E W Scripps Co (SSP) 2015 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Q2 2015 earnings call. At this time, all participants are in a listen-only mode. (Operator Instructions) As a reminder, today's conference is being recorded. I would now like to turn the conference over to your host, Ms. Carolyn Micheli. Please go ahead.

Good morning. Thanks for joining us for a recap of the E. W. Scripps Company second-quarter results. A reminder that the conference call and webcast includes 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 emails anytime we disclose financial information, and you can listen to an audio replay of the call. The link to the replay will be up later this afternoon and available for a week.

We will hear first this morning from Scripps CEO Rich Boehne, then CFO Tim Wesolowski will recap our second-quarter results for television, radio and digital as (technical difficulty) Scripps.

Then you will hear from Brian Lawlor, who heads our Broadcast division, and finally from Adam Symson, the head of our Digital division. Also in the room are Radio Chief Steve Wexler and Controller and Treasurer Doug Lyons. Now here's Rich.

Good morning, everybody. Thanks for joining us.

We had a terrific quarter, both in financial performance, where our results came through as expected, and in our efforts to build in surface value for shareholders through managing our portfolio of media businesses, expanding into new market places that offer organic growth and, at the same time, using our strong balance sheet to return cash to our owners through stock repurchase and a special dividend.

If you think about it, all between April and July we radically altered our structure, spinning out and merging our newspapers into an attractive standalone Company, and merging into Scripps the Journal TV and radio stations all in what we believe were terrific value creating valuations. And, with a little cash [kit], a special dividend to further sweeten the deal.

While the Journal transaction was closing and the business is being integrated, we also found time to craft the transaction in a fast-growing segment of digital media, podcasting. Adam will talk more about Midroll in a few minutes, along with discussing the traction we are getting with our over-the-top television and mobile news brand, Newsy.

Now, behind-the-scenes, over the past several months, we secured a new CBS network agreement. We saw our local news strategy pay off in higher ratings. We continued to benefit from rising retransmission rights and we worked on strategies that we are confident could advantage us through the upcoming special options and beyond.

As we discussed in the past, we are determined to capitalize of 2016 on the Presidential election surge in advertising and the flow through to the bottom line of our strong move up in retransmission revenue. As Tim will discuss in a moment, there is a lot of noise in the numbers and we've done our very best to create apples to apples comparisons.

But behind the noise is an enterprise with much stronger momentum and opportunity for building value over the next few years. Now, here's Tim.

Good morning, everyone. On April 1, we closed our transaction with Journal Communications. And we've now completed our first full quarter of operating those TV and radio stations. And our former newspaper operations are now part of Journal Media Group, so we are reporting newspapers as discontinued operations.

Our operating results were very much in line with our guidance. We are off to a good start assimilating the Journal properties and we are affirming our full-year revenue and expense guidance.

In the second quarter, excluding acquisition and integration costs for the Journal transaction, we earned $0.04 per share. Our net loss from continuing operations was $13 million or $0.15 per share on a GAAP basis. And as I talk about our second-quarter results, I will be comparing them to our 2014 adjusted combined numbers to help you better understand the underlying trends in our business.

Remember, back in May we gave out those 2013 and 2014 numbers and called them adjusted combined results. They give a picture of our last two years as though we had merged in the Journal and Granite Broadcast assets at the beginning of 2013. The 2014 adjusted combined results are repeated again in today's earnings release tables.

So again, today we will use those to make comparisons on an apples to apples basis and meanwhile you can find the as-reported results in today's press release. Most of the year-over-year changes in the as-reported results are, of course, driven by the addition of the Journal and Granite properties. After I discuss those results, I will spend a few minutes on our cash position, debt status and the share buyback program. And finally I will share third-quarter guidance.

So first, let's start with second-quarter operating results in comparison to the adjusted combined results for the second quarter of 2014. Operating revenues increased 3% to $198 million. This was mainly due to a rise in retransmission revenue. Costs and expenses for segments shared services and corporate were $166 million, up 6% over the 2014 quarter. And that increase is mostly due to higher network compensation and the timing of our annual restricted stock grants which moved from March to May because of the merger close date on April 1.

Now turning to our three reporting segments, television division revenues were up nearly 3% in the second quarter of 2015 over the adjusted combined results to $167 million. Retransmission revenue was up nearly 60% to $36 million. That reflects the renewal last year of retransmission agreements that covered about a quarter of our subscribers.

Local advertising revenue was down about 5%. National revenue was up modestly, and political revenue was $2 million versus $7 million last year. Expenses for the television division increased 6.5%, driven by an increase in network compensation. We renewed our ABC affiliation agreements covering 10 of our stations last December.

Television segment profit was $45 million, down nearly 7%, reflecting the tough year-over-year comps for political advertising and in this transition year in which we are paying higher network compensation but still waiting for the reset of 3 million of our cable households to full market re-trans rates early next year. Just a reminder, we fully anticipate that the increase in network comp will be more than offset by rising retransmission revenue, so this will turn into a good story in 2016 when we expect the re-trans increases to flow through.

And we are still expecting a 50% increase in both growth and net re-trans in 2016, and 2016 gross re-trans of about $220 million.

Radio operating revenues of $19 million were about flat with the second quarter of 2014 on an adjusted combined basis. Radio expenses were also about flat at $14.5 million. Segment profit of nearly $5 million for the quarter was slightly above prior year.

Of course radio is a new business for us, and while digital is not a new business for us it is a new segment. In the past, Scripps accounted for digital revenue in the newspaper segment, in the TV segment, and some in the syndication and other segment. Some digital expenses were in the segments and there was also some in corporate.

Now, we have collected all the digital revenue and expense into one reporting segment. The new segment includes revenue from our local markets, as well as national brand such as Newsy, WeatherSphere, and starting next quarter our new podcasting business, Midroll.

Digital revenue for the quarter was nearly $9 million. That is up about 16% over the adjusted combined results for Q2 of 2014. Performance in the quarter drove that increase including higher revenue from local digital brands in our TV markets, and increased revenue from programmatic advertising. As we told you, the core local digital businesses make up the bulk of revenue in the digital reporting segment.

Digital expenses were up $700,000 to $13.5 million. That is about a 5% increase. Significantly lower than our guidance last quarter of up midteens due to slower than expected hiring and spending. The segment loss for digital was just under $5 million.

That concludes our second-quarter results. Just a reminder that the adjusted combined results assumptions and disclosures are included again in the supplemental information that begins on page E7 of today's press release tables and I encourage you to read those very carefully.

Now I would like to share our guidance. First, we are reaffirming the full-year guidance we gave in May for TV and radio. For the third quarter, again in comparison to our adjusted combined results, we expect television revenue to be down mid-single digits, largely driven by tough political comps. Last year we booked $21 million in political advertising.

TV expenses are expected to increase high single digits, mostly due to higher network compensation fees. We expect radio revenues to be flat to down low single digits and radio expense to be up low single digits.

Our digital reporting segment results going forward will be impacted by the acquisition of Midroll in late July. For the full year we now believe digital revenue, including Midroll, will be up more than 30% and digital expenses will be up about 20%.

For the third quarter, including Midroll, we expect digital revenue to be up more than 40% and digital expenses to be up in the mid 20% range. Adam will give you more color on Midroll in a few minutes.

We expect expenses for shared services and corporate to be about $10 million.

Finally, I would like to cover a few capital allocation matters. We closed the quarter with $101 million in cash, down $57 million from the end of 2014, primarily due to the dividend of about $1 per share, paid at the closing of the Journal transaction. We paid $50 million for Midroll when we closed in the third quarter, so that amount is not reflected in the $101 million number.

Our total debt was $407 million, so that is net debt of just over $300 million or net leverage of about 2 times at the end of the second quarter. We reinstituted our share repurchase program halfway through the quarter, and during the second quarter we spent $3 million to repurchase shares. We have $97 million of remaining authorization.

To put our capital allocation activity into perspective, last summer we added two stations to our TV portfolio at a cost of $110 million. One created a duopoly in Detroit, the other was an ABC in Buffalo. We also paid a $60 million dividend on April 1 and we spent $50 million on Midroll in July. We did all that and still have the strongest balance sheet in the industry.

That concludes our financial review. Now here's Brian Lawlor who heads up our Broadcast division.

Good morning, everybody. As Tim mentioned, we have a full quarter now behind us operating the Journal TV and radio stations, and we are very pleased with our performance so far.

As a whole, we met or exceeded our guidance for the quarter. Meanwhile, the former Journal employees are engaged and enthusiastic about the mission at hand to grow ratings and position our stations to fully capture the political dollars at stake in 2016.

Of course capturing those dollars is really the key word here. As we so often tell you, we believe Scripps is well-positioned to do so. We have a dedicated Washington sales office poised to respond quickly to campaigns. We have a terrific footprint in key states such as Florida, Nevada, Colorado, Wisconsin, and Ohio.

And in case you didn't see it, the New York Times recently said it may all come down to Ohio. So with the ABC stations in Cleveland and Cincinnati, Scripps provides the path for reaching voters in the two most important Ohio election cities.

I would like to turn next briefly to some of our other ad categories. Local spending was down about 5%. This was largely attributed to a decline in auto of nearly 10% on a same station basis. Our large ABC footprint and the tough comps against the World Cup are responsible for much of this decline, along with a change in how several auto manufacturers are funding their local dealer associations in some of our markets.

Fortunately, record new business with an emphasis on the service category offset most of the auto declines. Services surpassed auto as our top category, growing 14% with big increases in insurance, medical and in legal subcategories.

National ad spending was up in the quarter, due in part to the NBA finals. The Cleveland Cavaliers and Golden State Warriors matchup was one of the highest rated finals in NBA history, and we were helped by our footprint of large market ABC stations along with being the proud home of the Cleveland Cavaliers.

Looking ahead to the third quarter, we see continued growth in the services category and improvement in auto without the World Cup comparison.

Since our last call we've announced good news on the network affiliation front. We signed our renewal agreement with CBS in Nashville. As we've mentioned before, this is one of the highest rated CBS affiliates in the country and we were thrilled to acquire is as part of the Journal merger.

The deal with CBS includes partnership in its CBS All-Access over the top product and we are looking forward to reaping the benefits of this new relationship with CBS. We have one other CBS station in Omaha and they will renew its agreement next summer.

But first, we expect to renew an agreement with NBC at the end of this year that will cover three of our TV stations.

In addition to the market-leading performance from Nashville, and our NBC in West Palm, which each won every single major newscast in their May sweeps, we are seeing continued strong ratings improvement in several other key markets, including Phoenix, San Diego, Cincinnati, Las Vegas and Tucson. I assure you we did not take our foot off the gas during the summer and we expect to build off that growth in the second half of the year.

A final note on the TV division; we continue to be very pleased with the success of our homegrown programming. Right This Minute continues to perform well in syndication, currently cleared in more than 90% of the US TV markets. Our infotainment program, The List, is turning out to be a big success as well. In the rankings of the top 50 syndicated shows in the US, The List broke into the top 10 with its May household rating from across 12 Scripps markets.

We are thrilled with the performance of The List and are now fielding calls from other broadcasters interested in bringing the program to their markets. We believe the show is now ready for distribution beyond Scripps and we will be working to advance that strategy in the coming months.

Finally our news program, The Now, continues to build an audience at 4 PM in the eight markets where we run it. In May, The Now grew its aggregated share across those stations over its February performance, so we are pleased with the trajectory of the show.

And now, let's talk about our new Radio division.

We made a big move in Milwaukee last quarter, switching our big FM station from variety hits to a new country format. We are already reaping the benefits of that move with the boost in ratings and look forward to competing for leadership in the country genre. And despite a tough season on the field, our Milwaukee radio team has had a very successful season of sales of the Brewers Radio Network.

Other highlights for our ratings this quarter include Knoxville, where our combined cluster radio stations is number 1 for the first time in recent memory. And in Tucson, our lead station Mix FM was number 1 among all women listeners. We also see excellent results in Omaha and Wichita, so this division is already showing steady results and it's a talented group of people whom we're really enjoying having on board.

Adam, over to you.

Thanks, Brian. Hello, everybody. I'm pleased to be with you today to talk about our first quarter of results with digital as its own reporting segment. This is a segment made up of different businesses that are delivered on common digital platforms.

The majority of the revenue today comes from the products and services tied to the digital businesses in our local markets with the remainder coming from our national media products. The segment saw nice growth in the second quarter, up 16%, and slower than expected expense growth. We guided to up midteens on expense and ended up just over 5% in comparison to last year's adjusted combined numbers.

The reason for the lower expense growth was slower than expected sales associates for the former Journal stations. We are looking for strong talent and that's taking a little longer than expected.

Across the entire network of local digital properties, we are seeing that the focus we placed on national programmatic advertising is paying off. As a reminder, programmatic advertising is the nearly real-time option we use for the sale of our digital advertising to mostly national and regional advertisers. We use programmatic advertising to monetize the display advertising that we haven't sold to local clients directly.

Our digital projects products attract a large high-quality audience, the kind of engaged consumers with whom big brands want to connect. Over the course of the year, we've been able to carefully increase rates for national advertising by more than 40% while expanding our available inventory as a result of the audience growth we are seeing.

Finally, within those core local businesses, our video views across the Scripps legacy market were $28 million for second quarter, up 32% over second quarter of 2014. Revenue tied to video advertising was up to 55% year over year, driven by that increase in inventory, greater sellthrough, and a $4 increase in our average pre-roll rate.

Our newsrooms are working hard to produce high-quality video for our digital platform and our sales teams are capitalizing on these opportunities.

Turning now to the national digital businesses, we hit several milestones with Newsy in recent months. When we bought Newsy a year and a half ago, we knew it could evolve from B2B news video supplier to a consumer brand. But what we could not have forecasted as how the over-the-top TV landscape would evolve in such a short time, presenting real opportunity to reach millennial consumers on a platform Scripps knows well: television.

The reception Newsy has received from consumers on Roku and Amazon Fire has shown us it has great resonance with those leanback audiences. In fact, viewing times on Roku has been averaging about 22 minutes. That is a long time in the digital world. That early success led us to create Newsy Live, a constantly updated live stream that is styled after the Headline News format you may recall. Every 30 minutes includes nine minutes of dynamically inserted digital video advertising.

Now, Newsy's OTT products serve up video-on-demand for the consumer seeking to pick and choose, along with a live stream for the consumer dipping in for a nightly round-up. Newsy Live and on demand is available across all of our owned and operated consumer products. And we are working diligently to expand distribution much more broadly.

We've also added a significant new member to our national digital portfolio. On July 22, we announced that we bought Midroll Media, a five-year-old Los Angeles-based Company that creates original podcasts and operates a network that generates revenue for more than 200 shows, including StartUp and Nerdist.

As a reminder, podcasts are audio shows that can be downloaded or streamed, most often to a smart phone. Think over-the-top radio but not music, spoken word. Podcasts are monetized through the live reads of advertising.

This kind of advertising is high touch, which means it's not easily commoditized and it drives great results for advertisers. We saw Midroll as a great fit for us, and a way to get into one of those high-growth digital media marketplaces.

More and more people are literally physically connected to their mobile device at all times, usually by little white earbuds. At the same time, more and more cars are rolling off the lot with connected car infotainment systems that make listening to streaming audio like podcasting really easy. Scripps and Midroll are both content creation companies, and they share a mission of reaching expanding audiences with content that informs and entertains.

About 45 million Americans of all ages listen to podcasts every month according to a recent Edison research study. Midroll provides Scripps with an opportunity to expand its audience reach by capitalizing on this growing number of people seeking out podcasts.

In addition, podcast audiences tend to be educated, affluent, and engaged, which is obviously an attractive set for advertisers. Midroll's owned and operated podcasts generate more than 8 million downloads monthly, and the entire network for which Midroll sells advertising generates more than 1 billion downloads per year across the world. That all equates to about 2.5 billion available annual impressions to sell in this expanding marketplace to brands.

This deal marks an important entry into this rapidly growing media platform and is expected to be a significant new contributor to Scripps' national digital media portfolio.

Rich, back to you.

Thanks, Adam. As I said the beginning, we just completed a terrific quarter and we have reaffirmed our previously released guidance for the remainder of the year. And looking ahead, we think we are very much on track to take full advantage of opportunities that are coming our way in 2016.

Operator, we are ready to take questions.

(Operator Instructions) Marci Ryvicker, Wells Fargo.

Thanks. You guys had really nice results in the second quarter, but your local is still down and the rest of your peers is up. So if you could remind us why that is, that would be great. That is the first question.

The second question is have you noticed any change at all in your pay-TV sub base when it comes to re-trans and reverse?

And then the third question is, Rich, you mentioned or some of your comments at the beginning made me think about M&A. So just curious as to your thoughts on station M&A given that we have the incentive auction coming up and then the election. Would activity be on hold? Or are there actually active discussions? Thank you.

It's Rich. We will let Brian start with the local (multiple speakers) work our way around.

Good morning, Marci. Obviously we are not thrilled with the performance of local. I think there were a couple of factors in there that affected the quarter. We really broke out automotive as a big part being down 10%. We certainly have seen that that was a bit below our peers.

I think if you look at our profile certainly a year ago, big ABC stations, we knew the World Cup was going to be a big opportunity. We really tried to seize that and we got some good sponsorship money out of automotive.

That wound up -- you enjoy the success when you get it, but then the year-to-year comps are a little bit challenging. I would just tell you that automotive is pacing much better in this quarter.

So I do think that without those comps, you will see a better quarter ahead of us in the third quarter with the automotive.

In addition to that, the other factor in automotive, as I said, was we've seen a bit of a shift in some of the factories moving around, the money, the Tier 2 money that they are using to fund the dealer groups. Money is coming in later, it has been cut by a couple of percentages a car, and so we've seen a couple of dealer groups kind of go by the wayside or repurpose their money. So we are kind of managing through that and that was a bit of a factor there as well.

Other than that, I don't see any other categories that are really troubling. We've got a couple that are flat or off a point or two. But as I said, services was a terrific category for us. We generated a bunch of new business there. Legal was up almost 50% there. Our insurance category was up over $1 million. So I think it was not a great quarter.

There was also some internal accounting that moved as we brought the Journal stations in. So I think we've applied all that, and I am hoping that we will have a much better third quarter.

And then what was the second question, Marci?

How your pay-TV subs have been trending for re-trans and reverse; as we know, all the stocks have been down because of [core] cutting. But it sounds to us like in broadcast land, the pay-TV universe seems to be pretty stable. So, just wanted to see if that's what you're seeing as well.

Yes, and Brian can talk about that. I have to tell you in general, anybody that is concerned with cord cutting, and I think the math of that is probably overblown particularly in the short term, but if anybody is concerned, broadcasters, and in particular Scripps, is a haven and a place to go.

In addition to the retransmission revenues that we enjoy, we also have the long-term hedge of an over the air distribution system, the value of which is going to be strongly backed in the auction, I think.

But we have both and we have the long-term hedge and then Scripps, in addition to that, we have the lagging retransmission fees that are coming on. Any cord cutting will be lost and overwhelmed in our numbers over the next couple of years.

So we watched as you have the concern over the past couple days and feel like if there is really any concern, people like this are the place to move your money. But go ahead Brian (multiple speakers) with facts (laughter).

We haven't seen any dramatic change in any decline of sub counts at this point. It's not unusual to see some of our carriers lose a few here, but then somebody else in the markets pick up a few. So we haven't really seen much deterioration there.

I just want to remind you, we are probably a company that, even if there is some shifting going on there we can really benefit because we have all those households that have been below market that we now are on the verge of -- about the capture at full market, at significant value to our shareholders. So I think that even if there is a little bit of shifting around, because of some of the challenges we've had in the past, we are actually well-positioned kind of blow right through that and live up to the pretty aggressive numbers that Tim put out there as we look toward next year.

And finally on that she had a question on M&A, the coming auction had really slowed down the M&A market. But now as the auction comes more and more into focus, anybody who's started to spend a lot of time has noticed the results of the auction will be very focused in very specific places. And there won't be opportunity in a lot of markets for people to take advantage of the auction.

That's, I think, going to encourage more people, more owners, especially small owners, come back into the market and decide that well, I guess the auction was not going to be the payday that we had hoped for many years. It's probably an opportunity for people like us to do important fill-ins, increase duopolies, so I think the market will probably heat back up as the realities of the auction become more apparent over the next certainly 12 months, and probably closer to it than that.

Thank you very much.

Dan Kumos, Benchmark Company.

Good morning, just a few questions for you. Going back to the prepared remarks, maybe you want to talk about early political signs you are seeing, actually stronger in 2Q than we were expecting, although obviously not meaningful yet. How early that political could come in, number one.

Number two, you touched on the fact that CBS All-Access was included in the Nashville negotiations with -- from an OTT perspective. A little surprised that CBS did a one-off there, although obviously Nashville being a strong market I can't say it's a huge surprise. But just your thoughts on how that conversation went, whether or not you got sort of fair value for where you think that trends, and how you think about dealing with the networks in terms of OTT going forward, understanding that it is still very early days.

And then last question, in terms of Midroll, just if people weren't on the reporter call, just maybe talk a little bit about the synergies, the fact that there is very little overlap, your thoughts on how that integrates with radio. And then if you could -- if you don't want to get too granular, if you could just sort of parse out kind of the growth rate you are expecting between -- separate out core TV websites and sort of ancillary properties that you own and how that gets you to your growth number and the margin trends there would be great. Thanks.

Hey Dan, it's Brian. You threw a lot at us, so let's go one at a time here. So you wanted to talk about 2015 political. I think you mentioned that second quarter was a little better than you expected.

Yes, second quarter was beyond our own PJs. We had a pretty aggressive mayoral race in Nashville which wound up being pretty lucrative, and some other local races that wound up overdelivering for us. But I think that is the beginning of what you will see -- momentum building.

In the third and fourth quarter you will see some local spending. The Kentucky gubernatorial race is going to be a big race and at levels that we had modeled, and it is good to see it remaining open and aggressive. So I think we will be able to capitalize on that.

We have seen an early bump on some Iran nuclear deal spending which has been nice in some of our markets, as well as -- and some of our tossup Senate races. The US Chamber of Commerce is spending similar money, so I think that will be kind of that fill that you see as we build through the third quarter.

And then as we get to the fourth quarter, our wild card is the early primaries. In the Journal acquisition, we picked up Omaha, which has a couple of counties in Iowa and of course Nevada with Las Vegas, and both of them have early February primaries. So we already have candidate orders on the books for December in both those markets.

We expect that we will see more. I guess it will really depend on what candidates are still hanging around at that point. But we've got some money laid in on some early favorites who people think will still be there. And then the big question is just how many super PACs will start in early and start contributing in those markets.

So I think you will see the continuous build through us for the year, but we think this year is going to be good and we think next year is going to be really good.

So on the CBS All-Access, probably as you were saying, I realized I wasn't as clear as I should've been in my prepared remarks. So we just renewed our CBS affiliation, the complete affiliation in Nashville. And when we did that, we also did a CBS All-Access deal for Nashville and our only other CBS station, which is Omaha.

So they didn't one off that. They included all of our CBSes, but of course that is only two. We feel very good about that. We are excited to have an economic relationship with the network that we provide our life stream of our local programming, which we think is really appealing in the cord cutter space. And we look forward to sharing in the economics of that.

But I think we feel very good about that new relationship and us having a financial stake in the OTT space as a partner to our networks.

Thanks, Brian. Good morning, Dan.

On the question about Midroll and synergies, from a synergies perspective, Scripps is already giving Midroll access to a much wider distribution platform for its shows. And I will give you an example of that in a second, as well as opening doors for advertisers. We've had all these long-standing relationships both in the broadcast space and on the digital side with national advertisers that today, already, we are beginning to connect with the sales team over at Midroll with great success.

Podcasting is in the news every day. Everybody is hearing about it, and quite frankly the transaction has opened the door for us to connect advertisers to the podcasting community.

On the synergies side, from a distribution perspective, even just yesterday we dropped a show in which one of our podcast shows did an exclusive interview with U2, the band, and we leveraged the network of our radio stations and, in fact, our television stations to do a little bit of internal content promotion about that podcast, in addition to even working with our internal PR team here at Scripps, and drove it to a much higher download number than that show normally gets. And I think it's just the very, very beginning. We do that very, very quickly right after the close. So we think there is a lot of great synergy ahead there.

On the analytics around the business, when we look at the revenue, the vast majority of the revenue and the expense today is dedicated to the core business. And if I look back at second quarter, our core local business saw nearly 20% revenue growth. Much of that was fueled by growth in local sales, by both our digital sales team as well as the relationships our integrated sales teams have with our clients and that programmatic advertising that I mentioned earlier.

So, while we are looking ahead to building businesses on the national side with great value, today, we are seeing 20% growth in the core on the revenue side.

And just on the margin front as that progresses back towards breakeven or better?

Yes, everything is moving exactly in the right direction as we've continued to describe in our previous communications.

All right, great. Thanks for all the color.

Craig Huber, Huber Research Partners.

I wanted to better understand if I could the underlying outlook here for your digital segment, excluding Midroll. Are you expecting third- and fourth-quarter digital revenue for example to be up midteens, similar to what it was in the second quarter year-over-year? And then also costs, excluding Midroll, should they ramp up a little faster than mid-single digits to, say, maybe 10% in the back half of the year?

I would say that had we not acquired Midroll, we would have confirmed guidance just like we did on the TV and radio side, we would have affirmed the exact same guidance that we had previously given last time around for third quarter and full year.

So things are exactly on track as we said they were in our last call, and things will continue in that direction. Does that answer your question, Craig?

Yes, that is very helpful, thank you. And also, why don't we jump over to Brian on the TV side? Can you just talk a little bit further on what you are seeing in the advertising TV pacing front here? How did July do year over year for your TV stations? And then you said auto is trending better. Does that mean it's just down less severe, or was it actually up? And I have a follow-up, thank you.

It's Brian. Well, it's August 7 and so we still got six, seven weeks left in the quarter to write auto business and we are already -- got a better to finish number for second -- for third quarter than we actually finished in the second quarter. And we still got all of September new models and all to come out.

So unless there's some rash of cancellations or anything, that we don't see coming, I think we are going to be in pretty good shape. I expect us to write a bunch of business.

So it's kind of early to call whether we will actually be up or down less. But I think you will see significant improvement in the auto space.

On the rest, we are having another amazing quarter on services. And again, between those two, as you know, it's almost 50% of our business. So if we have a stable auto environment and then the momentum that we are seeing in services, that gives us a lot of cover. We are having another great quarter just like last quarter in services.

I think with that foundation laid in, retail, we don't see down. We see it flat to up. And some of our other key categories kind of similar to our performance in second quarter, so I think we see a pretty stable environment right now.

Okay, and also, Brian, if I could ask, as you think about all the Journal TV stations that you took on here, I'm just curious from the big picture standpoint, is there anything significant that you can point out to us with their TV stations, their best practices were actually better than how you guys run your stations and you actually learned a lot or something from those stations, helped apply to your existing core base of stations? Anything significant stand out to you?

I think probably on the newsgathering side, every station approaches it differently. They were a little bit more autonomous than we were, so when you have great stations like I mentioned in Nashville or Milwaukee, I think there are things we could pick up from those stations that allow us to be better. We've been already able to integrate them into some of our scaling of some of our content and been able to pull some good content out of that.

I think maybe the other big thing is just on the local programming side. These guys are really adept at having local programs in many cases that are new venues for advertisers to have some paid segments away from news that showcase whether it's nonprofits or advertisers in a different way. They've got -- good, it's local, it's creative, and most importantly is the genuine advertising stream that kind of stays away from national agencies. It's really kind of done on a person-to-person basis just at the local level.

So I think we probably learned a good bit from them trying to figure out how to scale that across the Scripps group.

Great, thank you.

Michael Kupinski, Noble Financial.

Thanks for actually beating my cash flow number. It makes life a lot easier.

In terms of -- I don't want to exhaust Midroll, but Midroll appears to substantially improve the profitability profile of your digital segment. And I was wondering, do you anticipate that there at our investments that will need to be made in Midroll or do we have some visibility towards profits for the segment going forward?

Yes, we invested in Midroll and we have talked in the past about continuing to be on the hunt for businesses that operate on those platforms where we are seeing the greatest organic growth. And Midroll is no exception. We expect Midroll to be a fast-growing business.

I am certain we will need to invest in Midroll, but we've modeled that during the acquisition, so we know exactly what we are putting in and what we intend to be able to take out.

At the end of the day, we always look for businesses where the return exceeds our cost of capital. So we were pretty comfortable with the investment there.

I guess my question, too, is more on a general basis that I think the Company had thought that maybe the digital businesses could turn towards contributing towards cash flow and profits in 2017. I was just wondering if this accelerates that prospect. Or are we still on target with that, of if the Company can reaffirm that prospect?

In what, 2017, Mike?

Yes. 2017.

Yes, one thing to know, if you look at that segment, it is a collection of different businesses that are in different places along the curve. The local businesses continue to be much further along and contributors versus the other businesses that we are putting in there today, the national businesses. But generally speaking, the addition of something like Midroll does improve the profitability (technical difficulty) of the segment.

The other thing I would say is, in many cases, on the national business side, it can be sort of a binary decision. If we see that we are hitting the metrics that we want to hit relative to high-growth, revenue growth and user growth, where we feel like we are on track, everything is in good shape, we will continue to plow forward.

If we feel like things aren't progressing as we expect, we know our job here and we will scale way back and drive that profitability even faster.

Can you talk a little bit about the M&A pipeline in the segment, in the digital segment?

Sure. I think I have said a number of times that we are absolutely looking for businesses that get Scripps deeper into those platforms where we see the highest organic growth and the marketplaces where we see that evolving to. And for us, I think that is really the OTT video, OTT audio and mobile space. So we are absolutely looking to build and buy businesses in that space as we identify the younger audiences are developing around those platforms.

Mike, if you think about that M&A pipeline, we don't show up at many auctions, especially high-profile auctions. Midroll was a bootstrap company. They built it very successfully and somewhat quietly, and I was kind of pleased when we made the announcement that some people were not familiar with the business. That told me that we had uncovered something that had been off the radar screen but yet has great growth.

Newsy was the same thing, sitting out there in Columbia, Missouri, which had been built by a team and funded by in large part on some Missouri investors. So, to be successful I think in making these investments, you've got to stay away from the high-profile auction. You've got to stay off the coasts to some degree and look for opportunities where you've got people who are building real businesses, and the valuations are really attractive.

It seems like on the spectrum auction side, you guys have downplayed your participation in the past. It seems like your tone has kind of indicated that might be a little bit more of a participator in the auction process. I was just wondering without identifying markets that the Company may participate in, in terms of the spectrum auctions, has the Company determined how many markets it may participate in? Or if you could give us some flavor of your level of participation in the auctions coming up.

I will let Brian talk about it also, but if we do, we are certainly not going to tell you. The one thing we've learned over the past couple of months through a pretty deep process is this is a real chess game. And it's going to affect many, many, many markets, either if you are a direct participant or if you are one that is thinking about how to optimize the market going forward.

So I think bottom line, at least where I sit today, the auction is going to create an awful lot of opportunity. It's not just for those or in markets where people choose to take some cash but in the way it restructures the industry and starts to build out the broadcast system for the future. I think we've gained a lot of enthusiasm for the long-term benefits of the auction, well beyond just what we are going to see in the first quarter of next year.

Brian, do you want to say anything specific about it?

Look, I think you did a nice job of just framing that. We are spending a lot of time on this, Mike, and as you would expect, we are looking at it on a market-by-market basis. But understand that I think Rich just kind of foreshadowed that our thinking isn't just what's our opportunity by participating even in a channel share or some other thing, in dealing with the government.

But we think that as we look at markets and work through scenarios of ways things could play out, you've got affiliations that potentially others could be getting out that we may be able to pick up and we may suddenly be able to get network affiliates in the market. And I think that could provide great long-term opportunity for us.

As we -- I think mentioned earlier that there is markets now that people thought that maybe a big payday was coming, some independent owners, that now it's pretty obvious the government doesn't have a need for spectrum. And so this provides an opportunity for us to potentially double down in certain markets or pickup stations where people who have been holding out for the auction now may be available for acquisition.

We spent a lot of time looking at the ATSC 3.0 standard and we think there's tremendous opportunity in the future to build businesses well beyond just over the air broadcasting. So we think the auction, the actual physical auction, the event of the auction is only a small part of the true opportunity that exists for broadcasters as we look at the whole thing in totality.

And Brian, just as a follow-up on your auto comments, in terms of the auto category coming back in the third quarter, is it the dealerships that are stepping up or is it co-op money that is coming back?

Probably more the dealerships. We had a couple of -- well, it's two things, Mike. It's factory and it's dealerships. We had a great quarter last quarter with individual dealers. We were up over 20%.

As I said, really our challenge last quarter was in the dealer groups and there are still some of those funding issues that exist that I don't think we've broken out of yet. But there was also some of the factory money that had moved either to cable, to other places, that were now seeing that budgets are coming back and in third quarter they're picking up in the back half of the quarter.

So I think the dealer group funding is still a little bit of an issue. But individual dealers is really healthy and factory appears to be pretty healthy as well.

Great, that's all I have. Thanks, guys.

Tracy Young, Evercore ISI.

Just following up on that auto question, were there any specific manufacturers that were holding back on co-op money? Second question is could you give us some sense of how your radio stations performed versus your markets? And the third question is, could you remind us of CapEx for the quarter and the full year? Thanks.

It's Brian. I will take the auto question first. A year ago, Honda changed a little bit of the strategy. They moved some money over to cable. And so, I think on a year-to-year basis, they've been down a little bit. Toyota had some softness in the quarter, Ford was down a little bit. So, also some of the foreign stuff, Fiat, Acura, Hyundai, we saw some declines in.

The domestic stuff actually was pretty healthy, excluding some declines in a couple of our markets with Ford.

I'm going to throw it over to Steve Wexler now, who runs our radio group, and he will give you a little insight on radio's performance against those markets.

Thanks Brian. Hi Tracy. We were very pleased in the quarter on our performance versus the market. Particularly locally, the markets were down about 2% and we were about flat. And in total revenue, significant improvement in our NTR or nontraditional events revenue. Our markets were down right about 1% and we were able to grow a little bit better than 0.5%, so good performance versus our markets in radio.

This is Tim regarding CapEx. In the second quarter we had about $6.5 million of CapEx with the lion's share of that in the TV division. The guidance that we gave last quarter for CapEx for the year was about $30 million.

Okay, thank you.

Barry Lucas, Gabelli.

Two areas. I want to come back to Midroll if we could, Rich. $50 million is a fairly healthy-sized acquisition for the Company. Just wondering how do you come at a valuation for that? How does it add value down the line,? That sort of thing, if you could.

And then one more for Brian on the spectrum side is, as a member of [Perl], you touched on ATSC 3.0. Are there any milestone that we should be looking for or expecting with regard to adoption of the new broadcast standard? And if so, when are we going to see that?

I will start with Midroll, it's Rich. Even though it's audio, and people might say you guys are mostly a video company, even a television company, Midroll does -- that is an over-the-top play, fits well under that same -- in that same marketplace. We model something like Midroll just like any other business. We are looking for fairly rapid revenue growth and we are looking for it to be a contributor to value and to the segment. You'll see it as it flows through the segment. You will be able to keep an eye on it that way.

But we don't model it any different. Obviously these are less mature businesses than buying a TV station of about the same size. But our long-term expectations for cash returns are no different.

It's Brian. Let me take on your ATSC 3.0 question; a lot of time by a lot of folks being spent in that place. We've got committees on the business side, we've got committees on the technical side. And really the technical is where most of the work is being done now as we work to perfect the standard.

There's been a lot of innovation done in a lot of decisions made there, and probably not overly public. But there is a ton of very positive momentum around the technical decision-making that will build the foundation for the standard.

Down the road, when the technical has finished its build and ready for time prime time per se, there will be a couple of probably more public events. It will have to be adopted by the FCC. It will have to be adopted by the consumer electronics industry, so there will probably be more visibility about that.

But first, obviously we've got to get the technical side perfect. And there is a lot of really smart people working to make that happen as we speak.

Presuming that moves along at a timely pace, when do the business opportunities begin to manifest themselves?

Yes, a couple of years; three years maybe, something like that. You may see towards the end of the auction, as people are converting to moving on their re-packer channel share, you may start to see some folks launch on the new standard at that point. And I think that would be the beginning. And then following that, as all of the adoptions are -- and approvals are needed, kind of get finalized and you'll see more of a migration toward beginning the early adopters, trying to set the early business standards.

So -- but I think we've got to get through the auction first, and I think that we've got to get to the point where the people who are going to stay in the business are identified and the people who are getting out, get out. So that then the people who are all committed to the future of the business can get together and say, all right, we know we are sticking around. We are all in now. How do we make this a great platform moving forward?

So I think in a perfect world, things would have been timed a little better. But the world is not perfect. But I think once we get through the next couple of months as we get through the bidding and all, then I think the people who are staying will be able start to get some real momentum around this.

As Brian just said, about the time the new standard rolls out you get to the back end of the auction, you've also created scarcity in markets. So those who are there and building to the new standard have the opportunity to have a much stronger position in the market as markets are cleared out through the auction.

Great, thanks very much for that, Rich.

John Houck, Wells Fargo.

Just two questions on the radio. It looks like you beat the expense guidance by a pretty big margin in Q2, but you didn't change the full-year commentary. So are those expenses getting pushed out to the back half of the year?

And then my second question is, do you have any thoughts around the recent announcement for AT&T Next radio and how material you think that could eventually be? Thanks.

It's Steve Wexler. On the expense, yes, we've been tracking right in line with guidance. One of the variables for us is sports. The Green Bay Packers NFL schedule came out and it actually moved a game, which is actually for us a fairly significant piece. So there is some revenue and some expense that follows that.

We are confident that the guidance we gave on expense in radio now low single for the quarter is good and is appropriate. So we are not kicking expense down the road. We are right on plan and doing the things strategically that we think are sound and right in radio.

Regarding AT&T, we joined others in radio who were really pleased with the announcement and a lot of credit goes to Jeff Smulyan and the group over there who have done a very nice job of representing radio's cause, if you will. Yes, we think it's all good. Many of us remember a day when the transistor radio was how we listened to the radio. And this technology makes a smart phone potentially into a radio.

So that's good, because being wherever our users are digitally with mobile, with streaming, with the web, over the air and on the smart phone is good for the industry. I will just add that I think that while the technology in the platform is good and growing and positive, our challenge and our opportunity is still to make sure that we are providing local differentiated content that is meaningful in our marketplace. The technology will not do that for us.

So the fact that there is more ways to receive radio is a good move and a positive. We applaud it and we are excited about it. But we are hard at work making sure that our stations are really doing great things in our local marketplace.

Great, thank you so much.

Thank you. And speakers, there are no further questions in queue at this time from the phone.

Thanks, Keely.

Do you have any closing remarks?

No, I think we will wrap up here. Thanks so much to everyone for joining us.

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