Meredith Corporation
Q3 2015 Earnings Call Transcript

Published: 23 Apr 2015

[Operator:]

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

[Michael Alan Lovell:]

Good morning, and thanks, everyone for joining us. Our call today will begin with comments from Chairman and Chief Executive Officer, Steve Lacy; and our Chief Financial Officer, Joe Ceryanec. Then we'll turn the call over to questions. Also on the line this morning are our National Media Group President, Tom Harty; 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 that. Our remarks today 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 issued earlier this morning and in some of our SEC filings and with that Steve will begin.

[Stephen M. Lacy:]

Thank you very much, Mike, and good morning, everyone and again, we appreciate all of you joining us today. I hope you had the opportunity to see our news release that was issued earlier this morning detailing our results. I'm pleased to report a solid third quarter of our fiscal 2015. Here are some of the key highlights. Local Media Group revenues increased 26% to $123 million, an all-time high for a fiscal third quarter. Operating profit and EBITDA also set records. Growth was driven by our new stations in St. Louis, Phoenix, Mobile-Pensacola and Springfield, Massachusetts, along with higher net retransmission contribution. National Media Group revenues increased, including 5% growth in ad revenue. Performance was led by the additions of the Martha Stewart media property and the digital operations of the Shape brand, along with Allrecipes, mywedding.com and Selectable Media. Total company digital ad revenues grew over 55% to an all-time quarterly high, driven by both recent acquisitions and organic growth. National Media Group digital ad revenues increased more than 60%, while Local Media Group digital ad revenues were up 30%. Finally, we continued to deliver more cash to our shareholders raising our dividend 6% during the quarter to $1.83 a share on an annualized basis and that's the 22nd straight year that we've raised the dividend and also by buying back 830,000 of our shares in fiscal 2015. Those of you who follow us closely know that we're very committed to the successful execution of our total shareholder return strategy. Its goal is to return a growing stream of cash to our shareholders, while at the same time making strategic investments to continue scaling our business and increasing shareholder value over time. Additionally, we've clearly and consistently outlined our strategic priorities to the investment community. These include ongoing investments to enhance our existing media properties and brands, strategic acquisitions to grow our business portfolios, aggressive expansion of our digital capabilities and growing revenues that are not dependent on traditional advertising. In the third quarter of fiscal 2015 we continued our successful execution of these strategies and let me highlight just a few for you this morning. From a brand enhancement perspective, we recently relaunched MORE Magazine with a more luxurious look and feel including a larger trim size and upgraded paper stock. We also made editorial and photography enhancements to MORE, which by the way has the highest median household income of all beauty and fashion magazines in the industry. We increased the rate base of Allrecipes Magazine to 1.1 million, more than double its initial circulation of 500,000 when launched in November of 2013. And earlier this month we launched a new title, Parents Latina. It's aimed at the growing reach to the U.S. Hispanic millennial mother generation and debuted with a guaranteed rate base of 500,000. Our recent acquisitions are also strengthening our competitive position and contributing to revenue and profit growth. In Local Media in both Phoenix and Springfield we created new duopolies and are consolidating operations in each market into a single more efficient facility to achieve the expected synergies of a duopoly operation. At the same time we're taking steps to improve and expand local news in both operations. In St. Louis and Mobile we've completed the work to add both stations to our traffic and accounting hubs and expect to have master control functions hub very shortly. In addition, these new stations have strengthened their consumer audience connection during the ownership transaction. In total, we expect these new stations will add more than 30% to revenues in our Local Media business. Our station group today reaches about 11% of U.S. households. We currently operate five duopolies with seven stations in top 25 markets and 13 stations of our 17 stations in top 50 markets. Turning to our National Media Group, we also completed a series of acquisitions and long-term partnership that add to our scale and our capability. We produced our first issues of Martha Stewart Living magazine during the quarter. Under our long-term agreement, Martha Stewart and her editorial team continue to contribute the content and we handle sales and marketing, circulation and production. We've already secured several new advertising commitments to Martha Stewart including Johnson & Johnson, Bertoli, and Bausch & Lomb. We acquired the Shape brand during the quarter and began operating Shape.com as well. We've revamped the editorial and sales teams for the enhanced Shape magazine, which is hitting the newsstand now. It represents a combination of shape and fitness, and has a rate base of 2.5 million. That's a 60% increase from where Shape was before acquisition by Meredith. As we've done with other successful acquisitions, we're using our industry best circulation, production and support operations to drive cost efficiencies and create synergies. Without a doubt these unique strengths clearly position Meredith as the partner of choice as we pursue further media industry consolidation. We've also significantly enhanced our digital presence and capabilities. Our digital traffic is now averaging approximately 70 million monthly unique visitors ranking Meredith as a top 30 digital operator in the United States. Our goal is to reach 100 million monthly unique visitors and, of course, aggressively monetize that scale audience. We also entered the weddings marketplace through Martha Stewart and her agreement, which includes the Martha Stewart Weddings magazine and its website, along with the recent acquisition of mywedding.com. Mywedding is a leading local site for couples planning their weddings and the advertisers, retailers, and service providers who, of course, want to reach them. It's well represented by millennials and the combination of Mywedding and Martha Stewart Weddings gives us a strong entry point for this important young demographic. We acquired Selectable Media and are aggressively rolling out its digital capabilities across the Meredith network. Selectable Media's technology allows for native and engagement based advertising. It's adding new ad inventory and driving higher CPMs as well. As a result of these acquired brands and businesses, we've also added new digital sales and marketing talent to Meredith resulting in a deeper bench of intellectual capital. The combination of our premium branded content, highly engaged audience, rich first-party data is providing a very powerful and unique advertising proposition for clients and contributing to the revenue growth and margin expansion reflected in the results we announced today. We continue to look for strategic acquisitions, partnerships, and investment opportunities like these to expand our reach and generate additional shareholder value as we go forward. With that overview, I'll turn the discussion to Joe Ceryanec, our CFO, for the operating performance of our two business groups.

[Joseph H. Ceryanec:]

Thanks, Steve, and good morning, everybody. I'll start with a look at our Local Media Group results. Excluding special items, fiscal 2015 third quarter operating profit, and adjusted EBITDA both set records growing 14% and 19% respectively. Revenues were up 26%. Looking a little more closely at performance, the primary growth drivers were our newly acquired stations along with stronger performance from our core stations, particularly in Hartford, Atlanta, and Kansas City. In total, non-political ad revenues were up 26%, with digital ad revenues up more than 30%. We saw strength in the media, furnishings and retail categories. Other revenues and expenses both increased due primarily to retransmission related revenues that we get from the cable, telecom and satellite providers, as well as higher programming fees paid to the networks. As a reminder, we will have another round of renewals with most of these entities in our fiscal 2016 and fiscal 2017, which is ahead of our next major network affiliation agreement renewals, which generally will occur in our fiscal 2018. Viewership is key for a local broadcaster and we're pleased to have delivered a strong book during our February ratings period. Within our portfolio seven of our stations were either number one or number two in late news and eight were number one or number two in morning news. We also took steps during the quarter to further strengthen our local programming by adding newscasts at 4 p.m. in Greenville and 9 p.m. in Portland. Producing more local news strengthens our connection to our viewers and gives us more advertising inventory. Finally, we're further monetizing our broadcast assets by signing agreements to carry our networks or carry networks on our digital tier channels from both NBC Universal in seven of our markets and Katz Broadcasting in five of our markets. We expect that these agreements will add modestly to our results in our fiscal 2016. Now let's turn to the Local Media Group where our total revenues increased 2% in the quarter. Year-over-year profit was flat excluding special items due primarily to our acquisition of the Shape brand and the timing of related expenses. We won't recognize revenue from the Shape Magazine until our fourth fiscal quarter, but we assumed cost, particularly personnel costs, in our third quarter. We expect the Shape acquisition will be accretive to our fourth quarter operating profit. Now as we look more closely at the revenue performance during the third quarter, total advertising revenues grew 5% led by strong digital performance. Allrecipes.com, Marthastewart.com, Shape.com, Selectable Media, and mywedding.com drove digital ad revenue growth of more than 60%. On the magazine side our parenthood and food brands were stronger including Parents, Family Circle, and Allrecipes. From the category standpoint, we delivered growth in the prescription drug, food and retail categories. Circulation revenues were flat as gains from the Martha Stewart Living magazine were largely offset by our conversion of Ladies' Home Journal to a newsstand title in fiscal 2014. Our circulation contribution margin increased as we continue to expand our digital consumer marketing activities by driving approximately one-third of our magazine subscription acquisitions to the more profitable digital channels over the last 12 months. Finally, we benefited from our efforts to grow businesses that are not dependent on advertising. For example, the operating profit from both our brand licensing and Meredith accelerated marketing both increased during the quarter. Now on the corporate side, we grew our operating cash flow by more than 30% over the prior year. As Steve mentioned, we increased our dividend by 6% in January. We reduced our debt balance by more than $30 million during the third quarter and our debt-to-EBITDA ratio was 2.7 times at March 31. As we look towards our fourth quarter, we would expect that by our fiscal year ended June 30, we will further reduce our debt balance another $30 million to $40 million, which would translate to a leverage ratio of 2.5 times at our fiscal year end. So now let's turn to our outlook. As we look more closely at the fourth quarter of our fiscal 2015 compared to the year-ago period both before special items, we'd expect total company revenues to be up in the high single digits. We expect total Local Media Group revenues to be up in the mid-teens and National Media Group revenues are expected to be up mid- to high-single digits. We would expect our fourth fiscal or fiscal fourth quarter earnings per share to range from $0.90 to $0.95. And when adding the fiscal fourth quarter expected results to the $2.36 per share before special items we generated in the first nine months, we would expect fiscal 2015 full year earnings per share to range from $3.26 to $3.31, again, before special items, which would be an increase of 16% to 18% over our fiscal 2014 results. And with that I'll turn it over to Steve for a few closing comments and then we'll open it up for Q&A.

[Stephen M. Lacy:]

Thank you very much, Joe. In conclusion, I'm pleased with our continued strong momentum in fiscal 2015. As a reminder, we continue to aggressively pursue the following growth strategies. First of all, growing our existing businesses organically, successfully integrating our recent acquisitions and rapidly expanding our digital capabilities. Second, continuing to pursue opportunities to add to our business portfolio. Third, increasing revenues from businesses that are not dependent on traditional advertising. Fourth, aggressively managing our cost and finally, continuing to execute our total shareholder return strategy as highlighted by our ongoing dividend increases and corresponding very attractive yields, share repurchases and, of course, seeking accretive acquisitions to grow our already strong cash flow over time. With that, we'd be happy to answer any questions that you might have.

[Operator:]

Our first question will come from the line of Bill Bird at FBR. Please go ahead.

[Bill G. Bird:]

Good morning. Steve, I was wondering if you could walk us through what the organic ad revenue growth was in the quarter for print, for non-political TV ad revenues and for NMG digital. Thank you.

[Stephen M. Lacy:]

Yeah. Thank you very much, Bill. Very, very good question. So it's always interesting starting a new calendar year and many of you may remember that a year ago in early calendar 2014 it was a really, really tough start on the print side. And at that time comparable revenues were down in the low double digits. In this quarter comparable print revenues were down in the mid-single digits, which is very comparable to what we've seen over the last three quarters. Basically every quarter of fiscal 2015, quarter one, two and three, comparable print revenues down in the mid-single digits. On the flip side, on the Local side, we actually got off to a bit slower start than we did a year ago at this time, where comparable non-political was down about 1% and in the fourth quarter we think it's going to be flat to up or down slightly. Turning then to the digital side, again, on the National side it was a much tougher start a year ago, where actually digital ad revenue was down in the low-teens. In this case digital ad revenue, again, this is comparable, is up in the low-teens. And we expect that trend will continue as we go into the fourth quarter. Again, on the broadcast side a little weaker start to the calendar year. Digital ad revenues up in the low single digits and that's weaker than a year ago when digital ad revenues were up in the low-teens. And again, as we now go into the fourth quarter, we expect digital revenue, again, this is all comparable data, will be up in the low-teens again as we go into the fourth quarter for the television side of the business. Does that give you the data points you were looking for, Bill?

[Bill G. Bird:]

Yeah, that's helpful. And then separately I believe you mentioned some of the upcoming MVPD renewals in fiscal 2016 and fiscal 2017. I was wondering if you could put any parameters around maybe what percentage of your subs come up for renewal in 2016 and 2017?

[Joseph H. Ceryanec:]

Hang on, Bill, I'm getting it.

[Stephen M. Lacy:]

Hang on a second. We got to get to the right page to give you the right data.

[Joseph H. Ceryanec:]

So about 40% of our subs will be up for renewal in our fiscal 2016, about 41% in 2017 and then that leaves about 19%, which will be up in 2018.

[Bill G. Bird:]

Great. Thank you very much.

[Joseph H. Ceryanec:]

Sure.

[Stephen M. Lacy:]

Thank you, Bill.

[Operator:]

We'll go next to line of Eric Katz with Wells Fargo.

[Eric Y. Katz:]

Hi. Good morning. In Local, I know you just mentioned some of the pacing data for fiscal Q4. I'm wondering if you can just give us some differences or trends you're seeing in fiscal Q4 versus fiscal Q3?

[Stephen M. Lacy:]

Meaning by market or by category or what do you mean?

[Eric Y. Katz:]

Yeah, by category.

[Stephen M. Lacy:]

Yeah. So, Joe can dig out the data. Paul, do you want to just give a little color on the sort of how you're feeling about the difference in the current quarter or fourth quarter compared to sort of the early goings of the calendar year from a revenue perspective?

[Paul A. Karpowicz:]

Yeah, I can.

[Stephen M. Lacy:]

And Joe will come back with some data on that after you give your comment.

[Paul A. Karpowicz:]

Sure. I think what we're seeing right now is some underlying strength on the National side of the business, which we had not seen previously. So we're actually quite pleased with that and conversely Local is closer to flat. So I think, if we can get local cranked up a little bit we'll be fine, but we have seen an increase in National business, which has been a pleasant surprise.

[Stephen M. Lacy:]

Okay. So we're getting some category stuff for you here, Eric, just give us a second.

[Eric Y. Katz:]

Okay. Well, I'll just follow-up then on the comment you just made on National. I think some of the broadcast checks that we've had it sounds like...

[Stephen M. Lacy:]

Eric, I think, we lost you.

[Eric Y. Katz:]

Hello.

[Operator:]

Mr. Katz is still connected.

[Stephen M. Lacy:]

Okay.

[Eric Y. Katz:]

Hi, I'd actually follow-up with some of the comments that were just made on National. From some of our broadcast checks it sounded like some of the stations in larger markets were a bit weaker on National. I'm wondering what you're seeing across all of your markets. I know you have a few small and large markets in addition to your mid-markets. Can you comment a little further on what you're seeing in National by market?

[Stephen M. Lacy:]

Paul, do you have that in your head in terms – we don't have that data here but sort of how you're feeling if you think about Portland, Phoenix, Atlanta versus the smaller markets?

[Paul A. Karpowicz:]

Yeah I think that's accurate. I think we are – we have a very large number of stations kind of in that mid-range. So it's the St. Louis, Kansas City, Portland, Vegas, that group. They're performing – there National is performing at a higher level than say Atlanta, where Atlanta is a larger market, a top 10 market, is still not performing kind of at that level. So that's, what you've described is consistent with our experience, certainly with our top 10 market in Atlanta not being as strong as some of the other markets as you move down in market size. And then in the smaller markets it's really a mixed bag. I think that's just kind of dependent on what's going on regionally in those cases but we've got a couple small markets. We only have a few small markets anyway. One of them is performing pretty well, the other is kind of flattish.

[Eric Y. Katz:]

Perfect. Thank you.

[Stephen M. Lacy:]

Hey, thank you, Eric.

[Joseph H. Ceryanec:]

Hey, Eric, it's Joe. So as we look at Q3 actual and we look at Q4 where we're pacing, we're actually seeing quite a bit of similarities in the categories and I'll give you the categories that are performing well in both three and four, that's professional services, it's media, it's furnishing and it's utilities. Those would be the top four actually in both of the quarters. On the weaker side auto is down in both quarters, kind of mid-single digits, retail's down, telecom's down and restaurants are down.

[Eric Y. Katz:]

That's helpful.

[Joseph H. Ceryanec:]

And both of those are pretty similar between Q3 and Q4.

[Eric Y. Katz:]

That's helpful. Thank you.

[Stephen M. Lacy:]

Thank you, Eric.

[Operator:]

We'll go next to the line of John Crowther with Piper Jaffray.

[John D. Crowther:]

Thanks. So my first question I was wondering now that you've had a little bit of time with both Martha Stewart and then from more of an expense perspective Shape, wondering if you could just update us a little bit on how integration efforts are going and sort of any updates you might have in terms of how you view those properties potentially being accretive to the business here, any differences from what you initially thought when those acquisitions or partnerships were announced.

[Stephen M. Lacy:]

Well, at the high level in the case of Martha that business is pretty much right on target with what we would have anticipated. I would say that the digital side has been maybe a little stronger than expected and then the print side a little weaker, but strengthening as we've gotten out a little further in the transition. We've talked about this, it's very, very difficult to be a standalone anything in the marketplace, but we are beginning to be more successful in getting Martha added to schedules, as we go forward. And the cost activities are absolutely right on target. Now Shape is very, very early going. We had some digital activity. And as Joe mentioned in his remarks, we had some cost in the quarter of personnel, but we had really no print revenue recorded. And we've just now put the very first issue out. So one issue is not a trend. But I think we're going to be very pleased as we go forward with Shape in the marketplace. And I know Tom was with a very important client meeting this morning. He was running late. Tom have you joined the call?

[Tom Harty:]

Yes, I've joined.

[Stephen M. Lacy:]

Do you want to add any color on early goings of Martha and Shape to that?

[Tom Harty:]

Yeah. I think to Steve's point, we're very pleased with the integration, no surprises. I think from a Shape perspective, this is a new business model where we're putting together both Fitness and Shape from an editorial product and changing the rate base, but the advertising communities really embrace what we've done. And we're right on plan.

[Stephen M. Lacy:]

Does that help, John?

[John D. Crowther:]

That does. Yes, thank you. And then to follow-up on that question – or follow-up on National Media Group. Wondering if you could talk a little bit about the brand licensing business? It sounded from the press release that things are pacing well there. And maybe any update you could give us on efforts to maybe expand that beyond sort of the initiatives you have going on right now?

[Stephen M. Lacy:]

Well that's a very timely question. So Tom, whatever color you would want to add to brand licensing. It continues to perform extremely well at retail and we also have a nice growth in our real estate business now that the housing market is starting to get back on its feet. But Tom, you and I were talking about some potential categories and things earlier in the week, so whatever you feel comfortable sharing.

[Tom Harty:]

We have some new possibilities coming up. We've been in discussions related to the Eating Well brand that we're excited about with in the food category which hopefully we'll have an announcement on in the near future. And then I'm actually down here at Walmart at a meeting today, and we've had tremendous growth in the Walmart business over the last few years and the home category if you've been following Walmart at all has been a real bright spot for them. So things are going very well. We've actually just got some product, Better Homes and Gardens product at Walmart in Mexico and we're in preliminary discussions about expanding into China. A big part of their growth strategy is in the Dot Com area, the Walmart Dot Com and they're looking for – it's a low base but they're looking for 60% growth in our category from their Dot Com business, a big strategy there. So all the licensing area is going well and we look forward to continuing to grow.

[John D. Crowther:]

Great. I appreciate the update there. Maybe I can just ask one more question. You guys hired Kim Martin as Chief Strategy Officer at the end of this quarter and it sounded like she's got some strong background on the video side of the business. Wondering if maybe you can give a little bit of insight into sort of how you view her contributions to Meredith's sort of video platform and any other sort of categories or segments that she might bring some expertise into.

[Stephen M. Lacy:]

Yeah. Sure. And I appreciate you asking that question, John. So you step back just a bit and think about what's really, really important to the Meredith Corporation as we look a bit further down the road and that's, of course, making sure that our brands and businesses are relevant to the millennial generation as they begin to enter into early adulthood owning homes, starting families and all of those very, very important activities. Obviously the millennials consumer, tremendous amount of their content in a visual fashion, although interestingly enough millennials read magazines today even at a higher rate than did their baby boom mothers. And that's kind of an interesting statistic. I was with the Postmaster General, the new Postmaster General yesterday in Washington, D.C. and we were sharing some interesting industry statistics that about 92% of Americans today read magazines, but young women aged 25 years or younger, in fact, 95% of them subscribe to and read magazines today. So Kim really has two major charges as it relates to that. Really doing a lot of data gathering across the enterprise, print, digital and television on our existing millennial strategy. Obviously, the millennial generation is as important to local news viewership, as it is to digital and magazine readership. And then as a subset of that, again, gathering our positioning and our video strategy under the millennial strategy, analyzing where we are today, helping us decide where we should be, and then working to deliver some initiatives to fill that gap. So she really has two major charges. One, the company-wide millennial strategy, and really, a bit as a subset of that are our video strategy to, again, reach our next generation of consumers. So does that make sense to you?

[John D. Crowther:]

It does. Thank you.

[Stephen M. Lacy:]

Thank you.

[Operator:]

And we'll go next to the line of Craig Huber with Huber Research Partners.

[Craig A. Huber:]

Yes. Good morning. Thanks for taking the questions. First, on the television side, can you just help quantify for us the TV acquisitions, what the revenue contribution was there overall?

[Stephen M. Lacy:]

Sure.

[Joseph H. Ceryanec:]

Yeah. Craig, I think we've said this pretty publicly. About 30% of the TV revenue is now from – and by that, we're including the acquisitions we did from Gannett in St. Louis and Phoenix, as well as Springfield and Mobile. So about a 30% lift in TV ad revenue.

[Craig A. Huber:]

Okay. Then also, your comments on the core ad revenue for your TV stations in the quarter – organic I'm talking here. I'd be curious to hear if you could break that apart, how local versus national did organically for TV in the quarter? And is there much difference there in that trend in the upcoming June quarter?

[Stephen M. Lacy:]

Hold just a second, Craig.

[Joseph H. Ceryanec:]

...a second. I think...

[Stephen M. Lacy:]

Have to go to a difference place in the data here.

[Joseph H. Ceryanec:]

I think, as Paul mentioned, we're actually seeing national strengthening. So as we mentioned in Q3, we were down about 1%...

[Stephen M. Lacy:]

In total.

[Joseph H. Ceryanec:]

In total local was down and national was up. So local down single digits, national up single digits. In the fourth quarter, we're seeing a similar trend, I think, as Steve mentioned, we expect fourth quarter to come in flat to up slightly or down slightly. It's a little early to tell. But right now, local is pacing down 1%, national is pacing up 2%. So similar trend, maybe a little bit closer to flat in the fourth quarter right now, versus the third quarter, we're a little more spread between local and national.

[Craig A. Huber:]

Would you also mind...

[Stephen M. Lacy:]

Okay?

[Craig A. Huber:]

Yes. Would you also mind – please give a little more color on the auto category for television organically? I think you mentioned, it was down, maybe tracking down as well in this current quarter? What is your sense, is the overall budgets for auto coming down that's causing that? Or do you think some of it's actually shifting to other medias?

[Stephen M. Lacy:]

Yeah. Paul, do you want to speak to what you feel about auto in the marketplace?

[Paul A. Karpowicz:]

Yeah. I think particularly on the local side, what we experienced in the last quarter particularly in many of our markets who experienced some bad weather, we were just seeing not that budgets were cut, but they just stopped completely. So in those East Coast markets and markets where they had a lot of bad weather, we just saw the automotive business drop off pretty dramatically. We are starting to see that come back now into this quarter as the weather has gotten better. But yeah, I don't think there's any question that there is a shift to some digital spending. In our cases though where we're very actively trying to save those dollars and move them into some of our digital products. So the traditional core television viewing or television advertising for automotive is moderating or it's down just a little bit. But then we're certainly increasing our digital presence with our automotive advertisers.

[Stephen M. Lacy:]

And it's a lot stronger, Craig, in the digital pacings in Q4 than in Q3. So there may just be a bit – it's always so hard to tell the early goings of a calendar year. We may have a bit of shifting between the quarters as we get a little further out here.

[Craig A. Huber:]

Then also, Steve, if I could ask just a broad question or a strategic question. Are you guys content on the magazine side to continue to do these smaller tuck-in sort of niche acquisitions that you guys have been very successful with for many, many years? Or at this stage, do you think you need to do a large one? And obviously you've looked at doing Time Inc. a couple years ago. Is that still on the table in your minds?

[Stephen M. Lacy:]

Well, there's not really anything on the table at the moment with Time Inc. I want to be very, very clear about that. But absolutely, Craig, we would be very, very open-minded to a larger transaction. Now you have followed us for a long period of time, you know that we took a number of runs at the Gruner & Jahr properties and finally brought those on board. And at that time, we actually doubled the size of that business. The challenge is that there's not a lot of scale players. And it always takes an agreeable buyer and an agreeable seller. So we are the agreeable buyer. But there haven't been those kinds of scale opportunities available in the marketplace. But we continue to be active. We continue to be in dialogues. And I would say dialogues that are very broad ranging as long as we can deliver shareholder value. So the arrangement with Martha is a little bit unusual, but I think if you follow Martha and you follow Meredith it's been good for both. And so we're in all kinds of discussions. We would love to do a scale transaction, but there's not a whole lot of them in the marketplace. Okay?

[Craig A. Huber:]

Great. Thanks, guys.

[Stephen M. Lacy:]

Thank you.

[Operator:]

We'll go next to the line of Jason Bazinet with Citi.

[Jason B. Bazinet:]

Good afternoon. I had sort of an odd question. On the cash flow statement there's like $83 million of proceeds from disposition of assets, I just couldn't remember what it is that you sold.

[Joseph H. Ceryanec:]

The vast majority of that, Jason, is the CW station in Phoenix. You may remember we tried to – well we did acquire KTVK.

[Jason B. Bazinet:]

Yeah.

[Joseph H. Ceryanec:]

It was the independent and we were trying to acquire KASW which was the CW. That was right around the time where the FCC came out and tightened – clamped down on ownership rules. And so we were forced to sell it. We luckily and felt very good about finding a buyer with Nexstar and that's, I want to say all but for sure the bulk of those proceeds.

[Jason B. Bazinet:]

Okay. Thank you very much for the reminder.

[Joseph H. Ceryanec:]

Sure.

[Stephen M. Lacy:]

Thanks, Jason.

[Jason B. Bazinet:]

You bet.

[Operator:]

We'll go to the line of Dan Kurnos of The Benchmark Company.

[Dan L. Kurnos:]

Great. Thanks for taking my questions. Good morning.

[Stephen M. Lacy:]

Hi, Dan.

[Dan L. Kurnos:]

Hey. How are you doing? I appreciate all the color around the sort of eye of the future stuff with regards to millennials and while John asked a good probably half of my question around video, I think you and I have spoken before about the possibility of making an acquisition in the video asset space. Obviously that space is super-heated right now, it's getting a lot of attention. And I'd just like to hear sort of how you think about growing video organically versus acquiring either tech or some sort of platform to enhance distribution?

[Stephen M. Lacy:]

Well I'd say a couple of things in that regard. You're very spot on with what is going on in the marketplace and we really look at that video content in all sincerity very similar to we would look at other digital print or television content. Can we find a scale opportunity that we think we can monetize against our female audience? And we have a monthly meeting, a monthly strategy meeting and actually had a couple players in in the last couple of months that we are considering. At the same time, we are aggressively ramping up the content that we create and it's a high-class problem that we continue to be fully monetized on that video content. So that is where a lot of our resources are focused. At this point, we think Kim will be able to help us in that regard, but, Dan, we would also be very interested in a bolt-on acquisition that would accelerate that trend, because at the moment we're able to monetize all the audience and as you know better CPMs than some of our other digital traffic.

[Dan L. Kurnos:]

And that's a great lead into my follow-up question keeping my Internet hat on for a second here. You gave some good metrics in terms of consolidated uniques. Two-part question for me. One, it doesn't sound like this is a factor for you guys but have any of the SEO changes from Google focusing on mobile optimized sites had any impact on your SEO marketing? And then, Steve, as you grow towards that 100 million unique mark just curious in addition to maybe the video focus just how you plan on getting more aggressive with the monetization strategy, whether it's a shift to more native ads or whether there're any partnerships involved, just any color there would be great? Thanks.

[Stephen M. Lacy:]

Well, first of all, most of our sites are in responsive design, so we don't have that Google issue right at the moment today. But I will tell you as you're I'm sure clearly aware that we have an aggressive effort on keeping a close watch on how Google continues to adjust those algorithms because that's clearly an important part of the traffic generation. So I think that's the answer to the first piece of your question, which is a good one. And then again, with the acquisition of Selectable Media that also allows for a much, much more aggressive move into native, which is clearly an important part of what's going on in the marketplace. And that's all about the ongoing transition of moving from larger running network opportunities at much lower CPMs to much more targeted advertising in a better context that we can get a higher CPM for. And that's really why we did that acquisition. That was really more of a technology play than it really was a traffic play.

[Dan L. Kurnos:]

Perfect. Thanks for all the color, Steve.

[Stephen M. Lacy:]

Thank you.

[Operator:]

We'll go next to the line of Tracy Young with Evercore.

[Tracy B. Young:]

Yes. Hi. I have two questions on the broadcasting side. You mentioned some of the auto dollars being shifted to digital. Is that at the dealer association level or at the local dealership level? And then the second question is, how important is scale as you go into negotiations with MVPDs? Or is it the strength of the station ratings that you have that matter?

[Stephen M. Lacy:]

So I'll start, and then certainly ask Joe and Paul to comment here. On the advertising question you had, really it's at all levels. And the sophistication varies a lot from dealer to dealer. But the most important and most powerful part of the local television brand, and that's really a combination of what happens over the air and what happens digitally, is that it continues to be, without a doubt, the most successful mechanism that is used by the auto industry to cause the consumer to come into the showroom. And the consumers, or the dealers rather, that we work with have a very sophisticated conversion mechanism. If they have a consumer in the showroom, they know how many cars that they're going to sell on a Saturday. So that's been the beauty in recent years of television, especially with weakness that has been experienced in the newspaper marketplace in most of the markets across the country. Then when you talk about the scale question, from a high level scale in fact does matter without a doubt on the revenue side of the transaction. And we do see that as we get into different acquisitions and acquisition opportunities where there can be a variation in revenue depending upon how much clout you have with the provider. And that's an important reason that, in fact, there's been a lot of consolidation in the marketplace. And Paul, whatever you'd like to add to that conversation on retrans revenue based on your dealings in the marketplace. But scale matters on that side of the equation for sure.

[Paul A. Karpowicz:]

Yes. There's no question that scale does matter. However, having said that I think where we are with our portfolio, we are a significant enough player that we're still going to be able to make the deals we need to make and get done what we need to get done. And it speaks to really the quality of our stations as well. So there's no question scale matters. But it's also incredibly important to make sure that you have a strong portfolio of stations so that in each individual markets you represent a very, very strong presence and a station that the cable operator feels that they have to have.

[Stephen M. Lacy:]

Does that help? Thank you.

[Tracy B. Young:]

Yes, very much. Thank you.

[Operator:]

Thank you. We'll go next to the line of Barry Lucas with Gabelli Capital. Please go ahead.

[Barry L. Lucas:]

Thanks and good morning. I apologize, I got bounced from the call and got back in. Don't know how much I missed. So if it's repetitive again to all my colleagues out there I would apologize. But, Paul, did you give a specific number on how much auto was actually down in your third quarter, and if not, could you provide it?

[Paul A. Karpowicz:]

I did not. But I think we do have that somewhere.

[Stephen M. Lacy:]

Yes. Barry, hold on for just a minute and Joe will dig that up.

[Joseph H. Ceryanec:]

Growing on a comparable basis which is what you're interested in.

[Barry L. Lucas:]

Exactly.

[Joseph H. Ceryanec:]

It was down about 7% to 8%.

[Barry L. Lucas:]

Okay.

[Stephen M. Lacy:]

So kind of high-single digits, Barry.

[Barry L. Lucas:]

And getting better but not in the black yet?

[Joseph H. Ceryanec:]

Exactly. Pacing better in the fourth quarter but still has brackets around it.

[Barry L. Lucas:]

Okay. And then as I look back, the guidance from 2Q to 3Q for the full year has been narrowed and the top end has been lowered and you've mentioned that that Shape had gotten off to a slightly slower start. Would that be the reduction in the top end of the guidance or are there other things out there that are contributing to a little bit more caution, if you will?

[Stephen M. Lacy:]

No, first of all, Shape has no impact on that and Shape is actually – I don't want to be confusing to anyone, Shape has not gotten off to a slower start than we anticipated at all, and by the way we've really only got one issue that we've closed at this point in time. So it really doesn't have anything to do with Shape, Barry. We try to do our best and we feel that the total year is really coming in more or less where we thought and interestingly enough pretty much where the Street thought. We had a little stronger Q3 than we had anticipated and we just basically adjusted the range to where we thought Q4 was going to be. But I don't think we feel like there's been any major shift in the marketplace compared with what we would have said when we started the year. It's just always a little tough to figure out where it's going to be and probably the only thing that I would say is that as the third fiscal quarter for us moves forward, television probably ended up being a little weaker than we might have anticipated. And then as we go now into the fourth quarter I would say that print is maybe weaker than we would have thought when we were at the beginning of the calendar year because the first quarter of the calendar year or our third quarter in print was so much better than it was a year ago. But it kind of looks like the fourth quarter is going to look sort of like a year ago. But again, we've got kind of one and a half set of issues closed. So that's probably the – TV a little weaker in Q3, print a little weaker in Q4, but on balance when we get to the bottom line not too far off from where we thought.

[Barry L. Lucas:]

Great. Last item for me. I was hoping that you could extend the discussion on M&A, if you will, M&A opportunities beyond just the video and the magazine side, but into the pipeline, if you will, for TV stations and whether or not you feel that there are going to continue to be opportunities there to grow the portfolio.

[Stephen M. Lacy:]

Yes, I guess the only thing I would say, I think across the industry and Paul can certainly comment on that, I think there is a tremendous amount of integration work going on. There were a lot of really big deals that were done over the last 12 months and a lot of work going on there to bring all of that together. It feels to me maybe like a bit of a little quiet before the next big storm. While that gets assimilated and I continue to believe and I would really say this, Barry, across the entire enterprise that there will continue to be significant consolidation. And obviously we have been and continue to be very aggressive in the marketplace to make sure that we have the opportunity to play when those things make themselves available. It's pretty quiet right now, but it might be quiet before the next big round in my sense. And, Paul, I don't know if you'd want to add anything to that?

[Paul A. Karpowicz:]

Yes. I think the only other thing I would add would be that as people look ahead to the potential of a spectrum auction in either the first quarter or perhaps second quarter of 2016, I think people are trying to weigh how important that could be or what role that might play. And I think as we get past the auction I think you'll just see the floodgates open relative to deal flow.

[Barry L. Lucas:]

Great. Thanks very much for that. Appreciate it.

[Stephen M. Lacy:]

Thanks.

[Operator:]

Thank you. And we'll go next to the line of Michael Kupinski with Noble Financial.

[Michael A. Kupinski:]

Thank you. Thanks for taking the question. Coming out of the NAB, it seems like there's been an attitude shift towards programmatic buying. And I know this might relate more so to the television strategy that you might have. I was just wondering what your thoughts are on programmatic buying. I know the industry, given a couple years ago was very fearful that it might drive down pricing. But now it seems like they're kind of embracing it as an opportunity to actually increase pricing. I was wondering if you can provide your thoughts, if you've happened to have seen any programmatic buying so far on any of your television stations so far. And then what your attitude might be towards that practice.

[Stephen M. Lacy:]

So, Paul, do you want to start on TV? And then, Tom, I'm going to ask you to comment on the digital side of our National business where clearly that's a factor at play. But Paul, have you seen any programmatic coming forward at this point?

[Paul A. Karpowicz:]

Yes. And the way we're approaching it and we have taken the position that we think it's going to be a part of our future. We do think, though, that it's important to limit and to restrict the day parts that are going to be put into a programmatic pool so that the inventory that we'll make available perhaps would be daytime, late night, weekends, and then we will still keep our premium inventory; local news, primetime, sports. That will be separate. We really don't want to negotiate that in a programmatic fashion. But we do think that there's a lot of inventory on each of our stations that would probably benefit from being part of a programmatic mix.

[Stephen M. Lacy:]

Okay.

[Joseph H. Ceryanec:]

Yes. And then on the National Media Group side we're obviously participating now this fiscal year in the programmatic marketplace in our digital space. And it's working out very well for us. We see it as an opportunity to leverage some lower-performing remnant inventory and actually increase our yield. So we've added some resources, some selling resources. And we think it's going to be a growth area for us over the next couple years.

[Michael A. Kupinski:]

And on the TV side, there's probably not enough at this point to really move the needle. It doesn't really account for a large percentage of your total revenues at this point, right?

[Joseph H. Ceryanec:]

Correct. Yes.

[Michael A. Kupinski:]

Okay. All right. Perfect. Thank you.

[Operator:]

And we have a follow-up from the line of Craig Huber of Huber Research Partners. Please go ahead.

[Craig A. Huber:]

Yes. Hi, there. I just wanted to know if you could give us the organic circulation revenue percent change year-over-year, please.

[Stephen M. Lacy:]

You know, Craig, we'll have to dig that out. We have all that data for advertising, but we really don't – I guess Joe thinks he does have it. (56

[Joseph H. Ceryanec:]

Craig, when you look at the year-over-year, we're basically flat. For the most part, it was LHJ going out, Martha coming in. The organic was down about 3%. Largely newsstand you're probably hearing about newsstand continuing to be soft. On the subscription side it was flat to just down a hair.

[Craig A. Huber:]

But overall down to 3% you're saying or flat?

[Stephen M. Lacy:]

Flat overall.

[Joseph H. Ceryanec:]

Overall flat.

[Craig A. Huber:]

What's at down 3% then please?

[Joseph H. Ceryanec:]

Down 3% was newsstand.

[Stephen M. Lacy:]

Newsstand.

[Craig A. Huber:]

I see. Okay, cool. Thank you very much.

[Stephen M. Lacy:]

Thank you.

[Stephen M. Lacy:]

Well, thank you all for participating today. We certainly appreciate the questions, the interest and the input, and as always Joe and I remain available for the balance of the day. If anybody has any follow-on questions, please don't hesitate to reach out. Thank you very much.

[Operator:]

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