The E.W. Scripps Company (SSP) Q1 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Scripps' First Quarter Earnings 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, this conference is being recorded. I would now like to turn the conference over to your host Carolyn Micheli. Please go ahead.

Thanks, Greg. Good morning, everyone and thank you for joining us for a discussion of The E.W. Scripps Company's First Quarter 2017 Results. A reminder that our conference call and webcast include forward-looking statements and actual results may differ. Factors that may cause them to differ are outlined in our SEC filings. You can visit scripps.com for more information, such as today's release and financial tables. You also can sign up to receive e-mails anytime we disclose financial information and you can listen to an audio replay of this call. The link to the replay will be up there this afternoon and available for a week. We'll hear first this morning from Chief Financial Officer, Tim Wesolowski; then Broadcast Chief, Brian Lawlor; Chief Operating Officer, Adam Symson; and then from our Chairman, President and CEO, Rich Boehne. Also in the room, our Radio Division Head, Steve Wexler and Controller and Treasurer, Doug Lyons. Now here is Tim.

Good morning and thanks for joining us today. I'd like to start by hitting the highlights of the quarter and cash position as well as capital allocation, our bond deal and finally second quarter guidance. The press release contains the details of our first quarter performance and we will be filling our 10-Q later this afternoon. So you can get more details there. Since we reaffirmed our Q1 guidance a couple of weeks ago when we announced our bond deal there shouldn't be too many surprises in our first quarter results. In our television division first quarter revenue was about flat compared to the prior year and in line with our guidance, an increase in retransmission revenue of $12.6 million was largely offset by $8 million of lower political revenue in this non-presidential election year. Television expenses were also in line with our guidance set up 5% driven by an increase in the programming fees we paid to our network partners. Radio revenue was down 4% in the first quarter and expenses were down about 1% both in line with our guidance. And now turning to our digital businesses, revenue was up 25% during the first quarter right in line with our guidance again. And expenses were up about 40% which was better than our guidance. First quarter results included Cracked which was acquired during the second quarter of 2016. Excluding the impact of Cracked, revenue was up 16% and expenses were up 25%. Before I turn to the balance sheet, I want to mention that our effective tax rate for the first quarter was 73%. This rate was primarily driven by tax benefits on the vesting of employee stock compensation all of which is recognized when the awards vast rather than included in the rate over the course of the year. We do not expect to pay significant cash taxes in 2017. And touching on the balance sheet, we ended the quarter with $132 million in cash which is about flat with our cash balance at the beginning of the year. As you know in April, we closed an offering of $400 million of new senior unsecured notes priced at 5.125% they mature in 2025. And since it was a refinancing, the proceeds were used to repay our term loan B that was due in 2020. Same time, we also amended our existing $100 million revolver to increase the borrowing capacity to $125 million and extend the maturity to 2022. Because of the refinancing, we now expect full-year interest expense to be $23 million which is higher than our previously provided guidance of $17 million. Much of this increase is due to $3 million non-cash write-off of fees that were associated with the old financing. Our net debt is $395 million and we are still well under two times leveraged on a two-year blended basis. And for the beginning of the year through April 28, we purchased about 110,000 shares of stock for about $2.4 million. The board approved a two-year $100 million buyback program in November. We provided detailed revenue and expense guidance for the second quarter in our earnings release. I think it's pretty straightforward. And now here is Brian to talk about the broadcast business.

Thanks Tim. Good morning, everybody. I am happy to report that total TV revenue ended up right about where we expected for the first quarter. Let me begin by talking about core television advertising. I told you on our February call that we expected the quarter to start slow, but build after a post presidential elections slowdown. The quarter acted exactly how we expected and I am pleased to say that our stations in the aggregate gained core advertising market share, outperforming our combined competitors across our 24 markets. Let me tell you a few things that did impact our markets. The categories of retail, media, insurance and banking drove softness in core accounting for about 75% of our decline across local and national. GDP growth of only 0.7% didn't help much either. We are seeing improvement in some of these categories in the second quarter and we do expect positive momentum as we built through the back half of 2017. Another factor that impacted our core performance in the first quarter was the significant shifting of major national advertising agencies to national accounts between agencies. In the back half of 2016 $26 billion in ad spending was under agency review. This review process slowed the approval of first quarter expenditures. Several of our largest national advertisers including AT&T and Volkswagen, Audi switched their media buying agencies. Good news most of these shifts are now complete and we are seeing these clients ramping up their spending. On the retrans front we saw another strong quarter for revenue growth at Scripps up nearly 25%. As a reminder, all of our network affiliation agreements are under contract this year with the four former Journal ABC is coming up for renewal at the end of December. And speaking of ABC, we were thrilled to be part of Disney/ABC's announcement last week that it signed more than 160 stations for over-the-top and other Internet delivered platforms. This deal includes services such as DirecTV Now, YouTube TV, Sony PlayStation Vue and CenturyLink. In addition, we are part of ABC's TV everywhere and over-the-top television footprint in our 15 ABC stations. We have also signed a similar distribution deal with NBC and look forward to reaching agreements with the others. We are happy with these new partnerships that we are forging with the networks on these platforms and we are especially pleased that the net economics that we realized from these deals is very much comparable to the traditional cable satellite world. On the original programming front, we made a big announcement last week a partnership with Grammy Award-Winning Country Music Star and Entertainment Executive Faith Hill. Together, we are launching a new TV program for Scripps, our fourth show in production today. It's a new daytime talk show that will be based in Nashville and will star another great country singer Kellie Pickler paired with Emmy Award-winning New York journalist Ben Aaron. We think daytime audiences will be immediately drawn to these fun and appealing hosts. The show will debut in 20 of our 24 Scripps TV markets is being offered in national syndication by Disney/ABC distribution. This is the continuation of our original programming strategy to create shows that inform and entertain our local audiences. Now turning to our Radio Division, in the first quarter we saw our Milwaukee station leverage the success of the Green Bay Packers playoff run into January, ending the season just one game shy of the Super Bowl. We also saw strong results at our Knoxville stations as well as improved performance from our Tulsa stations. And in Boise, our TV and radio stations produced a joint community event called incredible [Ajax Bow] which generated a new revenue stream and leverage our dual presence there. And now here is Adam.

Thanks Brian and good morning everybody. As with our television and radio results, we are reporting digital revenue performance that is very much in line with our expectations. As Tim said, digital revenue was up 25% and that was driven by growth in our national brands. Our podcast industry leader Midroll continued its fast growth. During the first quarter, we served nearly 1 billion advertising impressions, up significantly from 700 million in the first quarter of 2016 and at the same time Midroll pricing is growing nicely driven in part by a big increase in what we think of as the most premium podcasting inventory, new hit shows like Missing Richard Simmons, our documentary series Stranglers, and Freakonomics author Stephen Dubner's game show, Tell Me Something I Don't Know. Rates for these kinds of premium shows are 75% above our average inventory rate. That's why we're very focused on the development of these big hit podcasts. Also in the first quarter, we officially relaunched our podcast subscription service, Stitcher Premium. Thanks to the buzz surrounding those new shows, we are exceeding our internal goals for growth so far. Subscribers to Stitcher Premium get access to a host of exclusive high quality and ad free content only available through the Stitcher app and connected home and car listening services. At our national news network, Newsy, we're seeing strong traction with audiences and advertisers through over the top viewing. More than a year-ago, we made the decision to shift away from the commoditized web and mobile marketplaces. Instead, our focus today is on linear and on-demand connected TV distribution platforms, including Apple TV, Sling, Comcast Watchable and Roku. The strong advertiser demand we see for the young audiences, Newsy attracts on these platforms continues to reaffirm our decision to move full force in this direction. Given our success with OTD distribution already, Newsy is becoming as much a television brand as a digital one. This Monday Newsy will make its second appearance at the advertising industry's prestigious NewFronts for national digital ad buyers will be breaking news on a number of topics that day, including new content offerings and other ways for brands to connect with Newsy loyal millennial following. Stay tuned for more on Newsy this coming Monday. Finally, on the local digital front, we continue to expand the footprint of our local television station brands are new and fast growing media platforms such as OTT and virtual home assistant. We announced just this week that our brands have launched on Amazon's Alexa service. In many of our markets, we are the only provider of local news flash briefings. Our station brands joint Newsy as well as other national sources like CNN and NPR connected home devices like Alexa and Google Home are surging in popularity and our stations are tailoring their news and information in order to meet the demand from all of our audiences. The expansion to Alexa continues Scripps' commitment to bringing brands to consumers in the home, car or wherever they are. And now here is Rich.

Thanks, Adam. Good morning everyone. You heard Brian and Adam talk about the opportunities for mining in the broadcast TV, radio and digital businesses. The underpinning of those attractive opportunities is our commitment to producing high quality content that resonates with audiences. Just last week, we received third-party endorsement of the quality of our work with our entire TV group plus Newsy and our Denver station individually for honored at the Walter Cronkite Awards for our 2016 election coverage. You can find examples of the award winning coverage on our website. It's nice to win awards, but it's even better knowing that large and growing audiences both locally and nationally trust us during critical periods in our nation's history. Now, let me sum up and look ahead a little bit. In our broadcast TV group we're seeing demand build in the ad categories to make up our core revenue coupled with continued strong growth in retransmission revenue. And just a reminder we see that retransmission growth continuing for the next several years at least. We're working to be in the best position to take advantage of the 2018 elections our early assessment of races across the country suggests the Scripps TV footprint will be well positioned to take advantage of spending in highly competitive races. Finally, in broadcast TV a wave of deregulation is likely in 2017 to provide opportunities for owners like us to strengthen our portfolio of stations. With affiliates in large and attractive markets we enjoy the benefits of scale economics today, with potentially more opportunity coming from further deregulation of our industries ownership rules. In the digital group our national brands are gaining - rapidly gaining scale Newsy is quickly becoming a widely distributed television brand, building upon its early success as a short burst digital news content provider. And our podcast business mid row see strong growth ahead as our share of the year continues to expand our local digital brands as well will see another year of growth. Finally, as Tim said we have a rock solid balance sheet further strengthened by our recent financing, which gives a financial flexibility to be both nimble and opportunistic. Thanks again for joining us. Greg we're ready to take questions.

Thank you. [Operator Instructions] Your first question comes from the line of Kyle Evans from Stephens. Please go ahead.

Hi, thanks for taking my questions. Brian you mentioned that you expected positive momentum in the second half and you're talking about core. Could you dive down a little bit deeper and give us some detail? Is that just kind of rolling over tough Olympic comps and tough political comps or are you seeing something in your verticals that's causing you to expect that momentum? And then we I've got some follow-ups.

Hey, Kyle, it's Brian. Yes, I think we're encouraged by what we're seeing in the second quarter. So you saw results for first quarter and as we described I think there are a bunch of different dynamics that we're in play there. You pointed out the Olympics and third heavy political in the back half and I think we'll be able to take advantage certainly of the political displacement. So I think second quarter was a quarter that was really important for us to try and understand kind of the state of the economy and I think we like what we're seeing now. I think a couple of our key categories have a nice momentum as we've going through second quarter. Our pacing is very good. We have an interesting dynamic that will play it tough out in the next couple of weeks on ultimately how we arrive at our finished record in the second quarter and that's the NBA finals. So last year we were fortunate enough to be the host station for the Cleveland Cavaliers, getting them in the finals means $3 million or $4 million for us and last year ran all the way out to seven games. So we are certainly hopeful and prepared to take advantage of opportunities the Cavaliers get back to the finals. But even looking at all the other business excluding the NBA, our pacing is much stronger than it was first quarter. Automotive continues to be a good category for us. We now see three consecutive months of year-to-year growth in automotive. Some of the others are still trailing a little bit, but there's enough on the back side to make up for the couple of categories that I mentioned. So I feel like with our visibility a second quarter knowing what's coming in the back half of the year, we kind of feel good about the momentum right now.

Where do you think auto shakes out for the year and then I have got a follow-up on the OTT front?

Look I don't know at the end of the day where it's going shake out for the year. We get a lot of business to right, we talked in February, the January was down, but that February and March were up and that was in fact the case. Now April is up again, so that's three consecutive months of year-to-year growth in automotive was have to - see where second quarter shakes out, I've seen the SARS numbers like you have. The good news is, people are sitting on a little bit inventory box and so that's driving some of our local dealers. They've got to spend money and move those. So they're tying it incentives along with advertising and I think that's keeping that category healthy. Even if they're at 69 or 70 that's still a pretty robust auto environment for us and they're going to have to do a lot of advertising to move those cars. So I think we remain optimistic that that category is going to remain pretty healthy all year.

Nice progress with ABC, you are reporting some NBC progress on the OTT front. What do you think the timeline is for the other two? When we see kind of broad adoption across all four networks?

Yes. I think there's been pretty active conversations. These deals have taken months to come to fruition. ABC was the first one with their affiliates to reach agreement probably six weeks ago. NBC maybe took another four weeks, but now we've signed on to that deal. The conversations with CBS have been happening in real time for the same couple of months and I'd like to think we're getting pretty close there. And Fox is a pretty small platform for us, but I'm hoping that comes together too. So my expectation is certainly that in the next two or three months that all the networks are on board, all the affiliates - and mostly the affiliates are on board and we're building a new vibrant distribution ecosystem. As I said in the script, the economics are really comfortable for us there in line with what we would have gotten in a traditional MVPD deal, and so we feel really good about being having our live channels on these platforms and there's no value dilution across any of these platforms.

Great. Thanks.

Your next question comes from the line of Michael Kupinski from Noble Capital Markets. Please go ahead.

Thank you. Brian thanks for the color of the agency business. That should explain some of the disruption in national, I appreciate that. As you look into the second quarter it's both local and national pacing about the same?

Yes. They are pacing a little bit better, but local is clearly pacing better than national Mike.

Okay. Just kind of moving on to the other digital segment, what's accounting for the deceleration in your rate of growth there?

Hey, Mike. It's Adam. We did see actually in the first quarter some of the same impact, a weaker particularly in programmatic start to the year January and February and that particularly impacted our local markets. The good news is that March picked up from there and we're continuing to see an acceleration back to the point where we expect that the pricing and the demand to be.

So is this changed your view in terms of the growth rates versus local versus national?

Maybe a little bit for this year and this year only, but we expect local to get back to the sort of same zone that we've been seeing over the last couple of years. I don't in any way think that what we saw in January and February was an indicator of more broad secular trends in the marketplace. I think that we just saw the same impact that Brian described for national advertising also bleed over into the digital space. And I've talked to a lot of my colleagues both in the traditional media space with respect to digital as well as with digital pure plays. And just broadly speaking it was a slow January and February with respect to programmatic advertising. That impacted most of our businesses. It did not impact mid roll at all which does not sell any advertising inventory programmatically, it's all direct sales.

Gotcha. And I know in the last call you indicated that the M&A activity wasn't really heightened I suppose and I think things may have changed since then, but I was wondering if you could give us your thoughts on the current M&A environment?

Yes. Mike, it's Rich. Yes a lot has changed since we last spoke. I guess most of the questions we're getting are just are you a buyer or are you a seller? Is if it's absolutely one of the other it's black and white and if you look across the industry I kind of doubt that everybody's going to be strictly a buyer or seller. For somebody like us with strong affiliates and very large attractive markets I said we already benefit from the economics of scale today. So we'll see if there are opportunities for us to add to our portfolio, pick up some leverage. It just looks like a real Donnybrook is going to commence in the wake of the deregulation and there will be a lot of moving stuff around. So we'll see. I would say, we're not seeing a ton of activity at the moment directly, but certainly some of it's going on upstream.

Gotcha. Okay, that's all I have. Thank you.

Your next question comes from the line of Dan Kurnos from Benchmark Company. Please go ahead.

Great, thanks. Good morning, Rich, excellent usage of the word Donnybrook. So Brian, let me just start by saying that being the fair weather [indiscernible] there's no way Cleveland is not making the finals. So I guess you'll have that baked in. I wanted kind of drilldown a little bit on the NBC deal that you did on OTT, obviously they kind of put out this sort of blanket,what I would term kind of a week offering to everybody to participate. I'm assuming that you guys signed something much more substantive and substantial - substantially beneficial than that?

I don't want to speak to what was early on. But at the end of the day, the agreement that was signed with NBC after several months of negotiations was I think a good agreement for NBC and the economic agreement for local affiliates.

And then Rich, let me just - maybe Adam if you could pipe into, I guess there is pressure on kind of the M&A thought process sort of given that backdrop, I guess two things. One, I know you guys were kind of looking at the sort of I guess - and I'll call one-off fire certainly maybe some larger scale opportunities. But in sort of a top 60 DMAs, if it seems like it's going to be more competitive, does that give you any concern about whether or not you believe to be more of a pick up the pieces of a mega merger that might be your opportunity or you might be priced out of the networks maybe get more competitive? And then secondly some of your smaller peers that are maybe more levered talked about getting - maybe having to get more involved in a transformative acquisition, does that has your thinking changed on that front at all?

I'd saw one thing that has not changed. We're only willing to pay with something is actually economically worth. We're cash on cash - looking for cash on cash returns. So we're certainly not going to get caught up in any frenzy and we're also not going to chase some sort of mythical cap or some mythical description of scale that we think we operate pretty well the scale today. An awful lot will be determined by what happens with the rules around ownership in each local market, the voices rule and until how that's going to shake out, I think it's very hard to tell how the landscape overall can change because that just effects so much, especially for those who are chasing the cap and chasing some more large scale where there could be. As you say things pop out and provide opportunities for others who are just looking to strengthen their portfolio. But I again I think it's largely on our part speculation. We're doing a - spending a lot of time looking at our markets, adjacent markets how do we think, things might unfold, but there's not a whole lot that's actionable at the moment.

Okay, great. And then just one more maybe for Adam on digital, I know you talked about it a little bit. We actually - we heard about some a little looking at a Q2 guide, we heard about some surprise CPM strength from IAC yesterday in Q1 and much of that had subsided in Q2, especially around their content plays. So I'm wondering if you're seeing some of that seasonality and then again if you kind of reaffirm that digital is still going to grow and that mid to high 30% range for the year?

Yes, I mean we continue to see good growth ahead for the segment for sure. I would say, Dan we play in a couple different marketplaces certainly than IAC. On the news front, as I mentioned earlier, we did see a bit of a soft start to the year with respect to programmatic advertising. In January and February, things picked up fairly significantly in March and they've continued to pace nicely. On the podcasting side, Midroll doesn't play at all in the programmatic marketplace and we continue to see very, very strong growth in podcasting. As an industry podcasting continues to grow, their every most recent Edison Research sort of point to about a quarter of the U.S. population now listening to podcasts with some frequency. Midroll, we believe with a leader in the creation and the ad side was obviously means that our share of the business continues to grow, our share of the opportunity continues to grow as well. So we don't see any of that abating as we head into the rest of the year.

All right, great. Thanks for the color guys. Appreciate it.

Your next question comes from the line of Marci Ryvicker from Wells Fargo. Please go ahead.

Hi, thanks. This is Marci. Tim, you didn't update the full-year guide expect for interest expense. So should we assume that what you provided on the last earnings press release is still valid for the year?

Yes, so hey Marci, this is Tim. Yes it's our practice to give updated guidance for the quarter. The coming quarter which is what we did here for the second quarter we also gave guidance for the new interest expense. We don't as regular courses reaffirm the full-year guidance that we gave earlier in the year.

Okay. So we should not take that as possible from last quarter.

Yes, that's correct.

Okay. And then Adam digital expenses are a lot less than what we have recent modeling and if we take trends from this quarter and sort of play them out for the rest of the year? Is it possible that this segment starts turning a profit in the fourth quarter?

Hey, Marci, so first of all obviously we intend to continue to grow particularly on the national side our businesses. Because we see you know really great value and opportunity ahead. We think they're moving exactly in the right direction as we continue to plow the profits that they're producing back into the businesses to keep that pace of growth high. So I wouldn't necessarily draw any conclusions I think we'll continue to move things in the direction that we've described. It's all very intentional so anywhere we can we try to maximize the opportunity we know what our job is here and if we were to pull hard on that lever and try to drive it to profit this year. I actually think you want to take that as a pretty good indication that the size of the prize wasn't as big as we thought it was. So we continue to see a lot of opportunity and growth ahead and we'll continue to invest in these businesses and in order to capture that growth.

Great. And then one last question what are your expectations for the upfront for Newsy is there any statistic you can give us from last year's upfront that maybe you want to beat this year?

Yes, I don't have the numbers Marci and I can gather some but I will tell you that last year's upfronts that was our first appearance at the NewFronts and we were able to expose Newsy directly to about 250 representatives from brands and agencies which directly led to us getting a lot more on the digital direct sales front. This year we've been basically sold out the entire year there's a lot of demand for digital video advertising particularly OTT advertising that reaches younger millennial audiences. The rates can be anywhere between $20 up to $60 we averaged around $35 on those CPMs. So we feel really good about the success of last year's NewFronts that also lead to some branded content sales where agencies and brands of come to us to ask us to help them tell their stories through Newsy's distribution channels to Newsy's audience. And we expect to be able to continue to do that this year along with sort of being able to highlight some of our new distribution partners with respect to Newsy's continued OTT distribution.

Great. Thank you so much.

Your next question comes from the line of Barry Lucas from Gabelli & Company. Please go ahead.

Thank you and good morning I have several. Brian if we take some of the things that you've talked about and look at the guidance and stripped out political and re-trans it looks like core is still down about mid single-digits give or take and in light of the backdrop the transition its various agencies and audio things that you described there still seems to be a hang up in terms of real momentum to getting the business going. So what would you say is the drag effect what's keeping advertisers for spending them.

I don't think there's a drag effect right now it really comes down to the NBA finals Barry. All of our regular business is very much in line you're run of numbers and doing the math there we've got an alternate log that isn't in our projections that sits with $7 million with the Cavaliers and the NBA finals and if that kicks in those numbers move over to our real time projections and things but dramatically different.

Thanks for that. Tim or Rich could you just remind us what you comfortable with in terms of leverage given the firepower balance sheet capacity that you believe you have in terms of M&A?

Sure, I'll know let Tim talk. We don't have a firm policy but we have sort of an expectation that for the time go ahead.

Hi, sure, hi Barry, this is Tim. Yes, so while we do have a balance sheet now that's less than two times leveraged, we would stretch that balance sheet a bit for the right sort of acquisition and kind of the target that we have in mind is something around 3.5 times. We think this financing that we just did with the bond is really gives us a fantastic foundation in our capital structure. Eight-year fixed rate debt with a bowl of maturity, so sort of that combined with this capacity that we've got for 3.5 times things really gives us a lot of flexibility.

Last one for me and maybe this gets a little bit more hypothetical with all the speculation on Tribune and Sinclair and Fox and the potential formation for one of the better term a handful of real super groups. And I know Richard, Brian you've both talked about scale and the importance of it, but doesn't that change if you have a couple of really big station groups either owned by the networks or others, and doesn't that review potentially a little bit more vulnerable?

It's Rick, Barry. Well definitely there's concentration, I think we're less concerned about it when it comes to people who own stations across the country that we probably would be more concerned than everybody would be depending on the concentration that is allowed in each individual market. Like everybody else we see the benefits of going deeper where we do business in markets we really spike and everybody else sees that same benefit. So that's where the - I think where if there's a squeeze where you would see it most is what happens in local markets. This has been a business historically where value is really embedded at the local station market. And if you only owned a few stations, the way you read that value was not much different than somebody who owned a large number of stations across the country. But again, if the local voices rule changes and there's really a lot of concentration markets that's when everybody would have to stand back and say what's the - these effect in markets where you're not heavily concentrated. So yes that's probably what we're watching more than the national scale, the cap which to me seems to be far less of an event than the voices rule. I'll let Brian jump in.

I would agree. I mean, obviously Barry we're operating a business that leverage is important. Leverage in the industry relative to negotiating networks as well as the MVPDs and then in market leverage. I think we've been able to be very successful and have appropriate leverage that we've been comfortable with in both places. I think we are a major player, and we'll see that the table in the industry. I believe that the kinds of markets that we're in and the strength of our stations in these big markets –leverage on our big negotiations and having good news producing stations in our local markets with strong brands has allowed us to be viable in those markets. As the industry changes as Rich just said, we will have to weigh our leverage in both places. I think we've made a decision; we're not going to chase the cap. We think that the kinds of markets that we're in and the strength of those stations - nothing changes right, we're still on 18% in the U.S. with great stations and great cities. So I think we'll spend time probably weighing more of the end market leverage and making sure that we can compete in both places.

Great. Thanks for the color.

Thanks Barry.

Your next question comes from the line of Craig Huber from Huber Research. Please go ahead.

Yes. Good morning. Brian I'm curious your updated thoughts on where you think ownership cap may go to and what's your timing expectation. I know it's tough, but what's your best thought?

Craig your guess is as good as mine and where the ownership cap may go. I'm not sure that the cap gets addressed this year. I think that the end market voices - rules and those probably this year. I think that the cap probably goes to next year and whether that ultimately - if there's a proceeding to advance it and whether that happens at the FCC or Congress remains to be seen. But I don't know more than anybody else about where that may able to at least settle in.

There has been some controversy out there Brian on this subject. I mean what's your thought in terms of - is TV to congressional bill to change the ownership cap, or do you think the FCC could do it?

No, I think that that debate is happening inside of the FCC. I think that the - my understanding is that different commissioners have different opinions on that, and so I'm not an expert on that. But I would tend to think even if the FCC had determined they had the authority, I think it's a big enough issue that would have a significant impact on American cities that it at least would have a lot more discourse in Congress than perhaps the change of the UHF discount order.

Okay. That's helpful. Appreciate that. Brian, when you think across your TV markets. What markets in particular do you think you have the most potential upside and some obviously performing better than others, but the ones on the lower end, what two, three, four significant markets we can think at the most upside to get the ratings up and obviously the revenues in the main margins over the next two to four years - the opportunities?

I think obviously we have a couple markets that we have to pretty dominant number one stations in. But I think as we look across some of our biggest markets is where that just - there's more money in those markets, as the political opportunities in those markets and we just spend more than our fair share of time trying to continue to put Phoenix, Denver, Cleveland, Las Vegas, Tampa, those top 20 type markets. I guess Vegas is a little bit smaller, but due to its influence in political, it's a really important market for us. So any of those markets you just have a big political footprint and a ton of money being spent on it. So it's in our best interest to continue to work toward improving our ratings, improve in news, improving our syndicated, our programming opportunity and so I think if you were just to look at where our best opportunities are I would start with our biggest markets.

Okay. And then also maybe just curious in the first quarter for TV again Brian, auto [indiscernible] three of the categories, auto, retail and local services, how did those performed the ad revenues there?

So auto was off about 0.5%, but quite frankly it's probably about flat when you take out the fact that our Super Bowl footprint dropped from stronger CBS to a smaller and Fox footprint and so when you look at the money associated with automotive in the Super Bowl that makes up that a little bit of difference. So auto really was about flat. And as I talked about a couple times, tough January, but bounce back very strong in February and March to get it back to play. As we called out in the script, retail had a tough quarter. It was down high single-digits. Furniture was off, Medicine was off, closing drugstore, electronics of the closing of hhgregg, Jewelry was off that we saw some other advertisers kind of moving money around from spot to network. So that was probably our most challenging category there. And then so this is - it was off low single-digits. Again we've talked a little bit about the insurance category being challenged in a couple of areas and I think that that was the biggest driver and a little bit of softness inside of financial banks and institutions. We had many other elements home improvement, H-back fitness, medical, all in - legal all in set of services were up. So it is not a systematic or widespread problem in services. We've been kind of there's a lot of money in insurance and banking in those two areas have been kind of just dragging as down a little bit over the last couple of quarters, but the rest of that category feels pretty strong to us.

And then Brian, on the - I guess your re-trans subs, what's the percent that change there versus a year-ago on a comparable station basis? And also what percent are you to subject for renewal this year, next year and in the following year?

So this year we talked about after having a lot of subs come up at the end of last year. This is going to be a light year for us. We've done a couple already this year. So we've only got about 5% that will finish out between now and the end of the year. And the next two years are huge at the end of - or by the end of 2018 will negotiate at 37% of our subs in 2018 and then as we hit the end of 2019, it's over 40%.

Yes, and Craig we really haven't seen a meaningful change in the number of subs across our portfolio.

Okay. My last question on the digital front for your various national properties I am just curious if you will breakout or can't breakout the percent change their revenues in the first quarter leases rank order for us the percent change the revenues there for their national properties in digital.

Just sort of echoing what I said before mid row which is not impact that at all by any that thought as we saw in programmatic would probably have run the fastest and then I'd have Newsy and Cracked following.

Okay. And then also maybe you could help us local digital properties. What was the percent change there in revenues in the first quarter year-over-year please? That's my final question.

The percent change we have been pacing at about 20% for the past couple of years as a result of some of that slowdown in first quarter it was definitely south of that we expected to ramp up a little bit again, but that sort of where things stand right now.

That's for me like 10% to 12% is from the ballpark it.

I think the first quarter was a little bit shy of their.

Okay. Great thank you.

Thanks Craig.

Your next question comes from the line of John Corrick from JK Media. Please go ahead.

Yes, I had one small quickie in a larger one. You just straight I add on this local digital website advertising. Is that in the digital segment or in the TV segment?

Yes, John that's in the digital segment.

And what portion of this whatever $65, $70 million you're going to do this year is local website?

It's looking this year that about 50:50 will be displayed at local to national.

And there's a local website advertising that is say up you know up a little bit?

Oh! Yes.

Okay.

Hey, John, it's Brian. I just want to jump in you're asking a point that there's probably deserves a little clarity or when we report television it is local spot only national spot only we don't include our digital revenue in that many of our peers do and so if you're looking to do comps I would just encourage you to really kind of read between the lines to see who is including digital into their local or national core numbers. We break those of separately, but I am glad to ask that.

Looks to me that it's depressed your first quarter ad revenue volume may be close to a point.

Yes, I mean it's no doubt added in our digital every quarter or local would both better but pretty straight.

Much larger question, Rich if you know for a near couple of three decades now I've been quizzical about your margins and that continues your first quarter margin I know it's a low quarters, seasonal low quarter and no political and all that, but 19% and even last year when you had political it was only about 22%. I think I've come up with the reason. I think I have finally had a theory and that theory is that exacerbated by your acquisition strategy. Your local ad pricing is relatively weak and that's exacerbated by the acquisition strategy of loving to pick up number threes and fours and fix them. Listen to this figure which is absolutely to me shocking. If you look at your first quarter $180 million in revenue you have $66 million of retrans. I'll give you a 60% margin on that I don't know my guess is it's higher than that. But 50% margin as round about means that your profit on retrans is $33 million, your total profit was $35 million. So even making in the first quarter you made $2 million on a $110 million of advertising. I know in the first quarter exaggerates that, but the point and by the way that $2 million and on advertising is down 90% from a year-ago when you had about $16 million. I mean I don't get it. The only thing I can come to conclusion on is that in advertising your rates are too low for competitive reasons.

For me I think you asked about 12 questions there John we trying to unpack and first tell me what Tim was ask you sort of unpack the math there and which margins are you talking…

Yes. And then I segregate profits on expense versus profits on advertising.

Yes. Again, you're looking at a cyclically small quarter, so those sort of that's not surprising. Let me address a couple of the bigger questions and I'll let Brian to jump in as well. Yes, our strategy of picking up 3's and 4's at excellent - if prices that show an excellent return on investment for shareholders that has definitely been part of our strategy. You can buy a number one and you pay for a number one. You can buy number three and you pay for number three. Our focus again has been on return on investment. So yes, if you look over short periods of time and say some of the stations we picked up including some in the Journal transaction are not market leaders and therefore do not produce the same revenue. Yes that's true, but they produce excellent returns on investment. Yes, over the long-term plus we figure you get as an option almost a free option based on what we pay the opportunity then to improve performance. A couple other factors, one is the Comcast and the retrans adjustment you've got to work that through the system as well. I'll let Brian talk about the size of that. Go ahead now.

I mean obviously we've talked about over the years and it continues to have an impact on us, the fact that in 2 million households were not paid on those Comcast subs. John, I think you're at the last conference when the question was asked at me whether we are in fact paying our network partners for those Comcast households even though we're not being paid on it. And I answered that that is in fact the case and has been the case for the last couple of years and so I encourage you to work the math because there's some significant margin points that are left on the table there. We've talked about the fact that we're trying to get more aggressive and duopolies at a point when other companies are rolling up duopolies in their markets. We owned HDTV and food network and we were creating amazing value for our owners at that time by putting our money to work there and launching new network versus buying second stations. So we understand that you know that's a little bit of a liability that we have to work under now. And again at the last conference, we also talked about just the changing dynamics of the impact of fragmentation and strategy in the past of not necessarily interest in buying specific stations, but buying into markets. And we have been comfortable getting into markets whether it's Denver, or Las Vegas, or San Diego, or Indianapolis where maybe we weren't getting a number one or number two ranked television station, but we found great appeal in the markets as long-term operators that we thought we could create tremendous value. And so as we shared at the last conference, it look it's harder now due to fragmentation and maybe some less loyalty television viewing to be able to call number four and to number one. And I think we're probably more honest about that today recognizing the trends that are happening. But at the end of the day, we continue to have great assets and great markets. We do come with uniqueness that our peers have not had relative to MVPD subs and to duopolies and other things, but the one thing I guess I would take exception with is that our TV ad rates are too low. I think we are very capable sellers. In our markets, we have great sales leadership. We certainly understand how to use leverage and use the assets we have to maximize our company value. Keep in mind that in my script, I talked about the fact that we outpaced our markets in the aggregate. You don't do that if you're under pricing, your inventory. So I think there's a lot of moving pieces here that we're always happy to continue, talk to you about that unique to our story. But I don't think on the pricing our inventory. We wouldn't be able to outpace our markets and grow market share, if we weren't pricing appropriately.

Let Tim through in one more piece of math and then I'll…

Yes, so when we talk about that the math, I guess there's two things, John. One is as looking at the bigger picture of the profitability of the segment including everything. Don't forget this Comcast piece, right, so it's 2 million subs. We're getting nothing on those and the flow through on those subs in 2020, when we start realizing that will be very, very high.

Okay.

So that's a very big number. And secondly the math on your net on this, so retransmission as you can see is about $66 million, total program and program licenses as $45 million. We haven't broken that down between networks and syndicated, but we have said the lion's share of that is network. So that's $21 million difference and you sort of have $33 million of $34 million. So it's pretty sensitive to what that assumption is and I think if you look at two factors, we're going to get a boatload more net profitability when these Comcast subs come up and the sort of that the reality of that flow through on that, you come up with a little bit of a different picture.

And feel in Comcast is - I take it as close to zero.

Yes.

Yes.

Real close.

Okay.

John let me kind of - I think you did several things. One, you point out the value of re-trans. And you used a sickly small quarter to really show that…

Yes.

The strength of it, and no doubt about that. Also yes, we have acquired or merged in some threes and fours, but as I think you just heard we're confident. The margins will move up and then they have moved up and there's good opportunity. And then just that you know us for a lot of years and I know it's kind of out of style right now, but returns on investment are important focus for management teams. We're probably value investors at our core and I can't imagine why that would ever change and I think it comes out to the best over the long-term. In the midst of frenzy, it can be very out of style, but fundamentally we think it's the right thing to do.

I appreciate that long answer. Thank you.

Thanks, John. And at this time there are no further questions.

Thank you, Greg. So just to sum up the Scripps opportunity in 2017 and beyond. Stable core television advertising combined with plenty of retransmission revenue upside, rapidly growing national digital brands and already profitable local digital operations and the specter of a strong 2018 mid-term election year, as well as healthy industry regulatory and M&A client and M&A climate and lying beneath it all is a rock solid foundation of a strong balance sheet. Thank you so much for joining us this morning.

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