Jan 31, 2018
Executives
Steve Lacy - Chairman, Chief Executive Officer Tom Harty - President, Chief Operating Officer Joe Ceryanec - Chief Financial Officer Paul Karpowicz - Local Media Group President Jon Werther - National Media Group President Mike Lovell - Investor Relations
Analysts
John Janedis - Jefferies Eric Katz - Wells Fargo Dan Kurnos - Benchmark Company Barry Lucas - Gabelli & Company
Operator
Good afternoon. My name is Chris and I will be your conference operator today.
At this time I would like to welcome everyone to the Meredith Corporation, Second Quarter Fiscal Year 2018 Earnings Call. All likes have been placed on mute to prevent any background noise.
After the speaker’s remarks there will be a question-and-answer session. [Operator Instructions].
Thank you. Mike Lovell, you may begin your conference.
Mike Lovell
Good afternoon, and thanks everyone for joining us. Our call today will begin with comments from Chairman and Chief Executive Officer, Steve Lacy; President and Chief Operating Officer, Tom Harty; and Chief Financial Officer, Joe Ceryanec.
Then, we’ll turn the call over to your questions. Also on the line today are Local Media Group President, Paul Karpowicz and National Media Group President, Jon Werther.
An archive of the call will be available tomorrow on our investor website. Our remarks will include forward-looking statements and actual results may differ from forecasts.
Some of the reasons why are described at the end of our news release issued earlier today and in some of our SEC filings. Certain financial measures that we are discussing on this call are expressed on a non-GAAP basis and have been adjusted to exclude the impact of special items.
Reconciliations of these non-GAAP measures are included in our earnings release, which is available in the Investor Relations section of our website. With that, Steve will being.
Steve Lacy
Thank you very much Mike and good afternoon everyone. I hope you have seen our news release issued earlier this afternoon.
We are very pleased to have closed our acquisition of Time Inc. in just two short months and to have delivered record earnings per share for a non-political second quarter and for the first half of our fiscal 2018.
I’ll begin this afternoon with Meredith’s second quarter and first half results. Next I’ll review the strategic rational that drove the Time Inc.
acquisition and give you a day one snapshot of what the new Meredith looks like now. Then I’ll turn it over to Joe and Tom who will discuss a series of events and activities that have happened since the November 26 acquisition announcement, update you on how the Meredith and the Time Inc.
properties have performed, outline our integration and go-forward strategy and provide insight into how we are thinking about our financial outlook for the near term. We were quite pleased to report record earnings per share for a non-political second quarter and first half.
Our performance was driven by strong growth in non-political ad revenue in our local media group, along with record digital performance and solid expense discipline in our national media group. Fiscal 2018 second quarter earnings per share were $3.49 compared with $1.58 per share in the prior year period.
Excluding special items in both periods, fiscal 2018 second quarter earnings per share were $1.14 compared to earnings per share of $1.30 a year ago where we benefited from $0.52 per share in political related ad revenue. Total company revenues were $418 million.
That compares to $443 million in the prior year period, again reflecting the absence of $38 million of political advertising revenue. Second items – excuse me, special items in our fiscal 2018 second quarter included, a benefit of $2.92 per share from revaluing differed income taxes related to the changes in the U.S.
Corporate income tax rate, transaction expenses of $0.23 per share related to the Time Inc. acquisition and a charge of $0.34 per share related to the impairment of a trade market and a realignment in our national media group.
Talking out all of the special items and the impact of tax reform, second quarter earnings per share would have been $0.93. That’s above the high end of the $0.87 to $0.92 per share range we communicated on our earnings call on October 27, 2017.
First half fiscal 2018 earnings per share were $4.23. That compares to $2.33 per share in the prior year period.
Excluding special items in both periods, fiscal 2018 first half earnings per share were $1.83 compared to $2.05 a year ago, again, when we benefited from $0.72 per share in political related ad revenue. Total company revenues for the first half were $810 million compared to $843 million in the prior year period, reflecting the absence of $53 million of political advertising revenue.
Turning now to our operating group results. Fiscal 2018 second quarter local media group revenues were $170 million and opening profit was $51 million.
Both are record highs for a non-political second quarter. Our results reflect the absence of $38 million of high margin political advertising as expected in a non-election year.
Non-political ad revenues were up 13%, led by growth in Phoenix, Atlanta, and in our Las Vegas markets. Our two largest ad categories Auto and Professional Services were particularly strong.
Fiscal 2018 second quarter national media group revenues were $247 million. National media group operating profit was $12 million.
That compares to $47 million in the prior year period. Excluding special items in both periods, fiscal 2018 second quarter national media group operating profit increased 2% to $35 million, driven by lower expenses in our magazine activity.
Total ad revenues were $126 million; our magazines grew their share of industry advertising to a record 14%. At the same time digital ad revenues increased 7%, driven by strong yield particularly on our programmatic platform.
Digital ad revenues accounted for 44% of total national media group ad revenues in the period. With that review of our fiscal 2018 second quarter and first half, I’ll pivot the conversation this afternoon to our Time Inc.
acquisition, starting with the review of the strategic rationale for the transition. First of all, in combining these companies we’ve created a diversified multi platform media company with significant scale.
Scale is exceptionally important in today’s evolving media landscape. More and more marketers and their agencies are consolidating budgets with partners who have scale, trusted brands and the ability to deliver improved return on ad spent.
We now reached 200 million on duplicated consumers, including 85% of adult millennial women. We possess a multi platform product suite that delivers a highly coveted audience to advertisers and marketers alike.
We have a leading position in entertainment, food, lifestyle, parenting, home, news and sports from a content creation perspective and we also enhanced our position in beauty, in fashion and the luxury ad categories. Second, we added to our portfolio our best-in-class national brands which now includes people, along with better Better Homes and Gardens, Shape and InStyle.
We are without a doubt the number one U.S. magazine operator reaching 115 million women each and every month and the owner of give of the industry’s top brands.
Along with Print Advertizing, our diversified revenue streams include digital ad revenue, stable circulation spread across nearly 60 million individual subscribers, a highly profitable brand licensing business and e-commerce, events and content management activities. Third, we have significantly accelerated our digital scale with nearly 170 million monthly unique visitors in the U.S.
and over 10 billion annual view views. This scale moves us solidly into the top 10 among U.S.
based companies as ranked by traffic, just behind Amazon and the Microsoft sites. We expect to generate nearly $700 million in digital ad revenue representing more than 30% of our advertising revenue.
We are the number one digital publisher in the lifestyle and food categories and for millennial women. We are well positioned to benefit from fast growing digital ad platforms including native, video, shopper marketing, programmatic and social.
With our new scale including 250 million addressable email accounts, we’ll have many new segmentation and targeting tools to better leverage our data in real time, putting the right offerings in front of the right consumers at exactly the right time. This means delivering higher returns for our advertising clients and growth in digital ad revenues beyond the combined $700 million levels.
Fourth, we’ll continue to benefit from the strong and growing contribution from our local media group. Our portfolio of 17 high performing television stations is a consistent generator of strong cash flow averaging approximately $230 million of EBITDA annually and coming off a record fiscal 2017.
We have highly profitable duopolies in five of our 12 markets; our stations reach 11% of US television households and are primarily Big 4 network affiliates. Because ad dollars generally follow the consumer audience, we are focused on large and midsized markets that are in fact growing faster than the U.S.
average. Our stations, our local market leaders with the number one or number two audience position in the morning or late news timeslots in most of our markets.
This is an important distinction because the largest players command more than their fair share of local market ad revenue. Fifth, this combination meaningfully enhances our financial strength and flexibility.
We expect to generate cost synergies at the high end of the previously stated $400 million to $500 million range within the first two full years of combined operation. We have an excellent track record of achieving cost synergies with prior acquisitions and are confident in our ability to optimize the cost structure of the combined businesses.
Sixth, we expect to maintain a strong credit profile and continue to generate strong cash flow. We have a modest leverage under three times including synergies at close.
The pro-forma company is well equalized with total equity representing more than 50% of capitalization. And finally Meredith continues to be led by a very experienced best-in-class management team, with a proven track record of outperforming our peers and successfully integrating acquisition.
I’m pleased to announce that effective tomorrow February 1, my long time business partner Tom Harty becomes President and Chief Executive Officer. I will continue as an employee of Meredith serving as Executive Chairman.
These new roles are the next phase in a well planned succession process that began when Tom was promoted to President and Chief Operating Officer in 2016 and he had done an outstanding job leading out operating groups. In my new role I’ll work with Tom to determine Meredith’s strategic agenda, continue to represent Meredith to the investment and financial communities, lead our board activities while playing a greater role in media industry association activities, particularly legislative initiative.
In his new role, Tom will continue to lead our national and local media groups with a significant emphasis on successfully integrating the Time Inc. acquisition and delivering the financial results for our shareholders.
In addition, Tom will add oversight for our finance and legal activities. I look forward to working closely with Tom and the senior leadership team, as together we create an even more powerful media and marketing company.
With those remarks I’ll turn the discussion over to Joe Ceryanec, to discuss what has transpired since we announced the Time Inc. transaction right after Thanksgiving weekend.
Joe Ceryanec
Thanks Steve. It’s been just two months since we announced this transaction and we are here today announcing that we’ve closed.
Many positive developments have occurred during that two month period and here are some highlights: First, we cleared the Hart-Scott-Rodino process without a second request, which has allowed us to close this transaction so quickly. Second, Time Inc.
shareholders supported this transaction as 66% of the shares were tendered as of last night. Third, as you may have heard, we had very positive results earlier this month marketing both our secured credit facilities and bonds.
Both of our facilities were well received and significantly over subscribed, which allowed us to tighten the pricing below what we initial expected in our financial model. We expect this will save us about $10 million annually in interest compared to our original assumptions.
And speaking of the financial model and my fourth point is that as you know the impact of tax reform reduces the federal corporate tax rate to 21% from 35% effective for tax years beginning on or after January 1, 2018. When we did our acquisition financial model, we used 38.5% as a combined federal and state effective tax rate.
We now expect that our effective combined rate will come down to the mid-20% level beginning in our fiscal 2019. This lower rate should save us several hundred million dollars in taxes over the next five years.
Fifth, the team at Time Inc. was more successful than we expected at Select asset sales prior to our acquisition close, and while all the deals have not closed, we expect these sales to add more than $200 million of cash to our balance sheet, further reducing our net leverage.
We had not assigned much value to any of these businesses and therefore their sale did not reduce the value of the business that we acquired. Also the success of these asset sales gives us significantly higher expectations for the net proceeds we might receive for any assets that we may choose to divest as a result of our portfolio revenue.
Finally, I would like to share with you that preliminary indications are the Time has delivered calendar 2017 results, in line with its previously stated expectation of $400 million of adjusted EBITDA and from what we can tell it appears that time delivered about $25 million of its previously announced expense reductions during calendar 2017. With that, I’ll turn it over to Tom to discuss our plans now that the transaction has closed.
Tom Harty
Thanks Joe. Our go-forward strategy consists of our four key components: one, bring the advertising and circulation performance of the acquired timing properties to at least industry norms by the start of calendar year 2019.
Two, aggressively grow revenue and raise the margins of the acquired timing digital properties, to Meredith’s mid to high teen margin levels. Three, conduct a portfolio review of the combined company’s media assets and divest those not core to our business which might be more value to another operator.
Four, fully realize the high end of the $400 million to $500 million range of annual cost synergies within the first two full years of operation. Let me provide you with more detail on each of these initiatives, starting with improving the print advertising performance of the acquired titles to at least industry norms.
Several years ago at Meredith we began budgeting from mid to high, single digit annual declines in print advertising volume and for each of the past five years that’s exactly what we’ve experienced, with organic declines ranging from 4% to 7% annually. I would characterize this performance as slightly above overall industry results.
Historically Time Inc., which owned the best portfolio of media assets in the industry outpaced industry performance. However in 2016 Time Inc realigned its sales structure and its go-to-market strategy to focus on advertising categories instead of their individual media brands.
This has resulted in revenue declines much steeper than both our own or average industry performance. For example, in calendar year 2017 Time Inc.
print magazine and digital advertizing revenue declined 13% compared to a 3% decline for Meredith’s national media group. Looking into the first quarter of calendar 2018, it appears Time Inc.’
s advertising revenue performance will be down in the high – the mid to high teens. By comparison we expect Meredith’s national media group advertising revenue performance for the first quarter of calendar 2018 to be down in the high single digits.
Turning around, the performance of the Time Inc. titles will take time.
Fortunately we were able to close the acquisition in just over 60 days. This gives us the balance of calendar year 2018 to implement Meredith’s strategies, standards and discipline across the portfolio and we expect to see progress starting in the second half of calendar 2018.
Importantly, it gives us a head start before large client ad buys are negotiated in the late summer and fall. Similarly, Meredith’s circulation business anchored by our strong subscription activities that account for more than 90% of our circulation base has outperformed Time Inc.’
s, which is more dependent on the news they had. We plan to launch a large scale initiative to use our respective subscription files to cross promote titles to both increased circulation revenue and lower subscription acquisition costs.
Additionally we used our new scale to achieve cost efficiencies. Our second go-forward strategy is to aggressively grow revenue and increase the margin of the acquired timing digital properties.
For the past five years Meredith has operated a profitable digital business with margins in the mid to high teens. In fiscal 2017 we achieved the important milestone of digital ad revenue gains, more than offsetting print ad declines, resulting in organic ad growth for our national properties.
With the acquisition of the Time Inc. properties we’ve become a top 10 digital player with 170 million monthly unique visitors.
Importantly, we will more than triple the $200 million of digital advertising revenues we generate to nearly 700 for the combined company. There is tremendous upside in raising the performance of the former timing digital properties to Meredith’s levels.
Frankly, the increased scale and potential upside of our digital business is something we believe has been overlooked by the financial community in evaluating the transaction. Third, now that we officially own both portfolios, we are launching a thorough combined media asset review to determine where the most opportunity exists to grow revenues and improve profitability.
We will focus on creating stronger and more profitable properties with the goal to be the number one or number two brand in this space, because just like our television business, top brands garner the lion’s share of the ad revenues. Additionally we would explore divesting assets that are not core to our business and might perform better with a different owner.
As Joe mentioned, we’ve been pleasantly surprised with recent transaction prices in the media space, and inbound interest for certain properties has been strong. Finally, we are very focused on fully realizing the high end of the $400 million to $500 million range of annual cost savings within the first two full years of operation.
Given our previous initiatives to acquire Time Inc., we are very familiar with the available synergy opportunities. We are laser focused on this goal and we will bring to bear the cost discipline we’ve come to expect from Meredith.
In closing we’ve hit the ground running. For the past two months integration teams from Meredith and Time Inc.
have been preparing for this day. Now that we are all one company, work on the initiatives outlined today will progress quickly.
I look forward to updating everyone on our progress on our fiscal 2018 third quarter earnings call in late April. Now I’ll turn it back to Joe to discuss our financial outlook.
Joe Ceryanec
Thanks Tom. Normally this is the point on the call where we would provide a forward looking outlook.
However, because one, we just closed the transaction today. Two, as Tom said we are doing a deep dive into our combined portfolios and made the best of certain assets.
Three, we’re still analyzing the impact of tax referral on the combined company. Four, we’re still analyzing the timing of the synergies we committed to and lastly, we are analyzing the impact of the revaluation of Time Inc.’
s balance sheet, including performing fair value calculations as part of purchase accounting. Thus at this point we are not ready to share forward-looking outlook for our fiscal third quarter or the remainder of fiscal 2018.
We do expect to be in a position to provide a more definitive outlook, including any divestitures we plan to execute on at the end of our third fiscal quarter when we report our March quarterly results. This would include revenue and profit expectations for both our fiscal fourth quarter and full fiscal year ending June 30, 2018.
We then expect to be able to return to Meredith’s traditional outlook methodology in late July when we closeout our fiscal 2018 and provide our outlook for our fiscal 2019. With that, I am going to turn it back to Steve who will lead the Q&A.
Steve Lacy
Thank you very much Joe and Tom and now we’d be happy to answer any questions that you might have this afternoon.
Operator
[Operator Instructions] Your first question comes from John Janedis with Jefferies. John, your line is open.
John Janedis
Thank you and best of luck Steve.
Steve Lacy
Hi John.
John Janedis
Steve, best of luck, hi. Congratulations!
So look, as you guys know there’s been a lot of discussion around synergy since you announced the deal. So given the update of something, say in the 450 plus range, can you give a little bit more color on what you’re seeing there and to confirm that’s only cost and does not include revenue, correct?
Steve Lacy
That’s only cost John and it does not include revenue and I’ll ask Joe to give you a little bit more color in terms of where we are in that process and maybe even give you a couple of interesting examples that we’ve come across thus far.
Joe Ceryanec
Yeah, so John I know there’s a lot of questions out there, given the fact that Time Inc. you know on a standalone basis had announced a project to pull cost out of the business and obviously you know we’re talking about $400 million to $500 million.
We are in the process of working with the Time folks, including they had engaged Mackenzie to work with them, you know to really analyze what the types of items were that were behind their $400 million and how those relate to our four to five. I think as I said earlier on the call, as we looked at how they closed out 2017, there were about $25 million of cost savings that I would say would have been part of their 400 number.
So the good news if you will is they have not earned through a lot to hit their 2017. We’re not in a position to sit here today and tell you exactly where that overlap is, but as we said, we are focused on the high end and truly expect on a – you know after we compare the – I’ll call it the duplicative that might have been in their number and our number, you know the net-net is still about 400.
John Janedis
Okay, thanks. And then separately, like understanding you’re not going to provide the typical guidance, can you talk a little bit more about print and the advertising and the national segment.
It looks like its squeezing a little bit from the results, so anything to highlight in terms of certain verticals. Can you clarify the comment on I guess what I call Legacy Meredith on the national side in the current quarter.
Did you say that total advertising is down high singles or is that print only?
Steve Lacy
Tom will go back through the advertising again for you and you know then we’ll double check and make sure we’ve answered your questions at the very end. So why don’t you start Tom with Meredith?
Tom Harty
Yes Jon. With Meredith in the second quarter, print was down – the trend was down a little worse than what we expected.
It was down 16% and digital was actually better than we expected. So the last time we talked to you after the first quarter earnings call, we were looking at digital trends being a little tougher and there’s a couple of things that are driving this that are more cyclical than anything else.
In the summer, summer to early fall we felt the significant pull back from what I would call as the packaged good companies. I think this was kind of stated in the press also.
Now we’re kind of pulling back on budgets. And what we saw towards, into the holidays was some of these food advertisers, packaged good advertisers actually came back.
It was a little too late for some of the print titles because we have to close; we have a longer lead time. It’s about a two month close, but we kind of saw a surge during the holidays on the digital space.
That’s why you saw the digital being up better than what we expected, which was 7% and print being slightly down. The other category that was driving it from a cyclical perspective was pharma.
We had a very, very strong pharma the year before and we were up against some tough comps. Again, this depends on what drugs are coming in and out.
It’s not really industry trend, but more about timing on a cyclical perspective. And then looking forward, the number that I gave you for the third quarter was a combined print and digital.
High single digit decline that we are kind of seeing right now – we’ve got a little ways to go, a little further to go from a digital perspective and print, the last issues for print aren’t closed yet, but that’s what we’re seeing.
Joe Ceryanec
You know trending is a little better in print in the fiscal third quarter than it was in the second and digital we’re kind of in that range of being about the same.
Steve Lacy
You know John, we always are ahead of situation on this call where we have kind of one month closed and the other month is pretty well closed from a print perspective and we’re working on the third. And then digital, you know and especially we saw that in the fourth quarter, it’s still building at this point.
So you know the best we can do is kind of that combined point of view. So that’s Meredith.
Does that answer your questions?
Tom Harty
Yes. And on the Time Inc.
numbers, Time Inc. again kind of underperformed from the perspective compared to Meredith.
Their numbers in the combined – I don’t know if I have the exact number for the second quarter, but it was high. The over 20% declines, kind of mid-20’s from a print perspective, and lower than we performed on a digital perspective same comp.
So again, we’re seeing their trends have been underperforming us for a period of time the whole calendar year and we saw that in the fiscal second quarter over the calendar fourth quarter.
Steve Lacy
And again you know its early John in 2018, but the trends feel about the same for timing.
Tom Harty
About the same, yeah.
Joe Ceryanec
For timing, separate.
John Janedis
Okay, alright. Thanks so much guys.
Steve Lacy
Thank you, John.
Operator
Your next question comes from Eric Katz with Wells Fargo. Eric, your line is open.
Steve Lacy
Hey Eric, how are you?
Eric Katz
Good, good. Congratulations!
Steve Lacy
Thank you.
Eric Katz
So we’ve talked to quite a few investors over the last few months as well and the biggest concern of our thesis is around I guess Time side. You both seem pretty comfortable with you know your trajectory.
I was wondering if you could just talk in a little more detail on how you plan on stabilizing Time’s revenue, because I think that’s one of the biggest pressure points for a lot of the people out there. And I know you said you can only talk so much to the timeline, but you know I do know that their numbers will give some easier comps going I guess later on to the year.
So I don’t know if that’s solely true or not, but anything you can talk to, that would be super helpful.
Steve Lacy
Yeah, I don’t know that there is anything about you know necessarily easier comps, but I am just going to open this up a little bit with a little historical perspective and then I am going to ask Tom to give you a little bit more color on what he and Jon Werther and Doug Olson who run that business are working on to move this in the right direction. The real honest to God truth and I would have never said this from the podium was that for years and years and years, 20 years for me and 30 plus years for Tom, we’ve been competing against Time Inc.
and they’ve always had the best portfolio brands, the best assets and the largest scale and no matter what the industry did, they outperformed and so now we’ve gone into a situation where for a period of time now, kind of 18 months sort of, they have been significantly underperforming for some structural changes that they made in their go-to-market strategy. So I am going to ask Tom to speak to that and then Jon Werther if you want to add anything from a digital point of view, feel free after Tom gives a few remarks here.
Tom Harty
Yeah, and as I mentioned being specific, entering the summer of ’16, Time Inc., actually the prior leadership made a decision to go away from selling, having people selling from a brand perspective. So you know previously you had somebody wake up every day and think about People Magazine or Cooking Light or Southern Living and they reversed that and went to more of this vertical selling strategy.
So you would have a food vertical, pharma vertical, financial vertical and if you were a seller in that vertical you would have to think about plus 20 brands and have answers on everything and the marketplace really reacted, the advertising marketplace reacted really badly to their state. It’s just not the way they wanted.
They weren’t getting serviced correctly, they weren’t getting the answers, nobody could tell them specific marketing ideas around some of their big 10 poll things like the Oscars for People Magazine or the Sports Illustrated Swimsuit Issue. So that’s really led it.
If you look at the numbers and you look at the industry, that really points to what happened and it’s exactly what we hear from the advertisers. So what we’ve been working on is reversing that and we’re going to take a little bit of a pause for a short period of time, four to six weeks and then come out with a new go to market strategy where we’re going to reverse it and we’re going to take the best of both worlds and go back and have people responsible for their brand which we think are really important and that’s how we sell.
The good news is that as I have been down there over the last two months, a lot of those brand leaders are still there. They are just off in these verticals.
So someone that used to be in charge of Sports Illustrated is there, someone who use to be in charge of Real Simple. So it’s not a real stretch for us to kind of undo that and put some of these people back in place and actually they are really eager to do that.
So I think from our perspective it takes a little bit of time from the advertising sales cycle, but we’re going to see sequential improvement quarter-to-quarter through the remainder of 2018 and really getting ready for the calendar year 2019. We think that’s when it will be steady state going forward and getting them back into what we would say the industry performance, which would be about half of the decline of what they have been saying.
Steve Lacy
So Tom has been working along with the other leaders Eric in identifying the individuals who use to lead these brands and getting them positioned and getting the right groupings of the individual properties. And you know at Meredith we’ve always had brand leaders, we’ve had a digital sales force, we’ve had a corporate go-to-market strategy where we have verticals as well and so we’ll go to that model and it’s important to remember that we are closing the April issues now, so that’s why in our prepared remarks Tom made reference to beginning to see some improvement in the second half of calendar ’18.
So you know July, August, September going forward and working with the largest advertisers who are in all sincerity the largest share of revenue. That activity really kind of starts in the later part of the summer, into the fall with the objective of you know having things where they should be as we turn the corner in to calendar ’19.
So I want to pause here and see if we answered your question.
Eric Katz
That is really helpful and I guess the jist of what you are saying is that’s not very difficult to do some of those things, just sort of putting it back to where it was.
Steve Lacy
That’s correct. I mean you can look at industry data and see forever that they out performed us and everybody else and the brands are there, the consumer audience is solid as a rock and I think there is a real cry in the market place that want these businesses to be successful in this new combined business that is without a doubt by any measure the market leader to in fact lead the market.
And then on top of that Eric you know we’ve never had the kind of digital scale to go to the market and Jon you should – Jon you should talk a bit about how these major digital ad buys come down and why the scale as you and your team have been in the market, why the scales matters.
Jon Werther
Yeah, thanks Steve. As Steve said, obviously scale does matter and you know brand marketers and agency partners are increasingly looking to partner with fewer companies, like Meredith now combined with Time Inc.
that can offer not only that scale, that top ten reach that we have in digital to strike larger upfront commitment who are always on deals or opportunities that are increasingly content and data led and we think we have a very unique opportunity together to capture a greater share of spend in the digital market place. We really have four things and I think what you’ll just as on the brand side, the print side as Tom alluded to, we really have a very formula like approach to opportunities in the digital market and its really one that begins with our brands.
We believe we have a best-in-class portfolio of brands that consumers trust to inspire and form, entertain and connect them, whether within our Print titles, our digital sites, our social presences, connected devices over the top, etcetera, and these are brands that are trusted, iconic and have a very, very long heritage of being part of the fabric of consumers lives. We think that is something that provides us with a very strong position in the market place competitively.
When you combine those or that portfolio of these trusted and respected brands with the large audience we now reach, 200 million customers as Steve and Tom said earlier across channels and that includes 80% of all millennials, 85% of all millennial woman and three quarters of Latinas, that is a very big foundation for again, larger ad spent with us from a digital perspective as well. And on top of that we offer now as Steve said, more than 10 million video views annual of 340 million social followers and that unique combination of content and utility that we have is really, really important in driving that engagement.
So brands, audiences and then obviously two other things, first party data from these 200 million direct consumer relationships, which together with our now even deeper editorial insights from our portfolio will enable us to uniquely profile our consumers interests and their needs and allow us to continue to predict trends and identity accruable insights that drive not only our clients media and targeting decisions, but also increasingly their product development and content strategies. When you combine those brands, that audience, our insights and analytics with the proprietary technology products that we have across our business from the areas of shopper marketing, branded content, voice, programmatic, people base targeting, ecommerce, all of which are large growing revenue streams in the digital ecosystem.
We believe there is no one better positioned in the market place than us with that combination of assets to take even greater share in the market, our fair share of spend from the marketing clients and agencies with whom we work strategically.
Eric Katz
Thanks for the color.
Steve Lacy
That’s a quick hit of digital and you know digital we really believe is kind of the hidden gem inside of this business that really Meredith standalone, Time Inc. standalone really wasn’t getting any credit for and you know have we to deliver on the promise, we got to bring this together, we have to grow it, there is a lot of margin work to do on the Time Inc.
side to get the margin up to the Meredith level, which is actually a couple of points better than the national media segment that we report standalone, but that’s the growth vehicle to returning this business to organic growth going forward.
Eric Katz
Thanks for the detail.
Steve Lacy
That’s the real strategic intent. So, thanks Eric.
Eric Katz
Good luck.
Operator
Your next question comes from Dan Kurnos with Benchmark Company. Dan, your line is open.
Steve Lacy
Hey Dan, how are you?
Dan Kurnos
Mr. Lacy, I hope you atleast pop in every once in a while.
I know you are not going anywhere, but – and I hope you are seated when I say this, but you deserve a lot of credit for what you have done with the company over – during your tenure and I’m sure you will continue to help drive the company in the right direction in the future. So congratulations Steve!
Steve Lacy
I just wrote that down. It’s the only kind thing you’ve ever said to me Dan.
Dan Kurnos
Come on the – Just make sure you are on the call back tonight and we can have a real conversation.
Steve Lacy
Yeah, all right. What can we help you with?
Dan Kurnos
Anyway, so since everybody seems to only want to focus on Time and publishing, I’m going to ask two quick TV questions. My numbers have you guys kind of plus eight for Core I think X Peach [ph] in the quarter.
I think you mentioned some auto strength there and professional services. Can you just give us a sense of if that’s accurate and if how calendar Q1 is pacing and then also on the political front I think it’s only 10% of your political comes from presidential and you did $66 million in ’16, you have pretty good footprint.
Can you just give us a sense of how you are thinking about political going into ’18, calendar ’18?
Steve Lacy
So quickly, I’m going to give you a couple of quick numbers here and then Paul I want you to give a bit of preview, one of your cautiously optimistic previews on the political cycle which will be upon us very, very soon. So non-political, X Peach [ph] up 10% in the quarter.
Dan Kurnos
In Q2?
Steve Lacy
In Q2 and automotive up 8%, professional services up 36% really strong.
Dan Kurnos
What you want to say, thanks.
Steve Lacy
I would say early calendar ’18 pacing are a little bit softer and I think we are still kind of trying to see how the market forms and I’ll ask Paul to give you a little color about some of the comparability challenges we have in Q1 and Joe can add to that first and then we’ll turn to you Paul.
Joe Ceryanec
Sure. We maybe Dan expect to be down a couple of points in Q3, but remember that we only have one NBC and you’ve got both Super Bowl and Olympics on NBC.
So we are most likely going to underperform overall because of that, but right now we are looking at maybe down, maybe flat to down a couple points.
Steve Lacy
And Paul, why don’t you give a little color around that and your views on political going forward into, you know a lot of that you know Dan will be in next fiscal, but go ahead Paul.
Paul Karpowicz
Yeah and what Joe described is exactly correct, that the combination of the Super Bowl and the Olympics on NBC, you know while it’s great for NBC affiliates, we’ve just got one. So it’s sort of unusual that you got a quarter where you have two, high, high profile events that are one network and one network right in the middle of the quarter.
So what we have seen is, you know we have seen some weakness in February, but as we look into March, March looks okay and there is not a fundamental problem, it’s just this is a very, very unusual quarter. As it relates to political, we set a record last year with our political revenues.
Again, as Steve said I’m cautiously optimistic, but if you do look at where our stations are locations and you look at some of that are being profiled as the high profile, major, major contiguous races, we are positioned very, very well. So we are already seeing some political spending in some of our markets kind of very early days, but the expectation is that political spending will start earlier than it has in the past and we’ll probably be greater than we’ve ever seen before, and I don’t want to overstate that, but we are positioned quite well with the races that we know are out there.
Dan Kurnos
Got it, that’s helpful. And just to be clear on this, so Q4 had some – obviously had some comp benefit and calendar Q4 just to be clear here.
So fiscal Q2 you got some comp benefit, nothings falling off a cliff. Q1 – if not for – calendar Q1 if not for you NBC exposure.
You know Core is still maybe up-low single something like that, is that fair.
Steve Lacy
Yeah, I think that’s very fair.
Tom Harty
Yeah, I mean we were comping against real strong political a year ago in the December quarter. So we did get a benefit from that.
Dan Kurnos
Got it, all right. And then Joe, I don’t know if you are going to be able to really give an answer to this now since it’s so early days.
But just in a sense, since everyone now picking on the synergy number. A lot of times cost savings were going to be reinvested.
We were trying to figure out if that’s going to all flow through. So even if you hit the high end is that a flow through number at the end of the day?
Is there some incremental investment? How should we just think about how that translates into EBITDA from a pro-forma basis?
Joe Ceryanec
The number we are giving is the net. So if there is reinvestments that’s outside of that four to give hundred.
That is the net savings.
Dan Kurnos
Okay, I appreciate that. And then lastly on the print trends, just tuning back to it, you know your guide going into the quarter, it seems like to came in a little bit, it came in softer than your guide and even though fiscal 3Q is a little bit better than that, historically you guys have said you have been kind of sort of minus 6-ish on average.
This is outside of that norm. How long does it take for you guys organically, forget time for a second, to get back to you know kind of that print number, that historical down print number and what’s causing these outlier quarters right now.
Jon Werther
I guess our guide, I’ll start and Tom can pile in on more of the trend. I think the guidance we gave back in October for total national was total revenue down mid-single digits and I think we came in 5%.
So overall we came in right where we said we would be. Now to your point, prep was a little bit softer, a little bit; digital came in stronger, especially late which we didn’t get on the print side, but good point Dan.
Only Tom can speak to this. I think part of it is category issues especially with the pharma, which tends to be cyclical, not seasonal, but cyclical and that’s really been what’s pulled us down a little more than what we would say is our long term outlook.
Tom Harty
Yeah I don’t think there is anything that would change, that we know today that would change our kind of long term view. You know as you look back, we mentioned on the call, we’ve been kind of in that for five consecutive years, kind of that 4% to 7%.
We had quarters where we’ve down 15%, we had quarters where we’ve been up in Print and in that quarter when we were up in print, we were actually down in digital and that was two years ago. So there is a lot of quarter-to-quarter changes, but when you look at the years in totality, it kind of comes out in that range and I don’t think there is anything to change our thoughts on that.
We got a couple of categories that we are facing a few headwinds in, but we are confident about the numbers overall.
Dan Kurnos
Got it. Alright, thanks for the color guys.
And Steve, in all seriousness congratulations and best luck.
Steve Lacy
Thanks Dan talk to you soon.
Operator
Our next question comes from Barry Lucas with Gabelli & Company. Barry your line is open.
Steve Lacy
Hey Barry, how are you?
Barry Lucas
I’m well Steve and you sound terrific on the phone, so thanks for providing the time here. I want to come back to television as well and you know pose a question about how constrained do you fell with $3 billion of debt, three times leverage as we go into a year where if the wall never breaks and Sinclair tritium closes, there is likely to be a lot of M&A activity on the station side.
Steve Lacy
Yeah, we did a lot of work on this. I’m going to ask Joe to respond because obviously it’s very, very important that we can stay in the market and continue to grow on the local side.
Obviously as we were discussing with our board, the Time Inc. acquisition, they asked exactly that question.
So I’m going to ask Joe to give you the response, because we did a lot of work with the lending community before we moved forward.
Joe Ceryanec
So Barry, back in November when we did the original model, when we were talking to our banker friends, we felt we had dry powder, generally $0.5 billion to $1 billion of dry powder and as you may or may not know, we went after the Santiago station and wound up going into Tegna. They were very aggressive in their bid.
That was north of $300 million and we would have been very happy to get that asset. So that was clearly you know within something we were very comfortable of doing.
I don’t know if I was very clear, but the message I was trying to give in my prepared remarks is from the original model we did, the acquisition model back in November we’ve seen some really positive things. Tax reform as I mentioned is hundreds of millions of savings in tax.
The debt deal coming in, you know tighter pricing, what Time Inc. has sold which includes essence and asset play.
You know and assets we really didn’t put much value on, you know a couple of hundred million on those and that just gives us more comfort that if we do divest certain titles, you know the value is out there. So we felt comfortable with the original model doing in I’ll say select broadcast M&A and I’d say we feel even better about that now and obviously you know the Sinclair trip process letter filing came out.
So we are taking a hard look at what we are going to do with the bid of those stations.
Steve Lacy
Did that help Barry?
Barry Lucas
It does Steve. Let me throw out one more since – if I can.
Steve Lacy
Sure.
Barry Lucas
You’re talking about the issues in trying to go through the finances and the difficulties or impediments to providing guidance at this juncture and maybe we’ll go to next call and the following call. But with all the puts and takes, that are likely to be seen as we go forward, asset sales and what have you, how should we best measure your results, because there is clearly going to be a lot of noise in them?
So whether you know – for Tom, how do you think about this going forward? What are the key benchmarks that we can, we should be looking for to identify success or lack thereof?
Tom Harty
Well, this is Tom, Barry; it’s a good question. I think the debt level that we are going to have going forward and the leverage we are going to have is a key benchmark and our stated goal is to pay that down as quickly as we can and get to that two times level and I think you are going to hear us talk about that quite a bit and then I think you know the other bench mark for us is that EBITDA line which is going to reflect the synergy benefits that we are going to take over time.
So that’s the two things we just got done with our board meeting this weekend and those are two things that I’m 100% focused on and we are going to be talking about in the future.
Joe Ceryanec
Yeah, I mean Barry one of the – as we do the portfolio review one of the, the real reasons we didn’t want to give some forward-looking guidance is because the minute we gave our revenue number and then we decides we were going to sell an asset we got to come out and modify that. So we are really hoping by the end of what will be our fiscal third quarter, well through that we’ve been able to model what those dispositions might be, maybe treat those as held for sale so we can take them out of the P&L.
So we would look to give revenue guidance on a go forward portfolio. To Tom’s point, EBITDA/cash flow will obviously become critical along with leverage and then the question is when we have the entire balance sheet revalued and understand how those valuations are going to manifest themselves back through the P&L and DNA and the other full P&L where we can get to the EPS.
I mean we’ve always been an EPS company. I would expect we for sure will as we look into fiscal ’19, but as we think about guidance for the end of March, it maybe revenue EBITDA leverage target with more color.
I know everybody more color on what the net-net synergies are going to be that we are going to bring above what Time Inc. has already announced.
Barry Lucas
Right. Thanks for that Joe.
I appreciate the color.
Steve Lacy
Yeah. So we appreciate everyone being on the call.
We don’t have any other questions in the queue. We are going to be in the Time Inc.
offices in the morning greeting the new employees and welcoming them to Meredith and we are very, very aggressively moving on the revenue side and also obviously on delivering on the synergies. So more to come when we release earnings in April and as Joe said full traditional guidance by the time that we get to fiscal ’19.
So we appreciate everybody jumping on the call, and we’ll keep you posted on our progress going forward. Thank you very much.
Operator
This concludes today’s conference call. You may now disconnect.