The E.W. Scripps Company (SSP) Q2 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Scripps Second Quarter Earnings Call. At this point, all the participant lines are in a listen-only mode. [Operator Instructions] As a reminder, today’s call is being recorded. I will turn the call now over to Ms. Carolyn Micheli, Head of Investor Relations. Please go ahead.

Thank you, John. Good morning, everyone, and thank you for joining us for a discussion of the E.W. Scripps Company's second quarter 2019 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 emails anytime we disclose financial information and you can listen to an audio replay of this call there. The link to the replay will be up this afternoon and available for a week. We'll hear this morning from President and CEO, Adam Symson; Chief Financial Officer, Lisa Knutson; Local Media President, Brian Lawlor, and National Media Senior Vice President, Laura Tomlin. Also in the room today is Assistant Controller, Daniel Perschke. Now, here's Adam.

Good morning, everybody. I’m pleased to be with you this morning on a day when Scripps is reporting second quarter financial results, the de-consensus as well as solid third quarter guidance that is very much in line with estimates. Lisa will review our strong results in a moment. I’ll start with a look back and then will look ahead at what’s ahead for Scripps. Nearly two years ago, the Scripps management team laid out an aggressive plan to improve the company's operating performance while simultaneously better positioning ourselves for the long-term. That plan included a reorganization and restructuring with expense cuts, divesting of radio, a disciplined approach to growing our National Media segment and the pursuit of a better performing collection of television stations. Since then, we have steadily executed our strategy to handicraft a more powerful and financially durable portfolio of television stations. Once we close on our acquisition of the Nexstar-Tribune divestitures, Scripps will be the fourth largest independent local broadcaster reaching more than 30% of U.S. households. We will have quadrupled our number one and number two stations and more than doubled the markets where we operate two stations. We will have further expanded our already attractive political footprint and added more large markets. With the Nexstar-Tribune stations, we will own 26 stations in the top 50 DMAs and we'll have diversified our affiliation mix. Now over the last year, you've heard me say that we would be comfortable flexing our balance sheet to support this important realignment, so long as we had a clear path to deliver, that's exactly what we've done. The urgency of our action has been driven by three main factors. First the number of local broadcasters that could have been acquired was limited. So we are pleased to have benefited from last year's more active M&A market. Second for Scripps, this was a moment in time to best position ourselves to capitalize on our upcoming MVPD renewals even after we moved through the Comcast reset on December 31, we will still have another 50% of our households renewing in the first half of 2020, 90% of our subs including Comcast step-up in the next 12 months. And finally of course, we're very pleased with the markets we're adding to our political footprint and the way our now bigger company is positioned for the Presidential election year. Brian will give more color in a moment about our political advertising opportunities and the advantages we have with our national sales office. The impact of all of this work on Scripps is profound including the contribution of the Nexstar-Tribune stations, we will have significantly increased free cash flow generation and for 2020, we expect the company free cash flow to be in the range of $225 million to $250 million. Our company will emerge from this period of realignment, bigger, stronger and more durable. And so this is what I mean when I say we see a clear path to deliver and pay down debt. While we’re capitalizing on the strength and resilience of our local broadcast business, we’re simultaneously growing the National Media brands on new and emerging platforms where consumers spend more and more of their time. The National Media division turned in an impressive performance in the second quarter exceeding expectations. We neared $100 million in quarterly division revenue for the first time. Another step on our path to the important waypoint we've shared with you. We’re fully on track for this segment to deliver more than $500 million of revenue in 2021. And to be clear, that's all on the back of organic growth. That growth comes as a result of our disciplined approach to developing these businesses to maximize their ultimate contribution and shareholder value. Now Five Networks strong with the launch of Court TV, Katz is leading a renaissance in over-the-air broadcasting and reaping the rewards of a new generation of broadcast television viewers. Likewise Newsy is riding a wave of growth in over-the-top television as it remains dedicated to younger news consumers who seek out quality objective journalism. Triton and Stitcher are leaders in the digital audio marketplace focused on expanding their share of the market to capture even more of this significant opportunity. It's been a busy two years but everybody keeps asking us what's next for Scripps. Our immediate priorities are just smoothly integrate these assets and realize the financial synergies, to capture full value for the distribution of our local brands and their high quality content with Pay TV providers and to use our higher free cash flow yield to pay down debt. Let me close with this thought, as we move towards the critical year of 2020, this management team is fully committed to executing our strategies. We remain steadfast in our mission to provide the quality objective journalism, our local and national audiences crave and need and we're focused on our financial performance in a way that demonstrates the equal energy we're giving to near-term results and long-term value creation. Now here’s Lisa.

Good morning everyone. We are pleased to be reporting financial results that met or beat expectations for the second quarter, including a strong beat of consensus EPS and companies segment profit that came in significantly higher than we had indicated in our guidance. Before I go through the highlights for the quarter, I'd like to start with a reminder of the acquisitions we have closed on so far. Since January 1, we've closed or announced the acquisition of 27 local television stations. We acquired three stations from the Gray, Raycom divestitures that closed January 1st. We acquired a small independent station in West Palm Beach that will complement our powerful NBC affiliate there. That station closed in April, we acquired 15 stations from the Cordillera Communications that closed on May 1st and soon we expect to close on the eight stations we're acquiring in the Nexstar-Tribune divestiture. I will discuss the local media results on an adjusted combined basis presenting them as though we had owned the Raycom, West Palm and Cordillera stations since January 1st of 2018. In today's press release, you can find the results on both as reported basis and on an adjusted combined basis. We hope this presentation gives you a clear apples-to-apples growth picture. Now let's talk about our strong second quarter performance. In the local media division, second quarter revenue was down 4% from the second quarter of 2018. Keep in mind that on an adjusted combined basis, we had nearly $22 million in political revenue during the 2018 quarter, retransmission revenue was up 10% nearly $95 million. Expenses for local media were about flat, core advertising was flat on the adjusted combined basis and second quarter of last year we had the benefit of the Cleveland Cavaliers playing four games in the NBA Finals. Backing out that benefit in 2018, we were up a bit. Now I'll talk about the rest of our Q2 results on an as reported basis. The National Media division also delivered a strong quarter despite the fact that the second quarter often showed seasonal weakness, the division exceeded our revenue guidance of low to mid $90 million coming in close to $100 million for the first time. Expenses were a bit more than expected because of the cost tied to higher revenue performance. The revenue performance drove the National Media segment profit of $6.6 million. Shared services and corporate came in a bit better than expected at about $13 million. For the second quarter, the company's loss from continuing operations was $400,000 or $0.01 per share. However we moved to earnings of $0.03 per share, when you exclude the impact of non-core items. These pre-tax costs include $2.8 million of acquisition and integration costs and $1 million of restructuring charges related to our $30 million cost savings plan. We expect these restructuring charges to continue to wind down. Our capital expenditures for the second quarter totaled about $17 million including about $4 million for the FCC repack. We expect to be fully reimbursed by the federal government for our repack cost. Turning to capital allocation, the company made about $4 million in dividend payments in the second quarter and $8 million year-to-date. No shares were repurchased during the second quarter, as we told you last quarter we expect to stay out of the market while we focus on paying down debt. On June 30, cash totaled $57 million while total debt was $1.6 billion. On July 26, our wholly owned subsidiary Scripps Escrow, Inc., issued $500 million of senior unsecured notes that mature in 2027. We were pleased with the terms we received in this offering because of the strong demand, we were able to receive an interest rate of 5 and 7, 8. We also increased the amount financed from $400 million to $500 million. Most of the proceeds will go or pay-in for the acquisition of the Nexstar-Tribune stations and the additional $100 million will be used to pay down our revolving credit facility. As of June 30th, we had $120 million outstanding on the revolving credit facility with an interest rate of 4.4%. And just a reminder that in May in conjunction with the closing of the Cordillera acquisition, we obtain financing for an incremental Term Loan B of $765 million. We were extremely pleased with the terms of this financing as well. The loan was issued at 99.5 and there is an interest rate of LIBOR plus 275 basis points. At the time Scripps closes our Nexstar-Tribune transaction, we expect our debt-to-EBITDA ratio to be 5.3 times on an adjusted pro forma basis, that leverage of course is higher than Scripps traditional level. And as you heard Adam tell you, we don't plan to leave it there for long. We know we've created value with 27 local television stations that give us economic and network diversity, financial durability and defensible position as the nation's fourth largest independent local broadcaster. We embarked on this growth knowing a significant increase in cash flow was on the immediate horizon. As Adam mentioned earlier, we anticipate company free cash flow to be in the range of $225 million to $250 million in 2020. So while our company leverage day is higher than normal, it's in the context of executing the plan we've laid out to reposition the company and because we have a reliable path to grow EBITDA and pay-down debt. Now let's look ahead to third quarter guidance. In today's press release, we provided local media revenue and expense and retransmission revenue guidance on an adjusted combined basis as though we owned Raycom, West Palm and Cordillera stations for all periods. The Nexstar-Tribune stations are not included in this quarterly guidance. For the third quarter, we expect local media revenue of down low to mid teens in comparison to Q3 of 2018. And a reminder that during third quarter last year, we took in $55 million of political revenue on an adjusted combined basis. We expect National Media revenue of mid-$90 million range and expenses in the low to mid $90 million. We're expecting the shared services and corporate line to come in at about $13 million. And now here's Brian to discuss the local media results.

Thanks Lisa. Good morning everybody. I’d like to start with a few comments about our successful core performance from the second quarter. On the back of some strong categories and record new business development, we’re pleased to be able to deliver year-to-year growth backing out the benefits of the Cleveland Cavaliers 2018 NBA Finals appearance. Among our strongest categories were services which accounts for 30% of our total core ad revenue and home improvement, a top five category which was up 17% in the quarter. In addition the automotive category improved in the second quarter. The year-to-year decline was smaller than it's been in recent quarters now in the single digits. Inside the auto category, we're seeing areas of growth including the Domestic Dealer Group segment which showed mid single digit percent growth over the second quarter of 2018. Overall, I do expect to see core advertising continue to build as we move through the back half of the year. While we're busy executing our 2019 initiatives, we’re preparing for the 2020 political advertising opportunity that's just around the corner. With the Presidential election race just getting started, we believe Scripps is one of the best positioned local broadcasters to benefit from the wave of political ad spending to come. With the close of Nexstar-Tribune, we will have 60 stations in 42 markets reaching across the country. Our acquisitions have given us additional opportunity in our already strong political advertising footprint. It's very clear that the path to the White House will go right through the Scripps markets. Conventional wisdom right now is the three of the most important Presidential swing states are Wisconsin, Michigan and Arizona. Scripps is well positioned in these critical states. We own two important NBC affiliates in Milwaukee and Green Bay, in Michigan will soon own four stations in Detroit, Grand Rapids and Lansing. And combined they'll reach nearly 80% of that state's households and in Arizona, we will have two stations in Phoenix and two in Tucson that reach nearly all of the households there. Florida will also be an important state in next year's election. With the acquisitions of Miami and Tallahassee to complement our three stations in Tampa, West Palm Beach and Fort Myers, Scripps will reach nearly 70% of all TV households in Florida. In addition, we've expanded our footprint in Colorado and in 2020, we'll be the first Presidential cycle that Scripps will own the stations in Texas and Virginia and Utah as well as a news producing TV station in New York City. And of course we have two strong ABC stations in the important State of Ohio. It is still very early but we expect to benefit from the 14 U.S. Senate elections including tossup races in Arizona and Colorado as well as elections in Michigan, New Jersey, Virginia and Montana. And we'll have four Governor's races in Scripps stations and Scripps states next year, a tossup in Montana and open seat in Utah and races in Indiana and Missouri. In the past, we've often discussed Scripps competitive advantage related to political sales. For nearly a decade, Scripps has managed political advertising through our own national sales office in Washington D.C. working directly with campaigns to maximize their advertising buys on our local stations quickly and efficiently without a third-party. As we expand our footprint, we look forward to providing this service and our Scripps proprietary data tool to more campaigns across the U.S. It's way too early to size-up our expectations for 2020, Scripps political ad revenue. But I can tell you that our revenue from the 2018 midterm elections pro forma for all of our announced close transactions was about $200 million. And as Adam referenced, political isn't our only opportunity to grow revenue in 2020. In the next 12 months, 90% of all Scripps retransmission subs will step-up into new agreements. Now I'd like to discuss our Katz Multicast business which reports to me and appears in the National Media segment financials. During the second quarter, Katz brought back one of TV's most iconic brands trial coverage and true-crime network Court TV has been received by enthusiastic audiences across the country since its May 8 launch. In addition of fresh talent and perspective, a hallmark of the new Court TV is its broad distribution. Lovers of courtroom drama can find the network on over-the-air broadcast channels, on Internet delivered TV including Roku, Amazon Fire TV and Apple TV. It's on its mobile apps and its Web site and in 25% of cable homes. In its first two months, Court TV is over the top live stream was viewed from more than 400,000 hours. By the end of this year, Court TV will reach 91% of U.S. TV households mostly through multicast channels. That is by far the fastest that any of the Katz Networks have reached 90% U.S. distribution. The five Katz Networks had a good quarter overall with strong sales and a number of key new advertisers. The networks are converting more direct response advertisers to higher CPM buys creating new value with existing advertisers. Also in the recent advertising upfront, Katz sales rose 30% and then CPMs rose by mid single digits. And now here's Laura.

Thanks Brian. Good morning everyone. The National Media segment delivered a terrific performance during the second quarter and marked continued progress to our strategy of building value by establishing scale and growing consumer market places. Consumers are spending more of their time today on platforms such as over-the-top and over-the-air television as well as digital audio and podcasting. Scripps has strategically positioned itself to leading businesses on each of these fast growing platforms and now we see ourselves beginning to reap the rewards of that effort. In the second quarter, we earned record revenue in several of the National Business Division. Our division revenue neared $100 million as Katz, Newsy and Stitcher all surpassed our expectations. That strong revenues fueled the nice beat in our segment profit. While we expect our growth rates to moderate a bit in the third quarter, we’re looking ahead to a very strong finish to the year for the National Media segment. Let's start with our digital audio businesses. Early on Scripps saw an opportunity in the digital audio industry as streaming music and podcasting began to gain popularity. Today 90 million Americans listen to podcast every month and those who listen weekly tend to listen a lot. They average about seven podcasts a week. Brand name advertisers are following these listeners into the podcast space. A recent IAB report projected podcasts advertising would go to $1 billion in 2021 and that's more quickly than previously expected. Stitcher is our podcast content network sales and distribution business. In the quarter, Stitcher saw continued demand for podcasting from an ever expanding roster of brand name advertisers including State Farm, PepsiCo and J.C. Penney. These advertisers and many others now realize the effectiveness of the podcast medium for sharing their message and Stitcher is already well positioned to grow along with that market. Among Stitcher’s biggest hit shows during the second quarter was Conan O'Brien which included a rare interview with Howard Stern that was downloaded 1.4 million times. Triton, is a digital audio infrastructure and measurement leader, Triton continued its global expansion in the second quarter signing new clients in Brazil and Australia as well as expanding in the U.S. adding Bonneville and others. Also during the quarter Triton and Edison Research published their annual Infinite Dial report. The audio industry's definitive survey of consumer listening habits and announced they would expand Infinite Dial franchise in the South Africa this fall. Triton also introduced Australia's first podcast Rinker which will help the company begin to establish the podcast measurement currency in that country. The South Africa and Australia efforts are important steps as Triton builds this international reputation and business opportunity on top of its strong U.S. base. Turning to our National News network, Newsy continue to exceed our expectations in the second quarter. It nearly doubled its revenue performance from second quarter of 2018. Newsy has employed a multi-platform distribution strategy to be everywhere you can find a TV watching audience that means cable as well as over-the-top and other Internet delivered services that attract younger viewers. From our research, we know these viewers seek out our objective journalism as our motto states, we inform not influence. Among Newsy’s recent journalism highlights was receiving a national Edward R. Murrow award for a story about the nationwide movement at teacher protests over school funding level. It also received the national Emmy nomination for a joint investigation with the Scripps Washington Bureau into the way police agencies across the country prematurely closed unsolved rape cases. Impactful stories such as these are not only a part of our mission but attract large audiences and brand awareness that helped build this burgeoning news organizations and now operator, we are ready for questions.

[Operator Instructions] And first from the line of Dan Kurnos with Benchmark. Please go ahead.

Great, thanks. Nice quarter guys. Adam just kind of high level obviously, there's been a lot of attention on what's going on in the re-trends market particularly with some of the blackouts. What's really interesting for you guys though is you've already negotiated the Comcast rate going into 2020. So given sort of where you expect to finish the year from a scale perspective and given that you have sort of the Comcast rate in hand just how do you think about sort of your future negotiations and sort of the trajectory for net returns?

Good morning, Dan. Yes, so look broadcast companies and now I think Scripps in particular are really well positioned for continued growth in distribution fees given the strength of our position and most importantly the popularity of the product we deliver to our local consumers. I think we have ways to go until we reach an equilibrium where distribution fees are appropriate for the level of viewing and that I think is the driving force behind our strategy.

And any change to your outlook on sort of you know, I know you haven't really provided a net re-trends outlook but just sort of your assumptions also factoring in the reverse part of the equation?

No, no change at all.

Okay. And then Laura maybe just one for you. I just national was incredibly strong in the quarter. Nice upside at Stitcher and Newsy. I'm just curious obviously you have some nice tailwinds there. How much do you think is because some of your competitors obviously are facing a lot of struggles in the marketplace versus just simply intrinsic gains and on the profit side, even with the incremental expenses due to the revenue upside, it looks like you're sort of moving faster towards that inflection point. So I mean is there any thought to reinvesting now this year maybe to accelerate that growth or you're kind of happy with the balance you're seeing?

I'd say we're really happy with the balance we're seeing and we're pleased with just execution we're seeing at both Stitcher and Newsy capitalizing on both growth marketplaces in OTT and certainly in podcasting. I expect we'll have a strong finish to the year, little bit of seasonality in Q3 but obviously we had an exceptional Q2 and these teams really surpassed our expectations.

All right, thanks guys.

Thanks Dan.

Next we will go to Kyle Evans with Stephens. Please go ahead.

Hi, great. Thanks. I think I might have one for every one of you. Try not to hog the line, Lisa do you have a leverage target post Nexstar-Tribune by year-end next year?

Yes, we expect to be in the low to mid-4s by the end of next year.

Great. And Brian could you give us kind of a specific as you can get on sub-count?

Yes, like others we're not seeing a lot of movement there. I think as we look at the last 12 months, we're seeing about a 1% decline net which is better than we modeled. So there is a little bit of fluctuation that's still happening between the traditional and the virtual products but it's netting out again over 12 months about 1% decline.

Great. Laura, could you dive down a little bit into the Newsy unit volume, pricing, sell-through, effective CPM. Just tell us what you're seeing there and maybe give us the distribution household update in traditional cable satellite?

Yes and Pay-TV households we’re nearly in 40 million homes. We continue to broaden that footprint as much as possible. On the OTT side, I mean we see CPM anywhere from $15 to $50, our sell-through rates are very high. Well rarely if at all ever not sold out on Newsy OTT.

Great. And then one for Adam. Lot of podcasts M&A out there, some of it hard to understand. Does that change your outlook for Stitcher positive negative or are still kind of same? Thanks.

Yes, look I mean I think it validates the thesis we've had for a long time. Podcasting is going to be one of the most important platforms for the future of entertainment, storytelling and journalism. The company was early into the business but we take a very disciplined approach and we're seeing a lot of companies invest with a lack of discipline, I would say. That's not our approach. You can even see in the way we've grown Newsy that and what's happened in the marketplace. There were other competitors on the Newsy side that were getting massive valuations but haven't made a penny and probably didn't have a path there. And that's not the way we operate. We're disciplined operators, so we look at what we're doing with Stitcher in just the same way, I expect that scale will continue to be important in that marketplace and we continue to push in that exact same direction. But the recent events, the recent M&A I think validates Scripps’s position.

Great, thanks for taking my questions.

Our next question from Marci Ryvicker with Wolfe Research. Please go ahead.

Thanks, I have a couple. The first can you just clarify your 2020 free cash flow guide. Does that include Nexstar-Tribune stations and then can you also talk about what is -- what you're seeing for political in the guide?

Marci, it does include Nexstar and Tribune but we haven't really given any insight into the components of that.

Okay. And can you just be a little more clear as to when subs come up for renewal in Q4 of this year beginning our end and starting the cadence for next year because I think that there is a timing issue that we may have had because that you give us a percent of sub but I don't know that you give us exactly in each quarter maybe that's creating some confusion.

Hey Marcy it's Brian. I think most importantly we're on track to hit our full-year guidance on re-trends and then as we look at just as I mentioned 90% of subs come into new contracts within the next 12 months. So obviously we have the big opportunity with Comcast at the end of the year but then all the rest of it will happen by the middle of next year. So figure all of those, I shouldn’t say all but the most significant contracts will all be negotiated and renew by June 30 of next year.

Okay. So for Q4 the only thing you have is Comcast at the end?

Yes, we have no more renewals before the end of this year.

Okay, perfect. Thank you. That was it.

Next we’ll go to Michael Kupinski with Noble Capital Markets. Please go ahead.

Thank you. Good quarter. I want to go back to Kyle Evan's question for a minute. A number of broadcasters have plans to expand their podcast content. And I was just wondering how does this affect you. Are some of these broadcasters working with you for distribution and sales are you seeing would their increased content with necessarily increased competition in the space?

Hey Mike, it’s Laura. I think to reiterate some of what Adam said, more of these broadcasters, radio broadcasters are getting into the space and investing in content. We've been in the business for a long period of time and we have one of the strongest content catalogs out there. We have some of the top performing shows, obviously Stitcher is a listening platform where most people distribute their podcast. So having both in adware business and a listening platform, we're really able to take advantage of any content that is in the marketplace and is being distributed.

I would also add on top of that, there's additional upside for us as the marketplace expands in podcasting for Triton as Triton continues to service all of those radio broadcasters on the streaming side. They also are the platform often that the companies are turning to for podcasting.

Great. And the number of broadcasters have stated that they've already booked Presidential Political. Are you seeing Presidential Political at this time being booked and any thoughts on political for the full-year 2019?

Hey Mike it's Brian. We have booked a little bit out Las Vegas. We've got some early spending for the early primary out there. For 2019, obviously we reported our quarter we set slightly more revenue than we were expecting due to an Energy Bill in the Ohio State Legislature but really I think for the rest of the year opportunity is going to be out of Lafayette and Lexington which they both have gubernatorial and down ballot elections. So Lexington in Q2 at 40% more political than it did in 2018 as a result of a toss-up Governor race right now. So we also got some local mayor races in Nashville and Denver that are tracking. We've got some strong local races in San Diego, Indianapolis. So I think we're expecting a good year, we do see momentum probably not so much for the Presidential but because we're in Kentucky and Louisiana where they have the gubernatorial races. I think we'll continue to track well through this year.

Thank you. And I know that in National Media segment actually where I was kind of impressed with the performance of Katz, it looks like it continues to perform very well. And I know you have expanded distribution for several of your networks there. Can you talk a little bit about the growth of Katz and then also talk a little bit about the margins of Katz because I know when you gave us some idea in terms of when you purchased Katz that you thought it was going to be $180 million in revenue, $30 million in cash flow and it looks like you over achieved that in 2018 on a pro forma basis. But I was wondering if you can just give us some thoughts about revenue growth and margins for Katz?

Hey Mike, it's Brian again. We're not going to break out the margins on Katz but I think you're dead on they had an unbelievable quarter. They're having really a terrific year and you can see their revenues grew by over 20% last quarter. Distribution as you touched on this part of the equation and Bounce, Escape, Laff are all at higher than 93% of the country, Grit is in 91% of the country, Court which launched in May started at 63% of the country. But as I said in my remarks, it will be up over 90% by the end of the year which quite frankly we've never seen a network launch like that with that kind of distribution. So the interest in Court TV is amazing but I think there's a lot of momentum here. I think it's a combination of really good programming that they're acquiring as well as what they're creating on Bounce seeing some centers is really a Top 20 television show with its original programs. We had a couple other originals. We had original that we created in partnership with Kevin Hart which has done very well. And then you may have seen that with some announcements where we're launching a 37-part Series on the O.J. Simpson trial associated with Court. So we own that library O.J. Simpson trial was 37 weeks and each week we're going to do a one-hour synopsis of that week in the trial, so that's coming up on the anniversary of that and then we were creating a Menendez brothers podcast in conjunction with the 30th anniversary of that event. So I think it's really we've got this great library of content for Court as well as these great shows and original programming. Of course the other networks and it's the combination of distribution, it’s combination of strong audiences and the fact that we're able to convert more advertisers and so and we're getting big buys. We did really well in the scatter market this year. I talked about how well we did in the upfront space. So they're really hitting on all cylinders. We have a great management team there and we're really excited about the long-term growth of that company.

Great. Thanks for the color, I appreciate that. That’s all I have.

Next we’ll go to Craig Huber with Huber Partners. Please go ahead.

Yes, hi. Good morning. Brian, I would typically like to ask you can you just talk about the pro forma advertising revenue pay since your TV stations for the third quarter is sort of the core number they're excluding political is the sort of tracking flat year-over-year up a little bit, down a little bit?

Hey Craig, it's Brian. We're having a very good third quarter. July started very strong in fact of our top six categories, five of them were up in July and August looks equally strong. So I don't want to give you a number but I'll tell you. Third quarter is tracking to be a good quarter for us at this point.

The vision far bright I mean better than what you have posted in the second quarter which is roughly flat pro forma, it sounds like?

Yes, I think that opportunity exists. Yes.

Okay. And then can you just talk a little further about those numbers you're seeing in the third quarter for the auto category they're tracking similar to what you saw in the second quarter, a little bit bitter or little bit worse?

Yes, they're tracking better July which finished was our best month of the year. August looks really good. Obviously, we still got some points to write in September but auto has been sequentially improving for us and third quarter continues that trend.

Okay, just to be clear. I know the question has been asked but do re-trends contracts up for renewal here. Just can you go through that for the full-year 2020 you talked about the first half, what about the second half of the year, is anything significant?

Almost all of our subs that are up in 2020 will come up in the first half of the year. There is a small percentage that's in the back half of the year but the most meaningful contracts come up in the first half of 2020.

I assume that's a comment on a pro forma for everything or just through quarterly or not including Nexstar-Tribune?

It’s pro forma.

For everything, okay. What percent is up for renewal, I guess pro forma for 2021 so we can think about that too, if you have anything?

Single digits.

Okay. And then maybe you could jump over to Triton if we could. What was the pro forma revenue growth there year-over-year. And also I think last time you guys were willing to give us the pro forma costs for employee compensation and the other expenses separating those two out excluding Triton with this percent changes were, please?

Hey Craig, it’s Lisa. Triton we announced the acquisition late last year and it's really performing meeting the expectation based on their performance year-to-date. So those metrics that we gave back to last fall.

Was that sort of mid-teens, Lisa I think you said last time was up 13%?

Yes, when we announced, we indicated Triton would be growing in the low-teens. So it continues to perform year-to-date based on our expectations.

Okay, what about the cost without Triton, the compensation and other lines, how does that track year-over-year?

Are you talking in the National segment?

Yes, just sorry just in National, yes. Thank you.

Yes, the other expenses in National is that?

Yes exactly excluding Triton and also within National the employee compensation line, excluding Triton, was that percent change as well?

Yes, I don’t think about that. We wouldn’t break it out by business on the expense side as it relates to that.

I’m sorry not for Triton but just in total excluding the Triton acquisition. Do you have that?

Craig, we'll get it to you. I think I know what you're asking but I want to make sure that I'm clear. So you're saying excluding employee compensation?

No, excluding Triton, yes what was the percent change for employee compensation in National and then same question for other expenses with the National?

Okay, yes we'll have to get that for you.

Okay, that’s all. I do have one more question, Brian. You guys are willing to give the 2018 political pro forma number, what was the 2016 number, do you have that?

Yes, I don't have that in front of me. Craig, we can -- we will dig that out for you.

Okay great. Thanks. Thank you.

[Operator Instructions] And next from the line of Davis Hebert with Wells Fargo. Please go ahead.

Hi, good morning everyone. Thanks for taking the questions. First question on the free cash flow guidance. I wonder if you could give us a little bit more color there. Is it after dividends and then how should we think about cash taxes and CapEx as part of that that guidance range?

Yes, so it is after dividend and we don't really expect to be much of a cash taxpayer going forward. So very little in taxes and on the CapEx side, on a pro forma basis for all acquisitions we would be somewhere in the $40 million to $50 million range.

Okay, that's helpful. Thank you. And then just the housekeeping. You mentioned being at 5.3 times pro forma for the Nexstar Station acquisition. Just wanted to confirm that includes the Comcast step-up correct.

Correct.

And then, okay and then what would be your LAQ leverage as of June 30th with the acquisitions you've completed pre-Nexstar?

Yes, sure. It would be little over 4, like 4.1.

Okay. And that's with Cordillera and Gray and others?

Yes.

And sorry, is that with the Comcast step-up?

Yes.

Okay. Got it. And then you mentioned being low to mid-fours by the end of 2020. Are you comfortable there or would you like to see that leverage move into the 3s as we move beyond there. How do you think about that?

Hi David, this is Adam. We typically would like to be in the mid to low 3s, I think is a steady state. We intend to continue to move in that direction even after 2020.

You said mid to low.

Correct.

Great, thank you.

And with no further questions in queue, I'll turn it back to the company for any closing comments.

Thanks John.

So to summarize, this is Adam again. We're on the verge of doubling our free cash flow from 2018 to 2020, when we expect a range of $225 million to $250 million. We'll be paying down debt while also capitalizing on our more durable television station portfolio and our fast growing National Media businesses. I'm confident in the plan that we're executing and we are on the right path to continue to create value for shareholders. Thanks everybody. Have a great weekend.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.