The E.W. Scripps Company (SSP) Q2 2018 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Scripps Second Quarter Earnings Call. [Operator Instructions] This conference is being recorded. Now I'll turn the floor to Ms. Carolyn Micheli, Vice President of Investor Relations. Please go ahead.

Thanks, Paul. Good morning, everyone. And thanks for joining us for a discussion of The E. W. Scripps Company's second quarter 2018 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. 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 there. A link to the replay will be up this afternoon and available for a week. We'll hear first this morning from Scripps President and CEO, Adam Symson, then Chief Financial Officer, Lisa Knutson; Local Media President, Brian Lawlor; and National Media SVP, Laura Tomlin. Also in the room today is, Controller and Treasurer, Doug Lyons. Now, here's Adam.

Good morning, everybody. As you know, over the past years we've laid out a comprehensive plan for Scripps to improve its short-term operating performance while positioning itself well to create long-term value. Today I'd like to give you an update on our progress with the plan and the tangible results we're realizing. Before that though, I'd like to touch briefly on two other topics. First; Scripps was honored recently with three Prestigious National Edward R. Murrow Journalism Awards, the most in one year in the company's history. KMG and Denver, WEWS in Cleveland, WTVF in Nashville, won National Murrow's in the category of hard news, sports and excellence in sound. In addition, KNXV in Phoenix is a finalist for two national Emmy Awards. These are nice testament to our continued focus on quality journalism and our commitment to being a company of mission as well as to the high level of service Scripps provides to all of its audiences. Now let's turn to our strong companywide second quarter results. In local media, we blew away the expectations for our political advertising revenue as we saw competitive elections emerge in markets across our footprint. We also saw retransmission revenue beat our expectations as the number of over the top subscribers began making a meaningful impact. In National Media, we saw robust revenue growth from all of our business including the Katz networks, Newsy and Midroll. We were pleased to see the whole company contributing to beating expectations and Lisa will talk more about the specifics in just a moment. Turning now to the bigger picture, the momentum continues with our transformation strategies. Meaningful cost reductions, the pursuit of TV station swaps and acquisitions, the sale of our radio assets, growth in our national businesses and the reorganization of the company to focus on short-term operating improvement and long-term value creation. Our corporate cost cutting plans are well ahead of schedule and we've been moving quickly to realize savings. Lisa will give you more detail on the progress to help you with your models for this year and next. Our television station acquisition strategies continue to evolve as quickly as the regulatory landscape. Seemingly changing on a near daily basis. We're positioning ourselves well to cease opportunity, we still believe in adding second big four stations where possible and we also see the value in participating in a way that brings on additional scale. My message ought to be clear enough, as we've said before don't count Scripps out as a buyer. We're well ahead on our way to divesting of a radio station group. We've made announcements on the sale of seven stations so far including our largest station, WTMJ AM in Milwaukee. I'm pleased that the running total today stands at about $28 million and we expect to make announcement soon on the remaining 27 radio stations. The businesses in our national media segment are growing quickly. Aside from Katz growth of more than 20%, the other national businesses were up 63%. This is the growth we expect validating our continued investment in the long-term value we see ahead. We've been pleased with the performance of the four Katz networks, these are the nation's leading multicast channels. Each serves more than 970% of US households at a time when more consumers are turning to over-the-air broadcasting that in any moment in recent memory. And in fact, Katz' is attracting network-sized audiences for its cadre of brand and direct response advertisers. The year-to-date revenue growth and Midroll and Newsy is directly tied to the investments we're making in them. And just like scale adds value in local television businesses we're focused on building scale in these fast growing national brands. Last year we kicked off our plan with a companywide restructuring effort in support of more effective and efficient operating philosophies. Today whether it be through this morning's earnings or through our strategies to deploy capital. You should have a good sense of this company's urgency. We're realizing the results of improved operating performance in our strong, stable, local businesses and see significant growth and value creation ahead international businesses. This reorganization work as well as our cost cutting will help us toward our margin improvement targets for 2020, when we expect cash flow from operations to grow more than 40% over 2016 and margin improvement of about 400 basis points over 2018. And just a reminder, that those targets do not take into account any upside from TV station M&A. As we move into the back half of the year, we see significant opportunity in the local broadcast industry. A dynamic political landscape continued growth in over-the-top households. The promise of automated advertising to drive greater national dollars into our local stations and of course the potential for M&A. today because of the foundation we're building with our transformation plan, Scripps is poised to capitalize on all of these opportunities. Now here's CFO, Lisa Knutson.

Good morning, everyone. We're pleased to be presenting strong financial results across both segments in the second quarter as well as improvements in our short-term operating performance. I'll start this morning with our second quarter highlights then discuss our cash on hand and some color on CapEx. See today's press release for second quarter historical tables that have been adjusted to our new segment reporting. In our local media division, second quarter revenue was up nearly 6% compared to the second quarter of last year. That includes 3.4% growth in broadcast time sales driven by higher political advertising dollars. Our political advertising revenue for the quarter was nearly $15 million which is more than twice the amount we received in the second quarter of the last mid-term election in 2014. A retransmission revenue for Q2 also exceeded our expectation. We saw a [indiscernible] jump in subscriber base on over-the-top television platform which drove a 12% increase in our retrans revenue compared to the 10% in our guidance. Brian will provide more color on our political performance and outlook for the third quarter and give commentary on our pay TV sub count. Expenses for local media were up less than 5% mostly driven by higher network programming fees. Turning to the National Media division and just a reminder, it includes the results of the Katz broadcast network, our national network Newsy and our podcast businesses Midroll and Stitcher as well as few other businesses with national reach. Second quarter revenue for National Media was more than $68 million and that includes $47 million from the Katz networks, $10 million from Midroll, $6 million from Newsy and of course I'd like to point out the division revenue was a nice feed of our guidance of low-to-mid $60 million range. Division expenses were $66 million, the increase over Q2 of 2017 was primarily driven by the acquisition of Katz networks completed in the fourth quarter of last year. Second quarter segment profit of $2 million for the National Media, markets third consecutive quarter of profitability. Turning to our ongoing corporate restructuring, we incurred a little over $2 million of cost in the second quarter and about $6 million year-to-date, we expect modest charges for the rest of this year, the largest were in the first half of the year. And regarding our restructuring, I'm pleased to say that we're ahead of schedule on realizing our planned cost savings. We have said we expected to realize $10 million of savings this year, an additional $20 million in 2019. We're now expecting $20 million of savings this year and $10 million next year to reach our play $30 million and annualized cost savings by the end of 2019. For the second quarter, income from continuing operations was $8.7 million or $0.10 per share including the impact of restructuring charges. On June 30, our cash totaled to $126 million and net debt was $567 million, we're on track to bring our leverage below by three times by year end and of course this is in the absence of any M&A. On June 25, we made dividend payments totaling $4 million. Our board's initiation of dividend last winter is part of our continued commitment to returning capital to shareholders. Finally in the second quarter, we again had capital expenditures related to the SEC repacking process. Year-to-date about $10 million of our $26 million in CapEx is repack cost. We expect these costs to be reimbursed fully by the federal government. Now here's Brian Lawlor to discuss our Local Media results.

Thanks Lisa. Good morning, everybody. First I'll start with our growth in political time sales then the outlook for this political advertising year. Our rising retransmission revenue driven by our growing OTT viewer base and update on Pickler & Ben and then finally some growth at the Katz networks. On the Local Media advertising front, we saw a healthy 3.4% increase over the second quarter of 2017 in our local, national and political advertising volumes. Our $14.9 million of political advertising was the big driver of that growth and as we've set off and will take that higher margin money any time. The level of political ad revenue for Q2 was about twice what we told you we expected back in May, which was consistent with the $7 million pro forma revenue we did in the second quarter of 2014. We saw strong political spending in our three Florida markets due to the US Senate race there. In San Diego because of two highly competitive congressional races and in Nashville because of a local special election, the US Senate race and a competitive Governor's race. We also have active primaries in Oklahoma, Indiana and Ohio as well as early third quarter primary spending in Florida, Phoenix, Las Vegas and Kansas City. Based on our second quarter results, we think we have the opportunity to exceed our third quarter 2014 political ad revenue of $21 million by more than 20% in the third quarter. In addition, with some political displacements our core advertising in the second quarter was challenged by the loss of one NBA finals game compared to 2017. The Cleveland Cavaliers of NBA finals in each of the past four years going seven full games in 2016. Since then a $2 million have been taken out of our core revenue in each of these past two years as they played fewer finals game unfortunately with LeBron James leaving. It now looks like the Cav's championship could be done for a while. It's been a heck of a nice run for us. We now become big Pistons, Suns, Nuggets and Pacers fans as we hope one of them can began an equally strong playoff push. Among our core key categories automotive showed decline similar to last two quarters, while the other two of our top three categories services and retail, once again showed year-to-year growth. Services and retail are important categories because they speak to help [indiscernible] spending their discretionary income and to the health of our local economies. In addition to our political ad revenue results, we also had good news on our retrans revenue. We had told you last fall that the growth in the over-the-top subscribers were coming and revenue from those growing households is now flowing in. Our subscriber numbers are current as of March and at that time, we were at about 500,000 OTT subscribers. Including these subscribers our pay TV sub count has remained steady from last summer through this March, 2018. We had guided to about 10% increase in retrans revenue and our actual results of up 12% reflect the impact of these new OTT subscribers. Turning to our original programming initiatives, we have good news here as well. Our daytime lifestyle show starring Kellie Pickler and Ben Aaron will launch its second season this September in about 170 markets across the US. Pickler and Ben joins two of our other original programs right this minute, which is in about 95% of the country and The List, which enters at seven season this fall. These successful shows help us provide our viewers with quality, family friendly programming. All of these shows have gained tremendous traction with our viewers. And my last piece of good news, is on the Katz networks as you'll remember although Katz results are in National Media, the business reports to me. When we closed on the four multicast networks last year. We told you, we expected them to produce high-teens revenue growth. So we were very pleased to see their second quarter revenue up 21% on a pro forma basis. The strategies for their success are straightforward growing the audiences they're delivering to advertisers, increasing advertising rates as they attract more general marketing advertising brands and expanding their national distribution and reach. The Katz' team knows how to deliver and we've been very pleased with their performance. And now here's Laura Tomlin to discuss the rest of the National Media division performance

Thanks Brian. Good morning, everyone. In addition to the strong performance we've seen in Katz. We had exceptional results from the other businesses in the division including more than 60% organic revenue growth. Our revenue performance validates the work we're doing to position these businesses for the greatest growth and profitability. Let's start with Newsy, during the second quarter Newsy continued a strong traction with views on over the top television services. Newsy is almost fully distributed on OGT [ph] and it's a natural fit there because of its appeal to a younger audience and really anyone who's thinking context and perspective instead of opinion and argument. About 85% of Newsy second quarter revenue came from these OGT [ph] services driving it's nearly 100% growth. Newsy is also ramping up its distribution on cable and satellite and we now have signed contracts covering 38 million subscribers. We're nearing our goal of 40 million subscribers by the end of this year and are just beginning to capture the revenue opportunity from cable as Newsy's programming starts to go live on these platforms. Programming partnerships with prestigious media organizations such as the New York Times allow us to produce high quality journalism that has resonance and impact with our audience and without the typical cable news cost structures. Turning to podcasting, we've been thrilled with Midroll and Stitchers revenue performance growing 50% year-to-date. As the podcast marketplace continues to grow, others are catching on to what we already knew, that consumer engagement with podcast is accelerating and advertisers are following. Fortunately Midroll is well established with advertisers and is positioned to grow aggressively along with the industry. Several of our blue chip advertisers including Procter & Gamble and Coca Cola place new ad buys with us in the second quarter. We're seeing an influx of new brands as well as strong renewal activity. In July, we expanded our content catalog with a Freakonomics radio podcast which has a large loyal audience. Freakonomics is getting more than 12 million downloads per month and consistently ranks as a top performing show. This show also offers content that is only available to our premium subscribers. The subscription business is growing rapidly and we continue to learn what content appeals to our listeners and deliver that content to them. Shows like Marvel's Wolverine: The Long Night are receiving critical acclaims and attracting large audiences. And are certainly driving subscriptions to Stitcher premium. But the fact is, it's not just the future driving growth in our premium business. Its dozens of shows. Three years ago we were serving up about 20 hours of premium content. Today a podcast [indiscernible] about 20,000 hours of ad free content. For which they're willing to pay us about $5 a month. Midroll and Stitcher are powerful combination that allow us to grow our leadership position in the podcast industry. Katz, Newsy and Midroll are all executing their plans and growing revenue with an expanding media ecosystem. Multicasting, over-the-top and podcasting. These businesses are capturing greater market share and are in times feeling the divisions margin expansion. The year-to-date financial results for all three shows solid progress toward our goals. And now operator, we're ready for questions.

[Operator Instructions] our first question will come from Curry Baker with Guggenheim Securities. Please go ahead.

On your 3Q political guidance, can you say if you're biased more towards the upside of 20% plus, over the $21 million pro forma number for 3Q, 2014? It seems like based on your year-to-date numbers for political. It's pacing pretty hot. Is there also anything that you guys can share at this point us to your fourth quarter expectations for political? Can you add any color as to what you've seen to-date as to where the political strength is coming from in 3Q particular states, races, issue, money, all of the above, thanks?

Curry, its Brian. You got a lot there. Obviously we had a really good quarter and second quarter with our political double, what it have been four years ago which has led us to put out a pretty optimistic number of plus 20% for third. Obviously we haven't yet forecasted fourth and I think you're right, is there a change to go over 20% and get some run absolutely. At the end of the day, it really is going to depend on how these primary's end up, at least we got a couple big primaries in the third quarter and then most importantly what stays competitive. So all the way through fourth, if our races can stay within a couple points of each other. I think we have real good opportunity for very strong year. As we saw in 2016, though if some races start to move between five or six points in any given state that money moves. The outside money moves to other markets where things remain competitive. Right now we're really well positioned. We have 12 senate races and as we look at it about seven of them. We think are really competitive. Arizona and Tennessee are open seats, so those are, how they contested. And then Nelson seat is up in Florida, McCaskill seats up in Missouri. Donnelly in Indiana, Heller in Nevada. All of those are very active as well as Sherrod Brown seat in Ohio. So seven very active races right now for this senate and if they stay close, we think they'll be well funded all the way through. But there's always the chance that one of these two starts move five, six, seven points difference. There is enough across the country, that money then moves to closer more competitive races. On the Governor's front we have 16 races, really seven of them again. Are very active at this point. Five of them are just toss ups. Four of them, Florida, Michigan, Nevada and Ohio. There is no incumbent, so they're open and then the Iowa race with Reynolds a very competitive. Real seven open seat in Colorado and Scott Walkers seat in Wisconsin is going to be very competitive. So in the senate and governor, we have seven really competitive races in each. And then just handicapping the house because currently lastly I checked a little over 100 congressional districts considered competitive. I think that will shrink. I don't know 65 to 75 somewhere, but even if it shrinks to that, that's double the last two cycles. So what we're seeing right now is the NRCC, the DCC. They're well-funded. They're laying in base buys. Toward the election kind of early fourth quarter. We're also seeing a high level of new third party super packs come in. so I think we're expecting those final ballot [ph] ground districts to be identified by late September and then I think we'll have a real good feel. At this point, 100 races that are really competitive we are in over 20 of them. So I think our footprint is really good, but at the end of the day. I think our biggest market as I just look across with all this activity going on. I think Detroit, Las Vegas, Tampa and West Palm will probably be our big four political markets. Tampa really looks. Tampa and Las Vegas looked to be very active, all the way through the end. So I know you asked you a lot, I think I gave you a lot. You get everything you need.

I think so, appreciated.

Okay, thanks.

Our question from John Janedis with Jefferies. Please go ahead.

Adam, maybe a couple for you. First, you alluded to some of the uncertainty for the industry from a regulatory or business practice perspective to some extent I guess. As a potential buyer [indiscernible] does it impact your strategy or your timeline and have solid change in their mindsets as well?

I don't think sellers have changed their mindsets. We've obviously seen a couple of deals announced, the potential for others. I think have come to the forefront. Obviously everybody is waiting to find out what happens with the Sinclair-Tribune deal to see sort of how that effects the overall ownership landscape. At the same time, we've had this backdrop of some decisions by the SEC as well as the courts since we last talked on an earnings call. And so we've tracked very closely both the regulatory environment as well as sort of the M&A environment from the perspective of the number of players and which players are out there and potentially available. And we continue, I think we've said this management team has said for a long time, we see the potential value in adding scale to our portfolio and for the right opportunity I think we'll be very interested.

Okay, thanks. And then maybe separately. I think you were early in terms of having a positive view on OTT contribution and I'm wondering anecdotally if you can give us some color around what you're seeing from the subs either there's a region of focus, are they new to the multichannel universe and I guess, do you think sub losses could be remade at this new level. And then also can you remind us of the OTT sub number from the December quarter?

Yes, Lisa can you give you the numbers from December.

About 400,000. 350,000.

350,000.

350,000 last time we talked. Just I want to Brian to give a little bit more color. The only thing I would say is, we'll be tracking closely as I'm sure, you will. The MVPDs announcements. I think DISH [ph] reported this morning. It seems like we're seeing a stabilization on the overall MVPD side. There'll continue to be I'm sure some churn, but what we're seeing that Brian can you talk to you about on the OTT side. I think provides us a lot of optimism overall about the Pay TV ecosystem.

John, its Brian. Going back to really when this all started at the beginning of 2017, at the end of 2016 to now. Our total net subs are only down about 2%. So I think MVPD subs are probably down about 5%, but we've been able to convert as we said about 500,000 of these subs now to OTT subs. I think it's really important as I said in the script [ph] that since last summer, all the way through now we haven't seen any net decline. So anything, anyone that's transitioned from an MVPD, we now see connecting to a virtual OTT product. So I think we're seeing stability, it doesn't mean that we won't see some sort of slow decline, but since the beginning of this process, a year and half ago over 60% of the people have cut the cord have transitioned to OTT subs and we see that percentage increasing overtime to I think now more and more people are getting comfortable with that product and they're choosing to leave the MVPDs but move right over. Again I would just remind you that the net economics are as consistent for us in the OTT space as they are in the MVPD space.

That's helpful. So Brian do you then assume going forward that, that this is sort of new sub level run rate of close to flattish versus down a bit?

Look I think it remains to be seen, what I don't think is, there's going to be a dramatic decline that isn't going to convert over. As I said, last nine months we've seen really a 100% conversion if you look at the whole thing. It's over 60%, I don't know I guess I'm thinking moving forward somewhere in the 75% to 85% conversion rate that seems to be kind of where the trend is now.

Great. Thanks so much.

We have question from Kyle Evans with Stephens. Please go ahead.

Brian, I know this is a tough question but can you take a stab at what you think the displacement was in the 2Q numbers on local core and then kind of looking out what you expect out of this mid-term cycle?

We did have a couple of very active primaries in Q2. So we put that number somewhere between 25% and 30%. I think it will grow as we move through the cycle probably in a more toward 40% going forward even in some markets it will surpass 50%. But I think as I look to Q2 and model things out, looked at where the pressure was from the market. I put it in the 25% and 30% range.

What's your outlook for auto for the balance of the year?

Auto looked a lot in second quarter like it had for the two quarters before down mid-teens. We actually are seeing third quarter better than that. So look I don't think it's going to get flat or grow through the year, especially with the displacement I think it's going to be a challenge. But July was better than the last couple of months before that and August was pretty good too. So I think we're seeing a little bit of improvement. A lot of our decline really it had to do with, well really one company [indiscernible] about 60% to 70% of our decline, really was attributed to their shift and brand strategy. I think overall as I'm looking at the auto sector year-to-date car sales are up about 2%, June was good up 5%. SARS [ph] pacings it's about 17.5, so the sector seems to be okay. I think some of the brand shifts and maybe some strategy shifts relative to staying away from where they knew they would have some pressure of clearing good schedules on the auto or having an impact on the political or having an impact. So I think the fact that we're seeing some improvement maybe things are selling out, but because of a displacement that will have a hard time getting good clearance bunch of the market so I think we'll see down for the rest of the year, but we're starting to work with big brands now that get a better feel for what their strategy is going to be for next year and I'm hoping to look a lot better.

Great and one last one. Impressive sequential growth in Katz [ph] and you listed kind of audience growth rather than ad rates and better distribution or reach across the country. Can you kind of unpack those and I know that's hard to do, but it's growing better than 20% and it looks like on track to become a quarter revenue, so I wanted to have in there and maybe also seasonality in that business as well?

It's Brian again, I think they all work together. I don't really think that there's one thing that I can point to Kyle that says this is the reason for the growth. I think distribution is key, all four of the networks are now distributing over 90% of US households. They continue to renew partners on long-term contracts [indiscernible] through 2024 in the most recent quarter. Ratings are critical and so we're seeing ratings growth, that significant double digits in many cases, their primetime viewing and their overall viewing of Q2, 2018 versus Q2, 2017. They're doing obviously very well in the upfronts, they're wrapping up their cycle now. But I think once those numbers finalize, we'll have a good story for you. So I think you're seeing distribution. They're full distributed. Their ratings are growing and as a result of that, they're able to convert more of their clients to general market. They're able to push DR to hybrid DR and so I think, they've got a process here and it all works together and it's all having been very successful. Kyle, I just want to point out one thing. I think you were trying to put all the pieces together for your modeling as you were looking asking me the questions about core earlier. So I talked about what my displacement numbers look like, also keep in mind that our tabs, our performance was down about $1.7 million having one last game. So in 2017, we had five games. We did about $5.5 million. This year we had four games and we did $3.8 million. So if I look at that $1.7 million, I also take in 25% to 30% displacement. I had core as I see it somewhere between down one to two.

Thank you.

Question from Marci Ryvicker here with Wells Fargo. Please go ahead.

Just going back to core, given the displacement is going to continue into Q3 and Q4 as political ramps up, should we expect that negative six to either stabilize at negative six or go down a little bit each quarter?

Marci, its Brian. Look I don't know, I think it will change market-to-market, the market is where the pressure is, it will probably be greater other markets where there is less pressure, probably won't have as much of a decline. At the end of the day, honestly we just manage everything to the best of the opportunity and I don't really worry about, if some things a core dollar or a political dollar. I'm going to take the best dollars where we can maximize our opportunity and obviously that's served us well in the quarter with us - total revenue being up six but the spot, the ad sales that we sell were up 3.5 and I think we'll be doing the same thing. I think we're well positioned to cease the opportunity on the political and if those races they're hot, we will be taking advantage of those higher rates and the pressure there. But if they're soft, obviously that will take advantage of the core, so we really balance altitude [ph], so I think, I can't give you an exact answer because it's really going to depend on the political. The politicals hot minus six will probably grow, if the political isn't, the quarter will improve.

Okay and then going back to OTT. The 500,000 where are the bulk of the subs coming from, is it one virtual MVPD that you're getting the bulk of it or is it distributed throughout any color, that would be helpful?

I think there's three or four that are gaining traction, you got DirecTV now that's doing well, you've got YouTube TV.

Hulu.

Yes, Hulu is doing well so, there seems to be three or four and Sony, those will probably be the four that are really distancing themselves from everybody else at this point.

Okay and then the last question I cannot remember if you've told us what you're going to use the cash for from the radio station sales?

Marci, its Lisa. We've said in the past that our number one priority is TV station M&A, we believe that by year end borrowing any use of cash for TV M&A, our leverage will certainly decline by year end but that's really what we've earmarked our cash for.

Thank you.

We have a question from Dan Kurnos with Benchmark. Please go ahead.

So couple questions here, maybe I guess for Brian or anyone else that wants to jump in on this. Obviously you're not going to see the major benefits of this, with all of the displacement now, but you guys have talked pretty optimistically about the National Programmatic initiative launched right over in the back half of this year. So can you just talk about, what you're seeing there, what your expectations are and how that has an impact on the numbers? And then Adam to ask sort of the M&A question in maybe a different way, obviously we know that CosCis [ph] might be interested in selling? Are you willing to take a stab at a transformative deal, if one makes sense for you or is it still you know, is there kind of an upper balance to leverage and it's still really, we'll be aggressive but maybe we'll make several ones and twos, but nothing of that drastic of a nature.

Good morning, Dan. Over the long history of this company. I think the company is been willing to always seek transformation in one way or another and I would say that we feel no different today. So I'm - you've known me now for several years I'm not particularly an incrementalist [ph] and feel like if there's an opportunity to significantly add scale to our local stations portfolio, enhance the durability of our Group, improve the margins and cash flow, we would absolutely take advantage of that in this window of opportunity that we see. Brian?

Dan on your question of programmatic and really, I think what you're describing is the advanced automation and the automated buying. I think we've been one of the early adopters, we've talking about it for probably two years, I think we've been a good partner with many of the agencies as they've begun to test and move into that space and we had set up some early systems to be able to seamlessly execute that. Last year, I think we've placed somewhere around $10 million through the automated platforms much of that was partnering with agencies to test. I think we're now in a very good position to continue to advance that as more of the agencies we're talking about are continuing to work to transact their first buys through an automated platform and we continue to believe that there's going to be a lot of momentum over the next 24, 36 months as these new systems are perfected. We think this is a really efficient way to interact with our stations and we're hoping that overcome some of the challenge of the manual process of buying local media that this can bring dollars back into our local market place.

Great and then, if I could just ask one other OTT question, but more related to the Newsy strategy. Brian I appreciate the color obviously on all the MVPD stuff or sort of the traditional OTT. Is it kind of the small channels that you're seeing strength for Newsy or are there other channels that are more efficient at driving sub uptake or viewership of Newsy.

Dan, its Laura. I think we certainly see a lot of the same uptick from a lot of those platforms. I would say that a good percentage of our audience right now comes from Roku. And that's one of the platforms that we benefit from really nicely right now.

Got it. Thanks for all the color and just for what it's worth Adam. Good job, kind of rewriting the narrative here and getting this thing moving again.

Thanks very much Dan.

You have a question from Michael Kupinski with NOBLE Capital. Please go ahead.

I want to go back to Katz for a second. I was just wondering if the revenue growth was coming from maybe your more mature networks or is it coming from the developing ones. In other words, what is the variant is it coming from the developing networks and is it gaining distribution there or just the conversion on the advertising side?

Mike its Brian. Look we're seeing growth in all four networks are growing their revenue. Bounces the one that is our most mature and to this point most successful, it has the best transition with general market advertisers and as a result of that, add [ph] a little higher CPM because of the way that building - that business is transacted. Our success in the upfront and scatter on that continues to drive balance. Grit's got a ton of traction kind of adjusted the strategy to really be about westerns and our ratings were up double-digit over the prior year, so both that and Escape are doing well. Quite frankly the one that we launched most recently Laff which we just started rating a year ago, it was - the ratings were up 50% year-to-year. It's distribution is at 93%, that one is gaining a lot of acceptance in general market, now it has a lot of run room to go, but you're seeing a lot of growth in all four networks but I think while Bounce continues to really be the leader, all three of the others have traction and Laff has a lot of traction.

Got you. I know that when you purchased Katz and indicated that, what you thought the company would do in the first year in terms of revenue $180 million, $30 million cash flow. Can you update us on what your thoughts are for Katz at this point?

Yes, I think we're on plan. So they're delivering on all expectations that we had.

Okay and in terms of Midroll, at what point do you throttle back the level of investments with that company and return it to profitability. And I know that in the presentation I think you mentioned about cheating goals for the business, but I'm not sure what those goals are. Can you kind of explain those?

Mike its Laura. Midroll is performing really well. I mean if you look at our growth 35% over last year, we're in an industry that is growing immensely and so we're going to continue to invest now to capture growth for the long-term and really create value for the enterprise. So I would tell you that I don't see throttling back anytime soon. We do manage and track a lot of key performance indicators like how many people are listening on our Stitcher platform, how general market advertising is growing, we track CPM. So we do a lot of internal tracking and KPIs. If for some reason those KPIs start to lag, then we'll make it really - we'll make a decision and think about how much it might continue investing that, but there are no signs of that right now and I think we're just posting the head on - with this business.

Got you, but in terms of like the benchmarks, what can you look for in terms of when there is the opportunity for you to throttle back. I mean like is it, I know that you've been adding a significant amount of content in growing that. But are there certain benchmarks, we can look for.

I mean I think we track a lot of internal benchmarks that we don't share publicly, but I would tell you, I don't see any reason that we would throttle back right now more and more listeners are coming into the space, more and more advertisers are placing buys in the medium. So there would be no reason to throttle back on something that can create great long-term value and significant growth.

Mike, let me just add. I mean the term throttle back would be something we would employ if we were not achieving the growth targets we're seeing. At this point, the industry is expected to grow to between $1 billion and $2 billion Midroll is the leader in the industry. We're meeting all of our expectations on revenue growth, we continue to extract greater share of year every quarter and I can't imagine why we would want to throttle back in such a fast growing industry. I would say that the best metric to track right now is revenue growth and if you see us suddenly throttling back our investment I think that's a good indication that we're not meeting our own expectations. So as Laura said right now, full steam ahead because we see significant value. This business will cross into profitability at the point where it's - where the revenue is eclipsing the expense, not where we start cutting our way to profitability.

Got you. Thanks for the color. I appreciate that. Thank you.

Question from Craig Huber with Huber Research Partners. Please go ahead.

Just few questions. We figured start with your goal here, [indiscernible] $30 million of annualized cost that come out of the system here. Can you just give us some extra color, where that's coming up - mostly at this point labor force? What sort of departments are stuff [indiscernible] just across the board? My first question.

Craig its Lisa. So just to be clear $30 million of annualized savings over the next two years and in my prepared remarks, $20 million of that will now be realized in 2018 and $10 million in 2019 to realize the full $30 million. A vast majority of the cost savings are recognized in the segments and the remainder at corporate, so that gives you a sense of the where the dollars are coming from. As you said, a majority of the cost savings is coming from employee cost and really it's about centralizing, hubbing [ph], finding better ways of being more efficient and in some cases just doing more with less people. So hopefully that answers your question and I'd be happy to give you more color, if you need it.

While I have you also appreciate that. The uptick in the pension expense and it was a small number here, but is that just one quarter blip or is it, we should expect that in the fourth quarter as well?

One quarter blip really just for second quarter.

Okay and then you've talked about your appetite - here to buy more TV stations. And as I sort of look at your companies debt leverage, it looks to be on a roughly about four turns of leverage taken it to your average EBITDA estimate [indiscernible]. Your company historically has been very conservative [ph] to this balance sheet. I think in terms of debt ratio [indiscernible] upper end has been historically and so if you're going to go on, make a move here and buy more TV stations. Where do you start getting that comfortable in terms of the debt ratio? I mean would you be comfortable at 5, 5.5, 6 times or is that way too high in your mind.

Yes, I guess I would answer in this way first of all there is all sorts of creative ways in order to effect the transaction. The second thing I would say is, deploying capital into businesses with a clear path to deliver is a primary concern for us. So I think that without sort of changing our ethos in being a whole [indiscernible] conservative balance sheet. I would say, we think that there is opportunity ahead without changing the ethos and while maintaining financial flexibility.

And then thank you for that. And then Brian, you talked about auto, just remind us what auto did in the first quarter. It sounds like in the third quarter you don't think it's going to get flat on year-over-year basis. You blame most of it on I guess on Chrysler [ph] do you have early read on the fourth quarter or that just too far out in your mind?

Fourth quarter is too far out, Craig.

What was in the first quarter? What was that rate of decline? If I remember it correctly, I think it was last time what you saw?

No it was mid-teens. Second quarter and first quarter were really similar.

Okay and then Brian, when you look at your sort of guidance here for the third quarter, and you kind of strip out political, your retrans outlook and stuff. It looks like the core advertising number flat and be down 4% or so, in the third quarter year-over-year, is that you're sort of thinking? I [indiscernible] too optimistic, I'm just asking.

Honestly it's similar to the question Marci asked. I mean I'm really not thinking. We are trying to maximize our revenue whether it's through a political or through a core and we're going to have a lot of both to be able to manage. So honestly I'm not managing to a core number I'm managing to maximizing revenue and I think the health of political and the momentum around political will be the factor that dictates quarter. There is plenty of core business to be had there, the question is how much of it can we afford to take.

In my last question, I apologize for this Brian. What's your thoughts here on this? I guess court case on the collusion with several of your peers out there, for local, TV, advertising. Do you think it has merit? It's - in this industry a long time, does it happen out there. Does this thing have merit? What can you tell us? Your thoughts on this?

We're not involved and as such I don't really have an opinion on it.

Very good. Thank you Brian. Thanks guys.

Your question from David Seibert [ph] with Wells Fargo. Please go ahead.

Just a quick one for me, you said Lisa leverage would be going below three times on an last eight quarter basis, by the end of the year. Could you give us the actual number for second quarter based on that same ratio?

I'm sorry, can you repeat the question, David?

Yes on the last eight quarter to your average basis, just looking for leverage as it stands today on based on second quarter numbers.

I'm sorry. It was about 3.7 turns.

3.7 turns on a net basis.

Yes.

Okay, thank you.

And at this time, there are no further questions in queue.

Thanks operator. To summarize, the results we reported today illustrated the impact of our plan to transform the business. Improving our short-term performance and positioning the company for long-term growth. We're well ahead of plan with our cost cutting initiatives. We continue to focus on ways to grow and strengthen our portfolio through M&A and we're significantly growing our National Media brands. Our aggressive plan will drive meaningful margin and cash flow improvement and we're confident in our ability to execute. Thanks so much for joining us today. Have a great day.

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