Meredith Corporation
Q2 2017 Earnings Call Transcript

Published: 25 Jan 2017

[Operator:]

Ladies and gentlemen, thank you for standing by. And welcome to the Meredith Corporation Fiscal Second Quarter Earnings Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, today's conference is being recorded. And I would now like turn the call over to our host, Mr. Mike Lovell. Please go ahead.

[Michael Lovell:]

Hi. Good morning, and thanks everyone for joining us. On our call today we'll begin with comments from Chairman and Chief Executive Officer, Steve Lacy, President and Chief Operating Officer, Tom Harty and Chief Financial Officer, Joe Ceryanec, and then we'll turn the call over to questions. Also on the line today to assist in the Q&A is Local Media Group President, Paul Karpowicz, and National Media Group President Jon Werther. An archive of our discussion will be available later today on our investor website and a transcript will follow that. Our remarks this morning 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. With that, Steve will begin.

[Stephen Mark Lacy:]

Thank you very much, Mike. And good morning, everyone. I hope you've had the opportunity to see our news release issued last night, announcing affiliation and renewals for four of our CBS station and our earnings release issued earlier this morning. I'm pleased to report record results for both the second quarter and the first half of our fiscal 2017. Earnings per share increased to a $1.58 in the quarter, compared to the prior year period. Excluding special items in both periods, we increased earnings per share 63% to a $1.30 compared to $0.80 in the prior year period. Total company revenues grew by 9%, and total advertising revenues were up 11%, both representing all-time quarterly highs. Results were led by our Local Media Group, which delivered all-time record performance across the Board in revenue, operating profit and EBITDA. This included political related advertising revenues of $40 million in the quarter and $56 million in our first half. Total company digital advertising revenues grew 16% to a fiscal second quarter record. National Media Group operating profit grew and profit margin expanded, driven by strong growth in digital advertising revenue. Digital ad revenues grew 16% and represented nearly 40% of total National Media Group advertising. Total ad revenues were off 2%, but were even on a comparable basis. Consumer engagement in key target demographics expanded across Meredith's Media platforms. Traffic to our digital and mobile sites averaged of nearly 90 million monthly unique visitors. Magazine readership remains rock-solid at 125 million, and Meredith's television stations delivered a strong November rating book. And finally, we renewed CBS affiliation in four of our markets, including Atlanta and Phoenix, our two largest, along with Kansas City and Flint, Michigan. When you combine these affiliation renewals with those we completed last April in St. Louis, Hartford and Springfield. We have now secured all seven of our CBS affiliation into the year 2020. I'm very pleased with the terms and conditions of these new agreements with CBS. Now turning to the first six months of our fiscal year, earnings per share were a record $2.33. Excluding special items, EPS was also a record $2.05, up more than 50% from the first half of fiscal 2016. Total company revenues grew 7% to a record $843 million, and total advertising revenues grew 7% to $493 million. As we enter a new calendar year, I think it's appropriate to step back and review what we've accomplished here at Meredith in calendar 2016. From a financial perspective, we delivered 6% growth in total advertising, as ad revenues grew in both our Local and our National Media Group. In our Local Media Group 12% advertising growth was driven by a very strong political cycle, between the primaries and general election, we generated a record $67 million of political advertising. We also increased net retransmission profit contribution. In our National Media Group, we delivered growth in ad revenues, as low double-digit growth in digital advertising more than offset low single digit declines in print. We're very pleased to have reached this inflection point in advertising performance with digital growth surpassing print declines. Second, we made enhancements to many of our media brands. In our Local Media Group, we increased total news and local entertaining programming to 700 hours weekly, as we launched new newscasts in multiple markets, including Atlanta, Phoenix and Portland. In our National Media Group, we refreshed several of our brands, including Better Homes & Gardens, EatingWell and Family Circle, increasing their appeal to millennial women. We launched the Magnolia Journal, a new quarterly lifestyle magazine from popular television personalities Joanna and Chip Gaines. For our Allrecipes brand, we expanded a social media functionality, increased the rate base of the Allrecipes magazine to 1.35 million, and launched an Allrecipes branded national television show airing on the CW Network to over 100 million US television households. Our ongoing work to improve the reach, relevance and vibrancy of our media asset continues to strengthen our audience connection. For example, our reach increased to nearly 75% of American female millennial. Our total multi-channel reach among unduplicated American women now stands at an all-time high of 102 million. Our ratings performance in our Local Media Group was strong throughout the year, with nine of our stations consistently ranking as number one or number two in late news and seven stations ranking number one or number two in the morning. Third, as I mentioned earlier, we continued to drive rapid growth across our digital, mobile, video and social platforms. And finally, we diversified our revenue and profit base by growing non-advertising related revenues. Our Local Media Group delivered significant growth in retransmission revenues by renegotiating rates with MVPDs for a large portion of our subscriber household. In our National Media Group, we renewed our industry leading licensing agreement with Walmart, grew our Better Homes and Gardens real estate program with Realogy and launched new licensing programs for EatingWell, Shape and Allrecipes. We're now ranked as the second largest licensor in the world behind Disney, according to license License!Global magazine. So with those thoughts, I'll turn the program over to President and CEO, Tom Harty for more of our fiscal 2017 second quarter performance.

[Tom Harty:]

Thanks, Steve and good morning everyone. Let's begin our discussion with the strong performance in our Local Media Group. Fiscal 2017 second quarter operating profit grew 90% to $77 million. EBITDA grew 71% to $86 million, and EBITDA margin was a robust 47%. Revenues increased 31% to $183 million. Total advertising revenues grew 27%, driven by record demand for political advertising. Unlike most other broadcasters, we exceeded expectations by delivering $40 million of political advertising revenue in the quarter and $56 million in the first half of fiscal 2017. Demand was particularly robust in Las Vegas, St. Louis, Phoenix and Kansas City markets, due primarily to very competitive down ballot races. Due to the strong demand for political advertising, we experienced some crowding out of non-political ad dollars, particularly in the four heavy political markets. Excluding these markets, non-political advertising revenues were down in the low single digits. Digital advertising revenues were up 18% compared to the prior period, as our innovative growth strategies continue to drive higher digital sales across our station group. Other revenues and operating expenses increased compared to the prior-year results, due primarily to growth in retransmission revenues from cable and satellite television operators, partially offset by higher programming fees paid to affiliated networks. Turning to our National Media Group, fiscal 2017 second quarter operating profit was 34 million, excluding special items. Revenues were $259 million. Looking more closely at fiscal 17 - fiscal 2017 second quarter performance, compared to the prior-year period, total advertising revenues declined slightly to $135 million, however, on a comparable basis, excluding more magazine, total advertising was even with the prior-year. This performance was driven by 16% growth in digital ad revenues, which offset declines in print advertising. Digital advertising revenues accounted for 38% of the total National Media Group ad revenues. Performance was led by Allrecipes, Parents and Shape brands. Our magazines grew their share of total industry advertising to 13.8% from 12.5%, according to the most recent data from the Publishers Information Bureau. The Family Circle, Allrecipes and EatingWell brands posted strong performance. Circulation revenue grew to $67 million. Newsstand performance drove overall circulation revenue growth, led by a strong debut of the Magnolia Journal, which Steve referenced earlier. Finally, we reduced expenses 3% through operational efficiencies, again, before special items. Now, I'll turn it to Joe for a look at the companywide financial highlights and details on our outlook.

[Joseph Ceryanec:]

Thanks, Tom. And as Steve mentioned earlier, calendar 2016 was a very strong year for us. We generated nearly $300 million of operating cash flow, which is an 80% increase over the prior year amount. We also grew our dividend by more than 8% to a $1.98 on an annual basis, which was the 23rd straight year of increases. And we remain committed to our total shareholder return financial strategy and key elements include, one a current annual dividend of a $1.98 a share that we typically revisit in late January or early February of each year. Two, $100 million share repurchase program with $74 million remaining under the current authorizations. And third, ongoing strategic investments to scale our business and increase shareholder value over time. The combination of our dividend, share buybacks and stock price appreciation drove a total shareholder return of 45% for Meredith shareholders in calendar 2016. Now turning to fiscal 2017 metrics. Cash flow from operations grew to $117 million from $48 million in the prior-year period. The total debt was $674 million and our weighted average interest rate was 2.8%, with $400 million of that debt fixed at effectively low rates. Our leverage was 1.9 to 1 for the trailing 12 months. And then as we look at our outlook, including the special items we reported in the second quarter in fiscal 2017, we expect fiscal 2017 full year earnings per share to range from 378 to 408. Excluding special items reported in the second quarter, we continue to expect fiscal 2017 full year earnings to range from $3.50 to $3.80, which is what we originally communicated on January 28, 2016. We expect fiscal 2017 third quarter earnings per share to range from $0.75 to $0.80, with total revenues for each of our Local and National Media Groups expected to be flat to down slightly. And 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, Tom, and Joe and just for a little clarification, as I introduced Tom, I gave him a promotion to Chief Operating - Chief Executive Officer. Tom was made our President and COO back in August. And again, on our guidance it remains at $3.50 to $3.80 and that as we originally communicated it back in July of 2016 when we released fourth quarter earnings. So as we close this morning, I continue to believe that Meredith is a compelling investment for - investment thesis for the marketplace. The diverse businesses that we own and operate consistently delivers strong free cash flow, its driven by a great group of television stations in large and fast-growing markets, trusted national brands with an unrivaled reach to American women, particularly are growing reach to the millennial generation. A profitable and growing digital business, vibrant and growing brand licensing activities that are based on our very strong National Media brands and a strong and proven management team with a very successful record for generating growing free cash flow and shareholder value over time. And finally, as we've consistently stated, we continue to explore opportunities to add attractive print, broadcast and, of course, digital, brands to our media portfolio. We have a consistent track record of being very disciplined acquirers. But just like any other public company, we'll not comment on market rumors or market speculation, we are here this morning to discuss our financial results for the quarter and first six months, and of course, our outlook for the rest of the year. And I ask that you focus your questions this morning on those topics. With that, we'll be happy to answer any questions that you might have.

[Operator:]

[Operator Instructions] And our first question comes from the line of John Janedis with Jefferies. Please go ahead.

[John Janedis:]

Thanks. Good morning.

[Stephen Mark Lacy:]

Hi, John.

[John Janedis:]

Hi, Steve. Quick question for you, I guess, maybe couple of given small business optimism, I think the market has been a little bit surprised that local advertising demand hasn't really accelerated much to start calendar 2017? And I guess, so from what you're seeing, can you give us some perspective and maybe to what extent is there evidence that dollars are shifting incrementally to digital given the 18% growth you reported. I'm not sure to what extent there is overlap in advertisers between I guess you know, traditional versus digital?

[Stephen Mark Lacy:]

Well, first of all we really have not seen any meaningful shift of advertising dollars away from the traditional broadcast platform. Although we have very, very strong growth in digital advertising in our local market. And it’s important to remember that we generate the vast majority of our revenue and profit from around our news daypart and it's a very, very hyper local audience and it is primarily local advertising. So if you really wanted to shift a meaningful amount of that to digital sources, there are not enough platforms locally that would even mathematically allow that to happen. So that’s one thing I think to remember first and foremost, very, very different than what we see on the National Media side of our business. Again, as you said, the - you know, early calendar 2017 is getting started a little slower than we saw a year ago. But in all sincerity that’s not terribly unusual when there is a post-election cycle and a change in the administration and we've seen it improved as the - you know, the time period has progressed, but again on that, you know, 25th of January its very, very early in calendar 2017 to have a very good grasp on advertising really kind of across the business for calendar '17. By the time we release earnings at the end of this quarter, we'll have a much, much better feel for how calendar '17 is going to pay. Does that help at all?

[John Janedis:]

That helps. Maybe a follow-up and then a separate question. On the guidance end does that imply broadcast ad revenue declines in the mid-singles?

[Joseph Ceryanec:]

John, I would say right now we're expecting broadcast non-political, probably mid to high. Now one of the points I want to make is that because the Super Bowl has shifted from CBS to Fox this year. That's about half of what we expect the decline to be. As you know, we're heavy CBS, especially in big markets. So if we said overall expected mid to approaching high, probably half of that is Super Bowl, so barring the Super Bowl it’s probably low to mid for the rest of the group.

[John Janedis:]

Okay. That’s helpful, Joe. Thanks. And maybe, if you are taking step back to your comment before, related to last night, I think you maybe one of the first of your peers to have a deal to be included Hulu and I assume there is more to come there. But have some your concerns been on the rate and/or rights and is there a benefit to you from a revenue perspective, relative to traditional delivery or as differently will there be an impact on I guess the net retrans line?

[Stephen Mark Lacy:]

So Paul, would you like to give a little color on that part of the agreement?

[Paul Karpowicz:]

Yes. Well, I think the important thing is to look at the agreement as a package and as we went into our negotiations with CBS, it became very important that we lock down first and foremost, the affiliation in - the network affiliation agreements in those four major markets. Secondarily, we got comfortable with the renewal of CBS All Access, which we now have across all seven CBS stations. And then with Hulu, at this point the economics are such that we don't anticipate having to take our retransmission number down at all and we think over the life of - in the term of this particular agreement that we should be consistent with our current retransmission numbers and have the ability to add additional revenue based on how the Hulu subscribers grow.

[John Janedis:]

That's very helpful. Thank you very much.

[Paul Karpowicz:]

Thank you.

[Operator:]

And we do have a question from the line of Kyle Evans with Stephens. Please go ahead.

[Kyle Evans:]

Hi, good morning.

[Stephen Mark Lacy:]

Hi, Kyle. How can we help you?

[Kyle Evans:]

When I look at the Martha and Shape deals that you've done in the past, it does look like a perfect fit and they added an element of growth with very little execution risk. Are there more targets out there that fit that mold or is the magazine industry now so consolidated that you are going to have to do something more transformative? And along those lines, could you give us an upper limit to the leverage you'll be willing to take on for magazine deals?

[Stephen Mark Lacy:]

So I'll break that into two parts. I'll ask Tom to speak to his thoughts on what we could add to the portfolio and then I'll ask Joe to give you our sense of leverage, which we spoken to many times before. So, Tom?

[Tom Harty:]

Yes, I think that to your point on the tuck-in acquisitions we've done with Rachael Ray, EatingWell, Martha Stewart they've all been very accretive and very easy to actually bring into the Meredith fold [ph] and there a lot of other titles out there. I think we you know, on a monthly basis we had inbound calls from different companies looking to talking, it really needs to fit our kind of focus that’s been mostly on women, in millennial women. But we do believe that there are the targets out there for us to get in the future.

[Stephen Mark Lacy:]

And Joe, do you want o speak to leverage?

[Joseph Ceryanec:]

Yes, I guess, Kyle, you know, each deal is unique and the components of each deal are unique. I would say kind of to generalize we would probably be willing to go into the fours. But that is definitely a factor of how quickly we think we could bring that down i.e., what kind of free cash flow are we going to generate, are there opportunities to monetize certain assets to work that leverage down. So as you know, it’s hard to generalize, but again, we stretch into the fours for something that’s strategic and that's consistent with what we've said before.

[Kyle Evans:]

Great. Two quick follow ups. What was the write down of contingent consideration payable on special items for the NMG?

[Joseph Ceryanec:]

That was an acquisition we did Kyle. I want to say maybe two years ago it had a contingent payment, as we move through the business, we don't - do not expect that that amount will be what we initially had set up as a liability. And so we made the determination that it was time to pull that down.

[Kyle Evans:]

And lastly, the release yesterday on CBS mentions other future new entrant deals, do you expect the agreement that you had with CBS to work retroactively into DirecTV Now and Sling? Thanks.

[Joseph Ceryanec:]

So I would - let me - let me bifurcate, the agreement with CBS, between what I would say our traditional MVPDs and the new entrant. So the agreement as Paul said, think of it is really three key components, you’ve got the network affiliation renewal, you’ve got the renewal on the CBS All Access and then you got the agreement to get into Hulu and really it provides a framework for the next over the top platform, whether that's a Google and Amazon you know, fill in the blank. What it does not set the framework for are the traditional, what I'll call MVPD products that are now moving into an OTT. So whether that's DirecTV Now, whether it's Dish, Sling, those are deals that we will continue to negotiate on our own as Meredith, not with CBS. So hopefully that’s clear. But there's a difference between the traditional MVPDs movement and over-the-top versus the new entrants. Paul, I don't if you want to add anything to that.

[Paul Karpowicz:]

No, I mean, that’s exactly right, that any entity that we currently have a relationship, you know, relative to DirecTV Now and Dish, we will continue to incorporate those negotiations in with our normal retransmission discussions with them. And then secondarily, what we have done with CBS is we have created a framework, so as those new entrants come online and as Joe said, we don't even know who that is yet. But we have a framework, we have an understanding with CBS that we'll work together to come up with a fair deal there.

[Kyle Evans:]

Great. Thank you.

[Stephen Mark Lacy:]

Thank you.

[Operator:]

And we do have a question for the line of Dan Kurnos with Benchmark & Company. Please go ahead.

[Stephen Mark Lacy:]

Morning, Dan. How can we help you?

[Dan Kurnos:]

Yes, good morning, Steve, I guess I'll start with national and maybe for a new CEO Tom Harty here are free to chime in. Just can you give us a sense and just the ad was a little bit weaker than we expected, maybe just give us the print ad down in the quarter. I think I missed that circ was stronger. I think that trend will probably switch in the next two quarters based on the timing of events, maybe ad returning the flat and circ down you know, little bit more significantly. But I don't know if factored everything in. Can you just give me a sense if I am thinking about that correctly? And then just on other - how much of the shortfall was in MXM and when does that segment return to growth?

[Stephen Mark Lacy:]

Tom, do you have those data points, or do you want – Joe can do it…

[Joseph Ceryanec:]

I'll start Tom, and you can pile on. So [indiscernible] for the quarter, for the second quarter ad revenue was down about 2%. But as Tom mentioned on a comparable basis, so normalizing for more, we were actually up. I think the print was down kind of mid single and digital was up low double, which brought the organic if you will actually favorable. On the other line, I would say about half of the decline was MXM and the other half was licensing. And as we've talked about before with the renewal of Walmart, we modified a little bit how that royalty would work, so that we expected the first half to be a little behind, but we expect the second half to be ahead. So the answer to your question, Q2 about half MXM have licensing, but as we look at Q3 we expect that licensing to turn around and be up and we expected some of the e-commerce activities that we've been involved to pick up as well. So we actually expect that other line to turn around and grow in Q3.

[Tom Harty:]

Yes, just to pile on a little bit, I think looking out at the third quarter to Joe's point on a comparable basis in the second quarter we were down in print comparably without more 7.5%. And when we look out to the third quarter, it’s early, but we're looking at to be slightly better than that, on a comparable basis will be down you know, mid single digits. Digital will be up again in the low double-digit. So on a comparable overall basis, you know, our trending right now is showing us flat to down slightly, as we look at the third quarter, which is kind of relatively about the same as the second quarter.

[Dan Kurnos:]

Perfect. That's helpful. And then just shifting back to local, just first on core, maybe if we could get a little bit of insight into you know, you posted pretty significant political upside and local core was still about in line with our expectation. So little bit surprised there was a more incremental crowd out there, I don't know if that was benefits from duopolies, if you have any color there? And on the pacings commentary for Q1, if you could just give us a little bit of color on categories that are performing well or underperforming that would be helpful?

[Tom Harty:]

So, first of all we did have significant crowd out in markets like Las Vegas, but in other places you know, obviously we were able to accommodate all of that political advertising, which you know, which is good. And what I would say in all sincerity, this early in the year, I don’t think the pacing numbers by categories are particularly meaningful and as I've looked at them, I don’t think they really give any meaningful trends. But again, when we get into releasing earnings at the end of March, we'll have a lot better sense and can give you know, kind of what we think is going to happen in 2017 I think,

[Dan Kurnos:]

All right. Fair enough. And just one more question, if I could Steve, just on the CBS deal…

[Stephen Mark Lacy:]

Sure.

[Dan Kurnos:]

Two pieces of it, one, now that you've got all of your CBS renewed, just your thoughts on net retrans growth going forward. And then, I know you guys talked a lot about having the sort of a - as a package deal on having all future entrants so to be covered by the OTT negotiations, some of your peers have talked about taking the power in those negotiations back from the network in order to improve their economics. How do you guys, you know, view that, most of the CBS All Access deals end in '18, I don't know if you pushed it beyond that. So just can you think about sort of your strategy in working with the network on OTT front that would be helpful?

[Joseph Ceryanec:]

So Dan, let take the first, which is you know, with the CBS stations lock down, kind of what our expectations into the future and then I'll let Paul pile on his view on negotiating with CBS or negotiating on our own. So as we've been saying for quite a while you know, our fiscal '16 and our fiscal '17 were 40% of our MVPD's renewed in '16 and 40% in '17. We've got one large MVPD yet to negotiate which will be later this spring. And so we knew we would enjoy nice growth on the top line and you know that would fall to the profit line. And then we knew as we got into '18 and '19 when four CBS stations and then the FOX stations that you know, we see the cost line. We also said that our hope or goal was that as we moved into '18 and the network affiliation's we renewed, we would be able to at least maintain, if not slightly grow that that operating profit. And now that you have basically CBS done and do well into 2020, I think we feel a lot better about what we would say was hope or goal, I would call now expectations that for '18 and beyond we'll be able to maintain and grow that operating profit from net retrans.

[Stephen Mark Lacy:]

Did that clarify that piece?

[Dan Kurnos:]

Yes, that’s helpful. And then on the OTT side?

[Stephen Mark Lacy:]

Paul?

[Paul Karpowicz:]

Yeah, on the OTT side, and again, I just want to reiterate that this was all part of a package deal and at the core of it was the renewal of those four major markets for us for their network affiliation deals. Relative to how we view All Access, we are comfortable with that deal. We like the structure. We're good with it out until 2020. I know there are some groups that are looking to you know, negotiate their own deals with other OTT providers and that's why again with the people that we currently have relationships with whether it's DirecTV Now or Dish, we will be doing those as Meredith, as new entrants come on the scene, we you know, based on our size and scale we think there is a benefit to us having that framework in place with CBS to negotiate the best deal that we can.

[Dan Kurnos:]

All great. Thanks and nice quarter guys.

[Stephen Mark Lacy:]

Thank you.

[Operator:]

And we do have a question from the line of Barry Lucas with Gabelli & Company. Please go ahead.

[Stephen Mark Lacy:]

Hi, Barry. How are you?

[Barry Lucas:]

I am well, Steve. Thank you. I hope everything is good out there in the middle of the country land. Maybe a couple more, I would say bigger picture questions with the change in the administration and thinking about inflationary statistics seem to be moving up a little bit higher and hoping maybe you and or Tom could talk a little bit about your ultimate advertising clients, specially CPG's where you’ve seen very little pricing power, where they've seen very little pricing power. And what you think rising inflationary environment does for Meredith, is that you know, kind of a net positive, neutral, net negative, how do you think about those things?

[Stephen Mark Lacy:]

So we have done over the year’s very tremendous amount of research and in all sincerity the best correlation of advertising spend in the marketplace is GDP. And so if there would be a little leap of faith that an inflationary environment and maybe a bit of a stronger economic circumstance would push GDP there should be positive impact on advertising. Now having said all that, all the predictions are out there for the year. We have them all summarized by source. And most would say the calendar '17 will be sort of a low single digit growth in advertising. That of course is not equal by category. And Tom, you might want to give some you know, early CPG color and you want Jon to pile on in terms of some of the you know, negotiations for calendar '17 that would be fine as well?

[Tom Harty:]

I think to just confirm what Steve said, the correlation on the advertising, we've run regression analysis on that over the years. It's very, very strong related to GDP. What we are seeing is, you know, our CPG, our food category, which obviously, we have a very large footprint in, both digitally and in print, it continues to show you know growth for us, especially in the first half of fiscal year. The other category that we have source continued growth and it’s been DTC pharmaceutical advertising. So overall, it’s hard to crystal ball, it's hard to crystal ball what the ministration is saying about future growth. But if there is growth in the economy it's guarantee that we would see an increase in advertising expenditures.

[Barry Lucas:]

Great. Thank you. And maybe just extend that into a tax discussion, it pretty much full very taxpayer. What are you hoping for actually comes out in terms of corporate side?

[Joseph Ceryanec:]

The corporate side, Barry, we are a hateful taxpayer, since we have very limited foreign operations. There are not a lot of mechanisms for us to come up with basically paying the statutory rate. So a lowering of the rates would be very much positive for us. We have obviously a big throw back on our deferred and it would benefit us significantly going forward. So we very much would welcome an overall lowering of the corporate rate.

[Barry Lucas:]

Great. Thanks. Last item for me, actually for Paul. Paul, when you think you actually be able to talk about the spectrum auction and participation lack thereof, what you see going on?

[Paul Karpowicz:]

I think very quickly. You know, obviously we're not allowed or supposed to talk about at this point. But as you can see in all the press reports, this thing looks like it's really winding up and coming to a close. It appears that they've kind of hit the benchmarks that they needed to declare it a successful auction. So I think very, very soon. I think certainly within the next week to 10 days. They will probably declare it over, at which point we can talk more freely about you know, what our participation was and so forth.

[Barry Lucas:]

Great. Thanks very much.

[Stephen Mark Lacy:]

Thank you, Barry.

[Operator:]

And it looks we do have a question from the line of Eric Katz with Wells Fargo. Please go ahead.

[Eric Katz:]

Good morning.

[Stephen Mark Lacy:]

Hi, Eric. How are you?

[Eric Katz:]

Doing well. Just one other follow-up on the CBS renewal, is that expected to kick in in fiscal '18 or is that immediate deal?

[Paul Karpowicz:]

The renewal on the station affiliation Eric was up in August and so even though we renewed the contract, the rates will not kick in until August of '17, which would be in our fiscal '18.

[Eric Katz:]

Okay…

[Stephen Mark Lacy:]

That makes sense, Eric?

[Eric Katz:]

Absolutely. Also I know you are negotiations with Ortiz [ph] for a station, I am not sure if you are wiling to discuss expectations for resolution or points of contention there. But would you be willing to share how much returns revenue or what percent of your footprint that represents?

[Stephen Mark Lacy:]

Paul, do you want to speak to that, its very, very small.

[Paul Karpowicz:]

Yes. Actually the number of subs in the DNA that we're talking about, I believe its like 45,000 subs. So it's a relatively small – it’s a small number.

[Eric Katz:]

Okay. And then lastly, I know there is been a bit of sluggishness in the past in the Phoenix market and in some auto areas. I wan wondering if maybe you can talk to there and if there is been any improvement there?

[Paul Karpowicz:]

Yes, I wasn’t really auto. It was a lot of very, very heavy spend in - it was telecom…

[Stephen Mark Lacy:]

Telecom and sort of an insurance war, an HMO war if you will. And as we get a little further into the calendar year, we begin to sort of lapse that kind of unusual activity that was actually a calendar '15 you know, bump. So a little later in the year that begins to lapse. But really Phoenix doesn't have – we're not seeing a dramatic change in Phoenix at the moment, compared to the prior-year.

[Eric Katz:]

Okay, great. Thank you.

[Stephen Mark Lacy:]

Okay. Listen, I appreciate everybody’s interest and your questions. And as always, Joe and Mike and I will be available for the balance of the day for calls and several of those were already scheduled. And we appreciate your continued support and interest in the Meredith Corporation and hope everybody has a really good day. Thank you very much for participating.

[Operator:]

And ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using the AT&T executive teleconference service. You may now disconnect.