Meredith Corporation
Q1 2017 Earnings Call Transcript

Published: 27 Oct 2016

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Fiscal First Quarter Earnings Results Conference Call. At this time all participants are in a listen-only mode. Later we will have an opportunity for questions and answers with instructions given at that time. And as a reminder today's conference call is being recorded. I would now like to turn the conference over to your host, Mike Lovell. Please go ahead.

[Michael Lovell:]

Hi. Good morning and thanks, everyone, for joining us. On our call this morning, we'll begin with comments from Chairman and Chief Executive Officer, Steve Lacy, and Chief Financial Officer, Joe Ceryanec, and then we'll turn the call over to questions. Also on the line this morning are Chief Operating Officer, Tom Harty, as well as National Media Group President, Jon Werther, and Local Media Group President Paul Karpowicz. An archive of today's discussion will be available later today on our investor website and a transcript will follow. Our remarks will include forward-looking statements and actual results may differ from forecasts. Some of the reasons why are described at the end of our news release that was issued earlier this morning and in some of our SEC filings. And with that, Steve will begin.

[Stephen Mark Lacy:]

Thank you very much, Mike, and good morning, everyone. Before I discuss our results, as Mike mentioned, joining us on the call today are Tom Harty in his new role as President and Chief Operating Officer and Jon Werther in his new position as the President of our National Media Group. These promotions are part of a very structured and strategic succession planning process that Meredith has successfully executed for many years. Including our Local Media Group President, Paul Karpowicz, Chief Financial Officer, Joe Ceryanec, and Chief Development Officer John Zieser, Meredith continues to benefit from a seasoned and very results oriented senior leadership team that I believe in fact is unmatched in the media industry. Now for our results; I hope you've had the opportunity to see our news release which was issued earlier today. I'm very pleased to report record first quarter fiscal 2017 earnings of $0.75 per share. That compares to $0.24 in the prior year period. Excluding special items in the prior year, first quarter fiscal 2017 earnings per share grew by 44%. Total company revenues increased 4% to a record $400 million, while total advertising revenue increased 3% to $226 million. First quarter fiscal 2017 performance was characterized by four key elements. First of all, strong growth in Local Media Group revenue, operating profit and EBITDA driven by record political, advertising and retransmission related revenue. In addition, local digital advertising revenues increased by more than 20%. Second, National Media Group digital advertising revenues increased 15%. Digital advertising revenues accounted for nearly 30% of total National Media Group revenue in the quarter. Third

[Joseph H. Ceryanec:]

Thanks, Steve, and good morning, everybody. I'll begin with our Local Media Group operating group performance. Operating profit grew more than 70% to $51 million and EBITDA grew more than 50% to $60 million. Revenue growth was strong, up more than 20% to $153 million. And all of these financial represent first quarter records. Political ad revenues were $16 million, up more than 25% from the first quarter in the last political cycle. Most of our political revenues were driven by so-called down-ballot races such as U.S. Senate and House elections, gubernatorial contests, and local races. Spending is particularly heavy in Las Vegas, driven by the Presidential election, a close U.S. Senate race to replace the retiring Harry Reid, and by two tight races for the U.S. House. It's also heavy in Missouri, where there's an open seat for Governor and where Senator Roy Blunt is in a tight race for re-election. This is benefiting us at the three stations we own and operate in the St. Louis and Kansas City markets. In Phoenix, where we have two stations, Senator John McCain is in a closer-than-expected race for re-election, and there are two other hotly contested House races, as well as other competitive down-ballot races and referendums. As we said on our call in July, Presidential election spending historically represents only about 15% of our total political revenue and, in fact, it was only 10% in our first fiscal quarter. Turning to non-political advertising, revenues were down 6% to $84 million during the quarter. We saw political crowd-out in certain of the markets I mentioned and the Summer Olympic Games on NBC also impacted many of our markets. Of our 12 markets, Nashville is the only one where we have an NBC affiliate. It definitely benefited from the Olympics, generating more than 15% increase in non-political revenues. Other revenues and expenses both increased during the fiscal year, primarily due to growth in retransmission-related revenues that we get from the MVPDs and higher programming fees paid to the networks. We expect to see continued growth in other revenues throughout fiscal 2017, as we will be renegotiating 40% of our subscriber base in fiscal 2017, while our existing network affiliation agreements remain in place. Now turning to the National Media Group, fiscal 2017 first quarter operating profit was $24 million and revenues were $247 million. Operating expenses declined 5% as we continue to pursue operational efficiencies. Total advertising revenues were $125 million, including a 15% increase in digital advertising revenues. Reported ad revenue was down 1.5%, but excluding the impact of MORE, ad revenues were actually even with the prior year. Digital advertising revenue was driven by both direct sales and programmatic. On the direct sales side, we're seeing success at creating proprietary ad products based on our premium brands, which is allowing us to build larger and more long-term partnerships with our clients. On the programmatic side, we're seeing improvement in rates in our private and open marketplace as well as the results of investments we've made in the last 18 months in technology, data capabilities, as well as talent. Turning to magazine advertising, we increased our share of total magazine advertising revenue to 12% from 10.5%, according to the most recent data from the Publishers Information Bureau. SHAPE, Rachael Ray Every Day, EatingWell and Allrecipes delivered noteworthy advertising revenue growth. From a category perspective, prescription drug, food, and direct response categories were stronger. Looking at circulation, revenues were $69 million and circulation profit contribution increased in the low-single digits. Newsstand revenues were up. Subscription revenues declined due primarily to the closure of MORE magazine as well as our ongoing efforts to source magazine subscribers from our own database instead of external agent sources. This strategy increases circulation profit but lowers revenue over time, and we expect these factors to continue to increase to affect circulation results through the rest of fiscal 2017. Finally, in the first quarter of 2017, along with the renewal of our license program with Walmart, we debuted three new licensing programs. First, a line of healthy food entrees under the EatingWell brand with Bellisio Foods that is selling very well in grocery stores and box stores across the country. Next, a collection of clothing under our SHAPE brand that's now available in department stores and sporting goods retailers, women's athletic retailers and gym chains such as Equinox and Power Life Yoga. And third, we launched a line of cookware under the Allrecipes brand that's currently available on Amazon. It's also featured in the Dinner Spinner television show as well. Now, as we look at the company wide financial highlights, our cash flow from operations was up very strong in the quarter and grew to $35 million from $3 million in the prior year period. Total debt was $697 million. Our weighted average interest rate was 2.7%, with effectively half of our debt fixed at low rates. And our leverage ratio was 2.1 times for the trailing 12 months. Now, as we look at our outlook, as Steve mentioned, we continue to expect full year 2017 earnings per share to range from $3.50 to $3.80. We expect our fiscal 2017 second quarter earnings to range from $1.18 to $1.23 and that compares to $0.72 or $0.80, before special items, that we recorded in the prior year second quarter. And as we look more closely at the second quarter of fiscal 2017 compared to the prior year, we expect Local Media Group revenues to be up approximately 25% and this increase includes expected political ad revenues between $27 million and $32 million, partially offset by weaker non-political ad revenues. We expect total National Media Group revenues to be down in the low-single digits and total company revenues to be up in the mid-to-high single digits. With that, I'll turn it back to Steve to close and then we'll open it up for Q&A.

[Stephen Mark Lacy:]

Thank you very much, Joe. Let me close with what we continue to believe is a very compelling investment thesis for the Meredith Corporation. The diverse businesses that we own and operate produce consistently strong free cash flow that's driven by a great group of television stations in large and faster growing markets, trusted national brands with an unrivaled reach to American women, particularly, the growing reach to the upcoming millennial generation, a profitable and growing digital business, a vibrant and growing brand licensing activities that's based on our very strong national media brands, and again, a strong improvement management team with a very successful record of generating strong free cash flow and growing shareholder value over time. So, with those remarks, we would be happy to answer any questions that you might have.

[Operator:]

We'll first go to the line of Kyle Evans with Stephens. Go ahead.

[Kyle Evans:]

Hi. Good morning. Thanks.

[Stephen Mark Lacy:]

Hey, Kyle.

[Kyle Evans:]

Hi. Maybe we could start with the non-political core in LMG. You posted a down 6% and you're talking about weaker trends relative to your guidance for the current quarter. Could you help us dive down? You talked a little bit about Olympics, you talked a little bit about political displacement, help us think about that going forward, please.

[Stephen Mark Lacy:]

Yeah. Well, I'll start, Kyle, and then I'll ask Paul to give us some color. It's a very unusual season with a lot of clutter in the marketplace and, as Joe mentioned, we had Olympics in this quarter and that only impacted us in our Nashville property and, again, along with a little bit of a crazy political season. So, we had the combination of some displacement, not as much benefit from Olympics as we might had hoped, and also, just some advertisers who were sitting out sort of waiting for the dust to clear, if you will. I'm going to ask Joe to give maybe some category results on non-political, the stronger ones and the weaker ones, and then I'm going to ask Paul just to give some general color from the marketplace as he's out talking to our sellers and also to our customers.

[Joseph H. Ceryanec:]

So, Kyle, another fact, I mentioned there were four markets where we had strong political and that was Las Vegas, the two Missouri markets and Phoenix. And ironically, if you took those four markets out, the rest of our markets were basically flat for the quarter. So, as Steve said, it's a little hard to sort through it all because of Olympics and the Presidential, but I would say, remove the political and we probably weren't as bad as down 6% for the group. To Steve's point, some of the non-traditional categories maybe were a little bit stronger. We saw pharma stronger on the LMG side. Gaming, gambling were up. Auto was down; it was down 10%. Restaurants, professional services, again, which were some of the larger categories, were also down as well. And I'll let Paul pile on, but as we're into the second quarter, again, we're in the heat of the political season, so it's a little hard to look at pacings and figure out where we're going to end the quarter, but we're continuing to see softness so far as what's on the books. But, Paul, you can add some color.

[Paul A. Karpowicz:]

Yeah. I think you and Steve actually hit on it. I think, as an industry, probably going back a year ago, we probably did ourselves a disservice to the extent that we talked so much about how big a political year this was shaping up to be. And I think we scared off a lot of our traditional advertisers, who have said and I've spoken to many advertisers who said, look, I just didn't want to get in the middle of all this activity in September, October, November, and the expectation is that they will be back. But I think that's a lot of what we're seeing. And as you spend time in Las Vegas or Phoenix or St. Louis or Kansas City, and you look at what we're running, literally, it is every other spot is a political ad, which is kind of tough for the viewers but for our political revenues it's great. But I think for traditional advertisers, they're looking at that crowd out and just saying, okay, I just don't want to mess with it. So, we'll see. We have a very aggressive plan in place on the LMG side relative to life after political, so life after November 8. We're going to be incredibly aggressive to make sure that we get those advertisers back and build the core back up to where it needs to be.

[Stephen Mark Lacy:]

Does that help, Kyle?

[Kyle Evans:]

It does. I have one quick follow-up on that auto down 10%. What would – this is maybe too granular, but what might that number have looked like if you excluded those four political hot markets?

[Stephen Mark Lacy:]

We don't have that level of detail here, but we can get it for you, Kyle, and we will.

[Kyle Evans:]

Thank you.

[Stephen Mark Lacy:]

Thank you.

[Operator:]

And we'll go next to the line of Dan Kurnos with Benchmark. Your line is open.

[Stephen Mark Lacy:]

Good morning, Dan. How you doing?

[Dan L. Kurnos:]

Good morning, Steve. I'm doing all right.

[Stephen Mark Lacy:]

Great.

[Dan L. Kurnos:]

Just – I'll switch gears here. I'm sure a bunch of people are going to pile in on the TV side. So, I'll ask a couple of national questions. Can you just talk about, Steve, obviously, the Magnolia has been sort of a pleasant surprise for you guys, not a needle mover. But I kind of want to get a sense from you, high-level about how you're thinking about, and this is sort of an ongoing conversation, right? How you're thinking about content in terms of being able to now leverage national media as a distribution platform. And it seems like that's becoming more and more of a partnership opportunity versus buying a new title or two and then also versus developing organic. Let's just start there.

[Stephen Mark Lacy:]

Yeah. And I'm going to start and I'm going to ask Tom to add his point of view and then also Jon Werther a bit on the digital side. In all sincerity, Dan, what we see continuing to happen are individual businesses, if you think about Martha Stewart Living, if you think about our ability to pick up SHAPE, and then if we move to the Gaines opportunity with Magnolia, people coming to Meredith, and I would really say, for three primary reasons. First and foremost, a very, very stable and secure leadership team that they feel comfortable handing their brand over to. Obviously, the Magnolia brand belongs to them, but we are executing it in the media marketplace very much like what we do for Martha. In addition to that, we have a very, very broad reach, multi-platform with now 75% of adult millennial women that we serve. So, we are a very, very attractive distribution platform, but I think more important than that, you think of Rachael Ray, you think of Martha, you think of Chip and Joanna. They're very concerned about who they hand their brand over to, and we take good care of those relationships, and so we have quite a bit of inbound. And Tom, I'm going to ask you to talk about how we evaluate those opportunities because, obviously, this is a for-profit business activity for us. And then, I'll come back and ask Jon to talk about how we think about those opportunities digital. So, Tom, go ahead.

[Thomas H. Harty:]

Sure. I think it's – on the consumer side, what we're still seeing and have been seeing over the last few years, it's not digital or print. The consumers want both platforms and are using them different. So we like to say that we are creating content no matter how she wants to consume that, being on her iPhone or desktop or in print. And opportunities like Magnolia, where you have an established brand, who's in their medium on HGTV, we really got excited about this from the beginning. And our team kind of quickly, in a matter of three months, put out a product on the newsstand. And just shows you the good news is, we announced last week that we actually have to go back to press to print more copies to get them out on the newsstand for such a high demand that we're seeing. So, we have that from a Magnolia perspective. And then, you'll remember four years ago that we started Allrecipes magazine, where we had the largest brand, Allrecipes, on the web for food content. And we started, we looked at it, we did consumer research, and we found that there was an opportunity for a magazine. And we produced that, and within 16 months, we were profitable and now we have a whole new profit stream with a new platform in print for an Allrecipes brand. So it's – we look at these opportunities on an ongoing basis, but on the consumer side, what we continue to see is there's both demand for print and for online content.

[Stephen Mark Lacy:]

And, Jon, when we – if you would speak to how these new brand opportunities, SHAPE and Martha in particular, from a premium content perspective and a distribution digitally, how the digital sales and marketing team are taking those to the marketplace.

[Jon Werther:]

Sure. Whether it's buying a new asset or developing experiences organically or structuring partnerships, we think we've been very successful, particularly on the digital side, with the development of multi-platform content led experiences and distributing that content wherever consumers are, as Tom highlighted. In addition, we've been successful at generating strong engagement as well as strong results for advertisers through our branded experiences, the first-party data that we're able to leverage as part of those experiences, and the technology platforms that we purchase to fuel premium advertising products. The collective result of those assets is that we're able to drive reach and engagement growth and great results for our advertising partners and for the partners with whom we work on these experiences and, ultimately, do so profitably. So, content really is what we look at to lead these experiences and we found that to be very successful in terms of establishing always-on partnerships with our clients across platforms and do so profitably.

[Stephen Mark Lacy:]

Does that help, Dan?

[Dan L. Kurnos:]

Yeah. That's a good high level. I just wanted to follow-up then on kind of how MXM still fits into the picture here, because I think that was maybe, again, a little bit disappointing to us. So, if you could just talk to that and then, Steve, just lastly for you. On the program side with the Walmart renewal, without giving away any competitive secrets, if you could just talk about if that was an expanded deal and just how we should think about the rollout of the new programs and the impact, understanding that these things take a long time to be recognized on the P&L.

[Stephen Mark Lacy:]

Yeah. So, again, the best way, Dan, to think of MXM, what Tom just described and what Jon just described that we do for our own brands, we execute very similarly situated programs for brands that our advertising and marketing clients own, because every single one of our key marketers is also in the media business with their own web properties, with their own outbound email distribution and, in many cases, with printed properties that we create, if you will, on a white label basis. I think the real proof point around MXM will be where we are as we turn the corner into 2017, because you're right, the results were not what any of us had hoped. But, interestingly enough, this is probably the largest pipeline of potential new business opportunities in many, many, many years. Now, in this quarter, this fourth calendar quarter, and into the early part of 2017 is when those deals get signed and the statements of work get executed or they don't. So, stealing a line from Paul Karpowicz, I am cautiously optimistic about calendar 2017 for MXM, but we have to prove that to ourselves and to our shareholders and we're not there at this point. But, Tom, you might speak just a bit to the sales leadership that's there and, obviously, the trick on this, Dan, is these are situations where we can't give the name of the company until they give us permission. And oftentimes, that is because we're executing a program for them to try to give them a competitive advantage and they don't want us to talk about it. But you might give a sense, Tom, of some of the things that are going on in that space that I think give us all some cause for optimism.

[Thomas H. Harty:]

Yeah. About a year ago, we named Georgine Anton to the leadership position of MXM and Georgine really is a seller at heart. So, she's the leader now and has kind of changed the mindset. We felt we had to build, to Steve's point, our pipeline of sales with new relationships and not just grow existing customers. And Georgine has taken the last 12 months and has really doubled the number of people that are in our sales organization going out and selling. So, we're very cautiously optimistic about the pipeline that we're seeing with lots of new customers. And then there's also a huge benefit. What we like to do is we're very unique in this space compared to our competitors is that when we go in to talk to these clients at a very senior level, CMO, president level, we're a media company, but then we also have this very large marketing services organization. So we can really come with a unique perspective and actually help them solve some problems, and then also execute on the media perspective. So, it's very unique compared to some of our competitors in the marketplace.

[Stephen Mark Lacy:]

And last but not least, Dan, on licensing, we were elated to renew our program with Walmart and there are, again, about 3,000 products in store. But I would say in this renewal, as we go forward over the next three years, the major opportunities are in Walmart.com, and there are also international opportunities where we're beginning to introduce that product not only at retail, but, of course, digitally. And it's a big, big part of what goes on between our two companies. It's been tremendously successful and, obviously, we're looking for good things going forward. But this is our, oh goodness, third major renewal since we made the program a lot bigger, and we feel really good about where we are going forward. Okay?

[Dan L. Kurnos:]

Thanks. Yeah. Steve, I'm sorry. Could I just ask Joe one quick question, housekeeping?

[Stephen Mark Lacy:]

Of course, Joe's right here. Go ahead.

[Dan L. Kurnos:]

Joe, buyback, $6 million spent between last quarter and this quarter, give or take based on what you said with ongoing repurchase authorization. Given the way that the stock is, I guess, reacting today, is there any thought process to accelerating that or are you trying to keep some powder dry for when this whole spectrum auction?

[Joseph H. Ceryanec:]

Oh, there is – when I – as I was watching our ticker this morning, yes, there was clearly some ideas about going in and reconstituting that in a bigger way. As we looked at the first quarter, we were generally trading kind of in the low $50s. We did take some shares off the table where we had people that we might have had some option exercises or some restricted shares vesting. So, we always, we keep those from diluting the market. We were in the market a little bit in Q1, but, yeah, I would say if we continue to see the pressure, and it looks like it may be in our broadcast space, some of our peers are pretty red as well. We will definitely go in, in a bigger way.

[Dan L. Kurnos:]

Perfect. Thanks so much for the color, guys. Appreciate it.

[Stephen Mark Lacy:]

Yeah. Thanks, Dan.

[Operator:]

We'll go next to the line of Marci Ryvicker with Wells Fargo. Go ahead, please. Miss Ryvicker, your line is open.

[Marci L. Ryvicker:]

Sorry, I was on mute. With auto being down 10% in local, isn't that because you have virtually no or, I would say, little exposure to the Olympics?

[Stephen Mark Lacy:]

Yeah, Marci, that's a big chunk of it. You're absolutely right. We had only the NBC affiliate in Nashville. That's the only NBC affiliate. And so, certainly, there's an impact there and there's also, as Paul said a few minutes ago, especially like in Las Vegas, in Kansas City, in St. Louis, the political is so heavy that we did have some displacement. So there are several factors but, yeah, you're right. We didn't benefit from the Olympics very much.

[Joseph H. Ceryanec:]

But, I did say, Marci, that Nashville was actually up 15%.

[Marci L. Ryvicker:]

Yes.

[Joseph H. Ceryanec:]

So, our one NBC had a great quarter.

[Marci L. Ryvicker:]

Okay. And then you said that non-political is soft. I'm assuming it's because you're still looking at current pacing and, obviously, political is huge. But if you look out into December, do you have any visibility yet for apples-to-apples what the core is? Because I don't believe there's anything – there's no real core right now.

[Stephen Mark Lacy:]

Yeah. I think you're right and, Paul, I'd like you to comment. I think we feel right now, Marci, that these pacings post-election are just really hard to read because of what's going on. But, Paul, you might give your sense of when do you really kind of think we'll get a good sense of how like December is going to firm up?

[Paul A. Karpowicz:]

Well, really, we're kind of at that point now where we're working very hard to determine if people are going to be back in December or if they're going to hold off until first quarter. And that's why I indicated, we're going to be incredibly aggressive post election day. So, on November 9, we're already out there with packaging and incentives and a lot of things to make sure that we can fill up December. There's no question that there's a lot of buying to be done for calendar first quarter that hasn't even begun yet. That hasn't even crossed people's desks yet. So there's a lot that's going to happen there, but we want to make sure that we fill that time period from November 8 through December and make sure that there's plenty of activity there. And at this point, for December, it's still light, but we're just kind of waiting each day to determine how much additional non-political is going to be available out there.

[Stephen Mark Lacy:]

Yeah. Now, factually, Marci, and again, not knowing what I can say about the accuracy of the pacings, October was actually the weakest, November is better, and December, at this moment, is even better yet. It's still down a little bit but more like low-single digits, better than we recorded in total in the first quarter, but obviously, that could change. So, each month in the quarter we're in now the pacings get better as we look forward, but I'm always skittish about December pacings at this point. But does that help?

[Marci L. Ryvicker:]

It does and I have one just last clarification.

[Stephen Mark Lacy:]

Of course.

[Marci L. Ryvicker:]

I don't know if anyone else asked this. The range for your political guide for the second quarter, I guess, what are you assuming for the low-end versus the high-end? Is it what you've already booked on the low-end and what you hope to book for the high-end?

[Stephen Mark Lacy:]

Yeah. Let me have Joe take that because he's the one in charge of the Ouija board on this, so hold on.

[Joseph H. Ceryanec:]

Yeah. No, Marci, I think that's a pretty good observation. I think we are very comfortable with the low-end. In fact, to your point, we pretty much have that on the books right now. Probably, the wild card to the higher end or maybe even a little above the higher end is do we see some Presidential money coming in or as we're seeing the Democrats starting to spend, maybe shift some dollars into the, what I'll call, the down-ballot races. That would clearly help us get to that higher end or even – if it really comes in, we could actually be a little above that.

[Paul A. Karpowicz:]

Yeah. Joe, the other wild card is, if in fact in Georgia, they go to a runoff for the Senate seat and that would be very, very interesting. So, in the state of Georgia, a candidate has to get 50% or more of the popular vote, otherwise they have to go to a runoff. And from what we understand, the polling right now would indicate that there's a very good chance that there would be a runoff there. So that would take us, certainly, to the high-end of the range.

[Marci L. Ryvicker:]

Great. Thank you so much.

[Stephen Mark Lacy:]

Thank you, Marci.

[Operator:]

And we'll go to the line of Barry Lucas with Gabelli & Company. Go ahead, please.

[Stephen Mark Lacy:]

Hey, Barry. Good morning.

[Barry L. Lucas:]

Good morning, Steve. A couple of national media questions, if I may. Your expenses there, as you called out, were down about 5%-ish. So, I'm wondering two things. One, how much of that is the elimination of MORE? So, on a same property basis, how much were expenses down? And then, to extend that, how much more opportunity is there to continue to reduce the cost base in National Media Group?

[Joseph H. Ceryanec:]

So, Barry, I think MORE – I'm trying to find it here. I think the elimination of MORE was about 1% of that 5%. So all else would've been down 4% and, I guess, I'll – maybe Tom can tell you what he's kind of got in store – Tom or Jon for the second half. But we do have – I'll give you a little color on Q2 because I think we're also expecting expenses to be down in Q2 as well.

[Stephen Mark Lacy:]

Yeah, Joe's looking up some numbers and then...

[Joseph H. Ceryanec:]

Yeah, we expect second quarter, Barry, to be down probably around that 4% as well.

[Stephen Mark Lacy:]

Okay. So, Tom, you might talk about the different buckets, what you have strategic sourcing doing and how you think about efficiencies in some of the different parts of the business as we look to the future.

[Thomas H. Harty:]

Yeah. We've built under Doug Olsen's leadership in the National Media Group, we have a sourcing group that spends a tremendous amount of time and has a target every year to reduce ongoing expenses in different areas and that team's done a fantastic job lowering our cost. And we're always looking at reallocating our internal resources as we pivot to digital. We're trying to reallocate content people, and through that process, we're constantly challenging the team to look at the expense side, which is people. And for the last number of years, we've done a fantastic job of really looking at our expense base and making the investments which we think are important to grow the business. And on the MORE side, like making a tough decision about a brand that we didn't think was going to be growing into the future of making a decision to move forward without MORE. So, it's a combination of all, but we have a team that's focused on the bottom line and expenses are a big piece of that.

[Stephen Mark Lacy:]

Does that help, Barry?

[Barry L. Lucas:]

Yes, it does. Thank you, Tom. Just moving on a little bit. I'm just hoping you can provide a little bit of color on what the pipeline looks like and some of this is serendipitous, but you're very successful with Martha Stewart, obtaining the content of the brand, Allrecipes, Rachael Ray back a few years. So, without perhaps naming names, what does that pipeline look like in terms of opportunity? And when you examine the opportunity, how much goes into the calculus for, let's say, the clothing line that you have for SHAPE or the food line for EatingWell? Does that figure in or in terms of when you think about what you'd like to own and...?

[Stephen Mark Lacy:]

So, let me talk a little bit about the pipeline. And I'm going to broaden your question a bit, Barry, to really kind of talk about the enterprise. And then I'm going to, again, ask Tom to talk about how we think about a SHAPE an EatingWell, an Allrecipes, when we take them on and how we think about expanding the brand. But, as you know, at the moment, very, very quiet on the television side, although, we are again cautiously optimistic that some opportunities will come forward as we get into the early part of the year. And as Joe noted, we have, again, during this quiet period, worked very aggressively to move our leverage down to where we have a significant amount of dry powder and our incremental borrowing rate is very, very modest. Then when you move over to the national side, we constantly work a series of opportunities where we're trying to get the current ownership, who, oftentimes in my opinion, are operating a subscale operation to consider allowing us to take over their brand. If you remember in the case of Martha, the first step of that had nothing to do with content creation. She, in fact, retained content creation and it was sort of a reverse MXM model, where we bought the content from her very much like Kraft buys content from us to run their properties. So, in fact, I'm scheduling such a discussion that I hope happens over the next few days. But I make the rounds regularly to those sorts of opportunities. But currently, the more near-term deal flow is a lot more on the digital side of the business, and these are really in kind of three sort of fun and interesting areas. It might be a content creation team, if you will, who have established a digital business and we think it fits right in the sweet spot of one of our core verticals like food or parenthood or whatever, or maybe we just think it helps us aggressively expand our millennial reach and we might bring them into the fold to sort of supercharge one of the parts of our businesses. It might also be a technology play like Jon Werther made reference to selectable media, a technology play that we think will help us sell more product to the individual consumer. And so we look at those and we have really quite an inflow, because one of three things happens. Either they realize they've got a big audience, but they can't monetize it because they couldn't get an advertising sales call if their life depended on it, or in fact, they've kind of run out of money, or in fact, they just want to tap our very large audience to sell products and make more money. So, we really have more going on, on the digital side right now from a deal flow, but we've also got some other ones that could be interesting as well. And Tom, why don't you take an example, pick one, pick EatingWell, pick SHAPE and talk about when we take one of those over sort of what do we do to expand that presence.

[Thomas H. Harty:]

Yeah. I think, to Steve's point, where we've been focused on women and our delivery of women and we've been very successful for that. So the brands that we've been concentrating on are in that segment. But, over the last five years, and you look at all the acquisitions and you brought up on your first part of your question was on the expense side. All of these have delivered. We've delivered over 20% cost savings when we bring it into Meredith. So when we go back and scorecard it and look at what we've been able to achieve on every single one, we're able to do that. And to the point of having a very diligent sourcing team and great printing contracts and relationships with our printers, we can do that, and also having the location in Des Moines, Iowa, which offers us a much cheaper area to operate our business or at least half our business compared to a lot of our competitors in Manhattan. And then we're looking for expanded opportunities to grow those brands. So like taking EatingWell from perspective; here you have EatingWell, we looked at that, we saw the research that consumers are looking for healthy alternatives. Here was a very, very small brand up in Vermont. We acquired it. It had a rate base of 350,000. We quickly put in our direct marketing expertise and used our 100 million database to find people that may want this. And we've more than tripled the profits and now the rate base is 1.4 million, up from 350,000. So, I think that's a great example.

[Stephen Mark Lacy:]

And with the line of dinners that we just launched this fall, that will be really fun to see how quickly we can grow that expansion as well, Barry. So does that help answer your question?

[Barry L. Lucas:]

Sure. That's very helpful, Steve. Thank you, and thanks, Tom.

[Stephen Mark Lacy:]

Thank you.

[Operator:]

And we will go next to the line of Jason Bazinet with Citi. Go ahead, please.

[Stephen Mark Lacy:]

Good morning, Jason.

[Jason Boisvert Bazinet:]

Good morning. I just had – maybe this is too specific for you to comment on, but based on what you know about the industry, given the large scale sort of M&A that's going on in the space and the potential FCC license transfers that would have to go on, do you think the odds are good or possible that Peachtree comes up for sale?

[Stephen Mark Lacy:]

Well, I think that is certainly a possibility. And we have very successfully operated that property for many years. It is quite aggressively integrated into our operations in Atlanta and we would very much look forward to that opportunity, should it bubble up as the broader deal goes forward.

[Jason Boisvert Bazinet:]

Okay. Thank you.

[Stephen Mark Lacy:]

Okay?

[Jason Boisvert Bazinet:]

Thank you.

[Stephen Mark Lacy:]

So, thank you all very much for participating on our call this morning. As all, Joe Ceryanec, Mike Lovell and I are available for the balance of the day if you have any follow-up questions. And we appreciate your continued interest in and support of Meredith. Have a great day. Thank you very much.

[Operator:]

Ladies and gentlemen, that will conclude your conference call for today. Thank you for your participation and for using AT&T's Executive Teleconference Service. You may now disconnect.