The E.W. Scripps Company (SSP) Q2 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, we’d like to thank you for standing by. And welcome to the Scripps' Second 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 and facilitator, as well as our Head, Investor Relations, Ms. Carolyn Micheli. Please go ahead.

Thanks Steven. Good morning, everyone and thank you for joining us for a discussion of The E.W. Scripps Company's Second 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. In addition, if you haven’t caught up yet during this busy earnings week, that we announced on Tuesday about our acquisition of the Katz Networks, you can find that press release, investor deck and call replay on our website as well. I also wanted to mention our Investor Day, which is scheduled for Wednesday September 6, in New York. Tomorrow we will be sending our details of those posting them on our website. We hope to see you there as we talk about our view of the evolving media landscape, and our role in developing and capitalizing on it. We'll hear first this morning from Chairman, President and CEO Rich Boehne; then Chief Financial Officer, Tim Wesolowski; Broadcast chief, Brian Lawlor; and from Chief Operating Officer Adam Symson. Also with us today are Radio Division Head, Steve Wexler; and Controller and Treasurer, Doug Lyons. Now over to Rich for his last earnings call.

Thanks Carolyn. Good morning everyone. Thanks for joining us. May of you for the second time this week on Tuesday we told you about the acquisition of the four fast-growing, audience-targeted Katz broadcast networks. These four networks are distributed primarily through local stations, digital sub channels. We like this opportunity because we see a growing number of viewers turning to over-the-air viewing as a complement to their cable, satellite and over-the-top subscriptions. The Katz team, smartly identified an opportunity for themselves, much like those who launched cable networks back in the early days. Our content strategy is focused on specific audience segments. Bounce TV is the first over-the-air network to serve the African-American audience. Great is aimed at 25 to 54 escape, offers, dramas and documentaries appealing to women. And last it’s for anyone with a sense of humor, which is we all know is not everyone. Scripps has a long, successful history of creating media products focused on specific audience segments and consumer categories. We were attracted to the Katz business because in its short history, it already has been successful in achieving national reach through over-the-air distribution and turning that distribution into revenue and cash flow. Tim talked our call to see about our growth expectations for this business farther out. This is not a traditional broadcast TV business and it's not a digital business. It falls into a new forward-looking, fast growing category with what we believe is just terrific upside. So today Scripps is a former newspaper company that in recent years has more than doubled the size of our local television business, added radio stations, launched four original television programs and acquired and built three national digital content businesses now joined by four expanding, multicast networks. As we have for nearly 140 years we focus on building value and expanding media marketplaces. And as you might know I’ll be vacating the CEO's office next week. And from then on sharing for Adam and his team from my vantage point as the Chairman of the Board. I'm not going very far, my commitment and accountability to you our partners and business will remain as strong as ever. However, it is time for the next-generation of leaders with long runways ahead of them to take this company forward into its next adventures. This is my 121st earnings call since we took this company public in 1988. I thought that was a lot until I remembered that many of you did a lot of dozens and dozens of these calls each year. So now instead of feeling boastfully proud of myself, well I feel kind of sorry for you. I’ve known many of you for several decades. In addition to these calls we travelled together, had beers [ph] together, written out recessions and bull [ph] market, had some disagreements and probably, most important, we've also made some money together. I deeply appreciate all that some of you have taught me about investing over the years and I promise that commitment to partnership will remain strong as Adam takes over. I want to say the shareholder, a legendary value investor, hand me his wallet. As he stuck it in my hand, he said to me, now remember, this is how our relationship works. I hand you my wallet with complete trust knowing that why you hold it my money is out of my control. And I'm counting on you to hand that wallet back to me someday and somewhat fatter than when I gave it to you. That’s an old investing lesson. But I'll tell you, I never forget it. And I thank you for trusting me, trusting here at Scripps with the precious contents of your wallet, having faith that we will add to its value. And now your Tim.

Thanks Rich, but I miss you boss.

Thanks.

Good morning and thanks for joining us today. The press release contains the details of our second quarter performance and we’ll be filing our 10-Q later today. Right now I'd like to go through some of the highlights of the quarter. Our cash position, as well as capital allocation and third quarter guidance. Our second quarter consolidated results were in-line with our expectations. And second quarter revenue in our TV division was about flat, compared to the prior year and in-line with our guidance. Our $13 million increase in retransmission revenue was partially offset by $6 million less of political revenue. TV expenses were up less than 4%, slightly better than our guidance, driven by an increase in the programming fees we paid to our network partners. Radio revenue was down about 5%, in-line with our guidance and expenses were about flat which was better than guidance of up mid-single-digits. In the second quarter, digital revenue was up more than 27% and expenses were up about 18%, again both in-line with our guidance. I also want to touch on the other income of about $5 million in the quarter, the largest piece of that balance is again we recognized on the sale of our newspaper syndication rights, or some popular comic scripts to our long-time partner Universal Uclick. Before I turn to the balance sheet, I want to mention our effective tax rate for the first six months of the year was 9%, 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 expect our effective tax rate for the year to be in the 20% to 25% range and we do not expect to pay significant cash income taxes in 2017. And moving to the balance sheet, we closed the quarter with $150 million in cash, up $15 million from our beginning of year balance. As on April we closed an offering of $400 million of new senior notes. As a result of that refinancing, we recorded at $2.4 million non-cash charge to interest expense, to write-off deferred loan costs associated with our prior debt. As you heard earlier this week, we announced plans to acquire the Katz Networks, we’ll soon be launching a $250 million term loan B deal to finance the acquisition. Even after this deal we’ll have leverage of about three times on 2017-2018 blended basis. And we expect that to decline to about 2.5 times on the same basis by the end of next year. Year-to-date, through July 31, we purchased about 400,000 shares of stock for almost $8 million. And you may recall in November of 2016 the Board approved a $100 million buyback program that expires at the end of 2018. We provided detailed revenue and expense guidance for the third quarter in our earnings release, however, I wanted to touch on a couple of things. In addition to our normal practice of providing guidance for the coming quarter we've also provided some guidance for revenue and expenses related to the Katz acquisition, assuming a close at the beginning of the fourth quarter. As , it's not our practice to update full year guidance during the year, other than for acquisitions or other major events. You can find that new guidance in today's press release. Now over to Brian.

Thanks Tim. Good morning everybody. We talked extensively on our call Tuesday about the opportunity for Katz with multicasting audience targeted content and the advertising marketplace, and you can find all those materials on our website. So I'll just say here that we believe we have a significant opportunity to further scale these fast growing networks and give general market national advertisers a midst of well-known and original programming to reach their desired audiences across very targeted demographic groups. I look forward to working with Jonathan Katz and his team to do just that. Now turning to our local station group business, we reported results once again this quarter that were inline with our expectations. Of course, we were pleased to see the Cleveland Cavaliers make another NBA finals appearance. As I think most of we have the ABC station in Cleveland which was the home of the NBA finals. We did hope that they would make a seven game run and that unfortunately was not the case, while their five game series was good news for us. On a year-over-year basis it fell short of the revenue contribution we saw from last year's seven game NBA finals. The absence of those two games accounted for more than $2 million less in revenue in Q2. So apples-to-apples our core for the quarter was down actually about 2%. Looking ahead to Q3 clearly, comparisons are going to be messy due our $27 million of political and more than $10 million of Olympic advertising in the third quarter of last year. But factoring out those things, we expect core to be up in the third quarter. Turning back to second quarter results for this year, political ad revenue was a bright spot, bringing in about $2.5 million. That's much more than we would expect in the second quarter of a nonelection year. We can think spending around the health care reform issue in several of our markets, as well as early spending on a controversial ballot initiative about drug pricing in Ohio, where we have stations in Cleveland and Cincinnati. We're definitely looking forward to a robust 2018 election. We continue to see some weakness in our retail and media categories. Cable companies are holding back money right now as they prepare to spend on pushing up their launch of their new over-the-top services. And the banks are spending less at the moment in the phase of rising interest rates that are slowing lending. [Indiscernible] was down 5% in the quarter again with Factor E domestic spending pulling down the category. Speaking of cable and satellite over-the-top products, we and our broadcast peers continue to make progress on our contracts to be part of those services. We have already completed deals with ABC, NBC and CBS. And just a reminder, we're getting rates that are very comparable to our net retrans rates on the legacy cable and satellite services. As these services get up and running, monetizing their subscribers should be a nice incremental contribution to our broadcast retransmission revenue. .: And now turning to radio, we've seen mixed results this quarter with Knoxville and three other markets showing growth, but shortfalls in four other markets more than offsetting that performance. A better than anticipated season for the Milwaukee Brewers is allowing us to continue to add dollars as they approach September. And a pennant race would obviously be very good news for us. And of course we look forward to the beginning of the Green Bay Packers' football season this month with our selling well underway across the entire Packers Radio Network. And now here’s Adam.

Thanks Brian, good morning everybody. I'd like to start first on the national side of our digital division, with our next-generation national news network Newsy. As Newsy is nearly fully deployed across all of the key over-the-top television services. And it's getting really terrific traction. The shift we made to those platforms more than a year ago, positioned Newsy well and is beginning to show meaningful results. We were very pleased with Newsy’s revenue growth in the second quarter due to strong advertiser and audience demand for over-the-top news content. Nearly 90% of Newsy’s revenue in the quarter came from OTT platforms with the rest mostly from its legacy desktop syndication video business. Video views on OTT increased 25% quarter-over-quarter to more than $130 million. Our podcast industry-leading company Midroll, also continued an upward trajectory during the second quarter. The strong revenue growth is coming from increases in both its advertising rates and its downloads under management. Midroll’s catalog of podcasts, saw more than one billion downloads in the quarter. And we added 50 more shows to our distribution and advertising sales network. The company also continued expanding its owned and operated portfolio, the shows we create ourselves, for which we keep all of the advertising revenue. For example, during the second quarter we launched the O&O show, LeVar Burton Reads. Generations of us now actor LeVar Burton best as the host of the hit children's public television show, Reading Rainbow. In this new podcast he is reading again, but this time it's short stories for adults. The show is drawing critical acclaim and strong audiences. It's a terrific podcast you should check out. Within the Midroll business, we also own Stitcher, a mobile app for finding and listening to podcasts you love. And just a reminder, underneath Stitcher is a sophisticated data play that is helping Midroll establish an even stronger relationship with listeners, podcast producers and advertisers. Stitcher is already off to a good start, number one on Google's Android platform, the second most used podcast listening platform for iPhone and already available on the dashboard of more than 50 car models with native integrations. The Stitcher engineering team continues to improve the app's features and design and will release an even further improved version very soon. Midroll is an ecosystem play focused on content creation, monetization and now distribution through Stitcher, by offering all three of those components Midroll is very well-positioned to capitalize on the industry's growth. Turning now to the local side of our digital division, the business tied to our television station brands, we saw a recovery in programatic advertising after a slow start to the year. As we manage our programatic advertising inventory very closely, focusing on generating the greatest net revenue possible to growth in our rates and inventory. The fruit of that labor was a nearly 40% increase in programatic revenue over a second quarter of 2016. And we're just as focused on expanding to new platforms, where our local consumers can engage with our content as increasing numbers of them fill their homes with devices that deliver over-the-top video such as Roku and Apple TV; and smart assistant platforms like Amazon Echo and Google Home. The continued expansion of our news brands on to these emerging platforms is another indication of Scripps belief in the near future where media consumers will turn to many different platforms for the news and information they need and the content they love. And that brings us back to our acquisition of Katz Networks. hey [ph]*: We have solid partnerships with cable and satellite operators. We have an aggressive multi-platform play with Newsy, focused on younger audiences. And now we're bringing to Katz Networks of national over-the-air reach into our company. All of these moves are part of our plan to tackle the future of media and find new ways to create growth and value. Now before we turn it over, open for questions, I want to thank Rich for his leadership and dedication to this company. And personally, for the wise counsel, mentorship and friendship he's given me over the years. Rich?

Thank you.

And now operator, we're ready for your questions.

Ladies and gentlemen, we’ll now begin the question-and-answer session of today's conference. [Operator Instructions] Our first question will come from the line of Michael Kupinski of NOBLE Capital Markets. Please go ahead.

Thank you. And first Rich congratulations on a great career and amazing run. I remember you calling upon me for [indiscernible] when you were a reporter and just a great clear job well done, I'll miss you on the calls.

Thank Mike. I circulated a letter from you to some of the folks here that I dugout an old file, just talking about some of the trips we take and the places we visit. I'm glad we could make the money for you over the years. It’s been great..

Really great, thanks Rich. I was wondering can you provide a little bit more color on the nature of your expense [indiscernible] television note that single digits for the third quarter.

it's [ph]:

And in terms of the syndication expense you haven't – the number is still coming down. I understand the cost in terms of the network comp, but have you comped the syndication because I know that you with your margins and your new programming and you're getting out of some of your more expensive syndication. I was just curious that that comp is actually still lower in terms of revenues, or in terms of expenses?

Yes Mike it is, when we acquired the Journal deals, Journal stations, a couple of years ago, they had a few years left, it varies by station on their programming contracts, but we've been able to as contracts expired bring the list and bring right this minute on, so that's been able to drive down some syndication expense. And then obviously as we look out this fall and beyond the launch of Pickler and Ben, that's 22 markets where we will be paying an outside syndicating cost will be controlling that with the development costs that we have for the shows.

Great. And as you cycle into 2018 do you have any thoughts about what that expense line might look like?

Syndicated or total expense Mike?

Total expense.

Yes I think you can expect just the network affiliate fees are going to continue to push that line. And so we’ll do a really good job of controlling all of our other expenses, music licenses our rating services, taxes, news coverage expenses, our ex-employee expenses. At the end of the day, as we trans grows and our relationship, our financial relationship with the networks continue to grow. I think you'll continue to see an increase in total expenses inside of broadcast because of the growing affiliate fees.

Got you. And on the Katz Networks, you talked about the growth opportunities largely coming from the transition of direct marketing to higher CPMs on national advertising, but does the growth opportunity to Katz also include the prospect of launching additional networks. I know that the company in the past expressed interest in Spanish language and maybe on a network it does the Katz provide a platform for other growth opportunities, or do you have – are we just to look at it from more of a riser in TPM basis.

No, I think you're dead-on. We're really excited about their leadership team, the big infrastructure relative to the people in Atlanta that have great experience in the network business and everything we can learn from them. I don't think you'll see us stop at fuller, we'll certainly have a lot of opportunity to generate a lot more profit out of the four markets as they continue to build, expand and mature. But I think they'll be opportunities for them inside of our own company and with two other things that we’ll launch together that will create additional value.

And I know that a lot of people talked about verticals on television and how things are looking. And I know that auto has been a category that's been a little choppy here of late and showing some maturity, but can you give us some thoughts on how auto is looking into the third quarter and maybe in another category retail.

Okay, so let me start with auto. We reported after auto was roughly flat first quarter we put it was down five in second quarter. I would just ask you to keep in mind that with the NBA finals having two less games we talked about the fact there was more than $2 million of revenue. Automotive would be the largest category in the NBA finals. And so the loss of $2 million, a good bit of that would be automotive, as well. So that minus five is not a true apples-to-apples minus five. Third quarter is going to be choppy too. I can tell you that we're seeing – we had a good first month of the quarter, but then we’ll go against the Olympics in August. And so I think again 17 days of heavy automotive, we expected it to rebound for September. But I think just because of that comp alone you can expect automotive to be down in third quarter. As for retail, retail is struggling, we didn't have a great quarter. We spoke a little bit about some of the categories there furniture, medicine, bedding, appliances, electronics were all down. I think one of the biggest issues was a year ago we had a couple of advertisers. I'll speak specifically to Amazon and e Bay. They targeted a couple of markets to do a test and it was more than $0.5 million, they kind of slugged it out with each other and now they're completely non-returning this year. HHGregg is out of business. So there are some pharma move around. So it's not like all the areas of the categories as much insider retail that's up and positive. But when you get almost a $1 million of non-returning accounts from just four accounts, that's hard to overcome.

Great. Thanks Brian, I appreciate it. Thank you.

Our next question will come from the line of Craig Huber of Huber Research. Please go ahead.

Oh yes so a couple housekeeping questions first. Since other line or other syndication line and now that you've sold one of the assets in there, what's the quarterly run rate for revenues maybe even profits on a go forward basis [indiscernible] please.

Yes Craig, this is Tim. We will probably have revenues in the – bouncing around depending upon the quarter as high as $2 million, down to sort of a $1.5 million to $1 million and could expect this syndication another this year will operate at a loss of a couple million dollars.

Okay. And then could you just update us on what you're budgeting as the company is currently configured for your CapEx for this year?

Yes we should be coming in somewhere in the $25 million range, maybe a little bit less than that.

Okay, thanks for that. And then Brian just back on to retail, would you mind just quantify for us the retail advertising category in the second quarter, how much that was down and I know you mentioned auto down five, then it might be two or three of the other top categories? What the percent change there was ad revenue in the second quarter?

they would [ph]*:

And would you say retail is 10% of the total? Did you mean 10% of the total broadcast revenues or 10% of ad revenues?

Of ad revenues.

Okay and also what’s your updated thoughts Brian where you think the TV station ownership cap may or may not be going here in next couple years? Do you expect any change there or do you think it's a status quo for a while?

I'm not sure exactly where the 39% cap will go. I am expecting that been between now and the end of the year there will be some changes to the end market rules, which potentially could be softened to allow less than eight voices or certain broadcasters to be able maybe only two, or three big four stations in a particular market. So I think that, I expect that to come before the end of the year. And I think that will be a significant event that between that and the reinstatement of the UHF discount have dramatic change in ownership even if the 39% cap stays intact.

Do you guys sort of think out here now you did this recent acquisition you announced earlier this week. Are you in a position right now where you feel the debt load you can't do any significant TV station acquisitions we get the debt load down or are you going to stretch here?

Hey Greg, it’s Adam. We actually don't think we're out of the market at all. I think, I said on Tuesday earlier this week nobody should read the acquisition of the Katz Networks in any way as a signal of ours to stay out of the market to be not taking a hard look at all of the opportunities. Particularly as Brian said, if there are changes in the regulation that allow us to potentially go deeper in the markets where we already operate.

Okay, thank you. And Rich enrich all the best [indiscernible] retirement.

Thank you Craig.

I'm sure we’ll be talking.

Thank you, bye, bye.

We have a question from the line of Barry Lucas of Gabelli & Company. Please go ahead.

Thank you and good morning. And Rich let me add my best wishes, as well. Don't want to get too maudlin, but it has been a good ride.

Yes. I’ll win for you and I. Barry I worked together since like Mike even really before this was a public company, so it's been a great run.

It has been fun. Let me come back to kind of capital allocation question and I don’t want to say echo Craig's inquiry, but if you think about investing, I guess, total north of $400 million in new businesses and looking at the P&L, it's really hard to get a grip on just how successful it's been, or where it adds value. So if you take a look at the existing digital businesses that you acquired, what – if you can drill down a little bit more I know you had video views and stuff like, but what's underlying in the economics that provides enough confidence for you and to investors that you're succeeding enough there that you can go out to the next new thing, if you will, into Katz. So some of the detail or color on what's going on kind of behind the curtain would be really helpful?

Sure Barry, first of all, as you know anytime we do an acquisition, we use sort of the standard view of making sure that like a value investor it’s going to provide a good cash on cash returns. So whether it's a digital acquisition or an acquisition of an additional local television station and even in the case of our most recent acquisition of the Katz Networks we're sort of modeling things in the same way. When we think about what we've done on the digital side, I think the thing that we're very focused on is ensuring that these businesses are on track to create value for the shareholders. During the during the third quarter and I think, the same – or during the second quarter and I think the same remain triggering the first quarter, those acquisitions came in with a growth rate of around 60% on the revenue side. So we're very confident that today we're continuing to see those businesses move in the right direction, understanding that we're making a conscious decision to reinvest the profits those businesses are spinning off back into those businesses to fuel continued growth. And I think that’s all in pursuit of the real value we know we're creating. So it's really around the same thesis, it takes some time with these businesses in order to ensure they grow to a critical scale where we're on our way there with Newsy at this point with distribution contracts for carriage with most of the major OTT platforms, these are contracts for carriage they are modest barriers to entry, not everybody is getting those carriage contracts and by the way we continue to see the OTT space grow and evolve as people are adding those services to news streaming services and subscription services to their compliment of media platforms that they use. The same is true with Midroll. We continue to see growth in the overall podcasting ecosystem and in-line with that we continue to drive up the number of downloads we're managing and the number of – the net effect of CPM that we're getting for the advertising. I think it’s just as important to share with you that where Midroll one upon a time served mostly direct response advertisers, which a new generation of direct response advertisers different from the one that Katz depends on, has built their business on the back of podcasting. Today nearly 50% of the advertisers Midroll is serving, are actual brand advertisers. And I think that's a harbinger of really good things to come as we see this marketplace evolve and big brands like Procter & Gamble, and Dell and AT&T moving dollars into podcasting, because they know they need to go where younger audiences are. And so finally, I think, that gives us the – watching those businesses evolve and tracking very carefully the growth on the top line, gives us also the confidence to understand what we expect of a business like Katz. Of course Katz is profitable today and we expect that to continue as we share with you the guidance earlier in the week for Katz. But all of these things follow sort of the same half and Barry as you described earlier you've been along for this ride for a long time with Rich having probably followed this exact same playbook earlier when the company launched HD TV, with probably some skepticism. And we all sort of know this week how that turned out for shareholders.

Alright, thanks for that. Maybe we can drill down just a tad more and you mention HD TV, so we had at the time probably a metric that was I don’t was 50 million cable households was kind of critical mass. So when you think about critical mass issue for those businesses, what are you looking at when do you get there?

Sure, we're looking at in much the same way, the Newsy platform. So we're moving today right now in the OTT space where subscribers is something that we track very closely and yet at the same time most of those OTT platforms are owned by major and the MBPDs and they themselves aren't disclosing those subscriber numbers and we're sort of precluded from disclosing them too. But as we continue to move into the platforms like Sling TV, Comcast's Watchable, we anticipate at some point YouTube TV, at the end of the day their growth is going to be critical to our growth. And we believe that growth curve is there and we're following it very closely. At the same time we're not satisfied to just merely depend on the OTT space, we launched our first couple of cable deals, traditional MVPDs last year, with some regional MVPDs and we'd expect to pursue more of that as well. From a product perspective, we also really keep a close eye on the amount of engagement the consumer is having with the product. And today on our linear service, Newsy is being consumed at about an average of an hour and seven minutes per engagement. So that's incredible engagement particularly for a younger audience around 25 to 44, that is turning Newsy on these OTT platforms and using the Newsy service to engage and get their news of the day. And on the ondemand side, we’re looking at an average of about 37 minutes. So again really high engagement for digital platforms and with Midroll it's much the same continuing to look at the downloads under management, how much are the shows that we own and operate being consumed and Stitcher by the way gives us very specific and unique insight today into the amount of content that our consumers are actually consuming. And I would say Carolyn mentioned earlier, our September 6 investors presentation in New York, I think, we’ll be able to give you a much fuller look at some of those key metrics. When we're together in New York we hope you'll – Barry you will join us.

Great, thanks. Thanks for that color Adam. I appreciate it.

Our next question will come from the line of Marci Rvyvicker of Wells Fargo. Please go ahead.

Thanks, I hope it is not asked, because you have a lot going on this morning. So Brain I just want to understand in the second quarter when we got the guide you were guiding to flat revenue, I thought that was without the Cavaliers going to the finals. So then when the Cavaliers got the finals, I know five games less than seven games will be a year-over-year decline, but I would have stopped you would have gotten incremental revenue from that. So would you be miss understand the Q2 would have been flat only if the Cavaliers went to the finals? We're just trying to understand of course actually be celebrated in the quarter.

Yes, I think, if we go back and look, the comments I made were that we would need the Cavaliers to get to the finals road in order for us to get flat.

Okay, alright. So I think that was the definition it did not sneak in. And then, I don't know how much you can really tell about the underlying environment in Q3 I know that there's a lot of moving pieces, but we keep hearing from companies things are getting better, but as we go through earning the numbers aren't showing us that things are getting better. I think you said excluding all the noise that core is up, is it up a tiny bit, is it up 2%, how do you feel about Q4, just anything to calm, I guess, investors so that they had something to hang their hat on with the ad environment?

Yes look good question. obviously we spent a lot of time looking at that. We do see core improving through the years so let’s just kind of walk through it a little bit. So in first quarter, our core was up 4.5. This quarter well we reported that it was down 4.4, there was a couple of million dollars in NBA finals that we left on the table that we had booked that we had a return because the game the series stopped that five games instead of going to seven, which was comparable to the year before. So it left over $2 million on the table. So at the end of the day if you just normalized the NBA, our core was really down about 2%. So it was down 4.5% and first quarter was down 2% in the second quarter, it will be up in the third quarter and it will be up in fourth quarter. And I think obviously with the political displacement and all it should build starting in September and increase in its percentage as we work all the way into November. So we clearly see a path by which each quarter on core is improving this year with the entire back half of the year up.

And then certainly a question again I hope this is not asked, I apologize if so, but with Scripps Networks Interactive time to Discovery, I think, we're getting the question has anything changed in E. W. Scripps to perhaps think about being a seller rather than a buyer and my [indiscernible] if the answer is no, you just bought some more assets, but if you could comment on that?

Yes Marcy it’s Rich. One thing is important, we don't speak for the Scripps family and we are here at the company. I think as you pointed out we're just sort of heads down working for the shareholders as evidenced by the deal earlier this week. However, I don't believe the [indiscernible] decision by the family should be read as any early indication of a path for E. W. Scripps Company.

Okay. Great. Thank you all so much.

Next question will come from the line of John Corrick with JK Media, please go ahead.

Hi. I really don't have any questions, I want to congratulate Rich on a great career. We've been together for a few decades. But I know why you really retiring and I'm going to reveal it right now. You just can't get enough of those exciting Cincinnati Red games.

Yes that's right, yes. It's a rebuilding year John. I've heard it on our newscast almost every night.

Good luck to you.

I'm sure I'll see you John. Thank you again, you're one of the ones on the call who we have worked together for long, long time, had a lot of fun.

And you rewarding and fun time kind of this couple of conflicts, but it's been a great run. Thanks so much.

Thank you.

Okay.

We have a question from the line of Kyle Evans of Stephens Inc. Please go ahead.

Hi thanks. Brian or Jim, maybe a brief update on your sub count and retrans.

Yes so, hey Kyle thanks for the question. We haven't seen a meaningful change in the number of our subs this year. And as far as our retrans goes, we're given guidance that we expected this year about 20% increase in gross and 25% increase in net. And we don't see any change in that at all.

Great. From a high level Rich or Adam, when is the last time you guys had a network take your affiliations from you?

I don't – this is Rich, I don't recall it has ever happened to us.

Okay.

We were obviously somewhat affected by standers [ph] in 1989 when world moved all the Fox affiliations at that time, but that was a different sort of transaction than what we talked about today. But we've been, over the years, we've not had anyone one...

Great. Rich, get on the tractor and ride off into the sunset.

Thanks, thanks.

[Operator Instructions] We have a question from the line of Dan Kurnos with Benchmark. Please go ahead.

Yes thanks and apologize I missed a little bit of the beginning here. So obviously a crazy day for everyone. Just to add on the high level, it’s actually the digital question, Q3 it's kind of sequentially a little bit better than Q2 and last year you also had seasonally high expenses in Q3. Can you just talk about sort of a going out? And as we head into 2018 generically and again if I missed your prepared remarks, sort of pace of play with growth in digital, how you feel about sort of individually still leading the way, distribution versus CPM increases? And I just want you to just start with that and then we can get to the expense stuff afterwards.

Sure. So you're right we saw the same seasonality last year in third quarter. We don't think it's much anything other than that. I think Newsy has incredible opportunity both to continue expanding distribution. Just yesterday we announced expanding on to another next-gen platform, which actually is a pretty impressive, pretty impressive play in major markets now. Level three TV, level three is another sort of DirecTV Now, a Sling TV like approach. And Newsy is actually the only next generation news product that level three is carrying and will continue to expand distribution. So I think there's growth is significant growth ahead for Newsy from the distribution and quite frankly from the growth of that space as more and more people continue to add OTT services to their compliment of media platforms that they use. CPMs on the OTT side continue to be very strong and Newsy continues to be at sellout levels, selling advertising anywhere between $30 and $50 CPMs. So we think we've got the makings of a very good business as we continue to go through distribution, brand building and the natural course of things with the market continuing to move in this direction.

Did you touch on in your prepared remarks what's going on with Cracked and Stitcher because I don’t remember if we’ve down them in a little while?

Yes so sure, so I did talk a little bit about Stitcher. Stitcher is doing the work right now, the engineering team is doing the work right now to continue to develop a new user experience and some changes to the service. So just as a reminder when we acquired Stitcher, it spent about a year and a half on the shelf under the French music streaming service Deezer. And what we really acquired – what we think was a very, very good deal was about nine million registered users. The number one service on Google's Android platform, number two on Apple and those fifty car integrations and actually we continue to do new integrations with OEM that positions Stitcher right in front of the consumer, negative on the dashboard. We've since also have been expanding into the new connected home platforms. We were actually featured in Apple's announcement of Home Pod during their WWDC keynote, and we're in the midst of integrations with Alexa and Google Home. So we're really positioning Stitcher as the podcasting app and service, we think that will sort of ride the wave of the fast growth that podcasting is receiving. Young people are constantly listening with ear buds in their ear to both music streaming and podcasting. And Stitcher makes Midroll a content creation, monetization and distribution service. We believe Stitcher actually injects a lot of leverage into those first two components. So we're going to show a lot more about the role Stitcher plays with respect to Midroll’s growth in September at the Investors Meeting. Cracked continues to focus on serving their loyal audience with humor and satire. It was impacted in the beginning of the year with slower than expected programatic advertising at the same programatic advertising, Dan I think you and I talked about. But that’s rebounded since. And we're on target now to launch three new podcasts later this year. One of them is focused on the personal experiences space. And I feel really good about those shows. And we recently, we launched the e-commerce business and Cracked’s loyal consumers buying now merchandise. I think that for a little while that we had sort of taken that down, it's been recently re-launched and that's beginning to get traction. So we continue to see a lot of upside ahead for Cracked as well.

Got it. Alright, thanks for all the color. Adam and Rich obviously best of luck to you going forward.

Thank you.

Our next question is a follow-up question from the line of Craig Huber of Huber Research, please go ahead.

Yes hi. Just want to get some better clarity if I could, in the digital segment in the second quarter, can just kindly breakout the percent change in revenues for the local websites first then national?

Sure, our local businesses grew around – sort of above 10% on the local side and the national businesses grew around 60%.

And then within that – you said 60% right?

Yes.

In the acquisition, okay. Within the national can you just – I don’t if you're willing to do this, but just give us some sense on the percent change revenues of your four main digital properties there?

Yes Craig, I mean as you know we don't break those out for sort of obvious reporting reasons.

Would you mind just rank – who did the best the quarter to the worst?

I would say that we were – that the growth the 60% that growth was pushed furthest ahead by growth at Midroll and Newsy with Cracked rounding out the other side.

Okay and then over on the TV side Brian, what is your outlook for your TV retrans subs here in terms of the growth or lack thereof just say the next two to three years do you expect – you can put aside the OTT offerings see that could hold that flat or do you guys forecast down 1% to 3%? What are you budgeting, I guess?

Yes, so as we said before, Craig, we haven't seen any meaningful change in the number of our subs. And part of this is due to the geography that we have, right. So we've got some good markets where people are moving into. You see the same trends nationally that we do and those same numbers. Are we going to be insulated from that forever? I don't know the answer to that question. But we haven't seen any meaningful change yet. And I really like the markets that we're in, they’re good growth markets and that's allowed us to stay where we are.

And I would just also add to that, that while we haven't seen a meaningful change in our markets, the beginning of the launch of all these OTT services that we have contracts, we think at least on the short term, based on the stability of our markets, could provide the opportunity for people [indiscernible] of our markets, could provide the opportunity for people having secondary sources of devices inside their house that they're paying for. And we would have the opportunity potentially monetize some of those houses twice. So I think we may be through a period of some level of protection.

Great. Thank you.

No further questions in queue at this time.

Thanks Steven. So just to sum up, the acquisition of four fast-growing, audience-targeted, multicast networks with even more revenue upside, core advertising growth in the back half of the year, a strong political advertising year ahead and double-digit retransmission revenue growth for years to come, a healthy broadcast industry regulatory and M&A climate, and nearly 30% digital division revenue growth, driven by our podcast industry leader Midroll and our national news network, Newsy. Thanks so much for joining us today and we hope to see September 6 for our Investor Day. Take care

Ladies and gentlemen that does conclude today's Scripps second quarter earnings call. We like to thank you for your participation, we also like thank you for using our service. Have a wonderful day. You may now disconnect.