Analyst

David Joyce -- Evecore ISI -- Analyst

Craig Huber -- Huber Research Partners -- Analyst

Michael Kupinski -- Noble Financial Group -- Analyst

Doug Arthur -- Huber Research Partners -- Analyst

James Goss -- Barrington Research -- Analyst

Barton Crockett -- DCF Stock -- Analyst

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