Aug 10, 2018
Executives
Mike Lovell - Investor Relations Steve Lacy - Executive Chairman Tom Harty - President and Chief Executive Officer Joe Ceryanec - Chief Financial Officer Jon Werther - National Media Group President Patrick McCreery - Local Media Group President
Analysts
John Janedis - Jefferies Jason Bazinet - Citi Kyle Evans - Stephens Marci Ryvicker - Wells Fargo Davis Hebert - Wells Fargo Dan Kurnos - Benchmark Company
Operator
Good morning. My name is Jacqueline and I will be your conference operator today.
At this time, I would like to welcome everyone to the Meredith Fiscal 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.
After the speakers’ remarks, there will a question-and-answer session. [Operator Instructions] Thank you.
Mike Lovell, you may begin your conference.
Mike Lovell
Good morning and thanks everyone for joining us. Our call today will begin with comments from Executive Chairman, Steve Lacy; President and Chief Executive Officer, Tom Harty; and Chief Financial Officer, Joe Ceryanec.
And then, we will turn the call over to your questions. Also, on with us today are National Media Group President, Jon Werther and Local Media Group President, Patrick McCreery.
An archive of the call will be available on our website later this afternoon. Remarks this morning will include forward-looking statements and actual results may differ from forecasts.
Some of the reasons are described at the end of our news release that we issued earlier this morning 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. And with that, Steve will begin.
Steve Lacy
Well, thank you very much Mike and good morning everyone. I hope you have had the opportunity to see our news release issued earlier this morning.
I will begin with a review of our accomplishments since our last discussion when we released third quarter results in early May, along with our key achievements in fiscal 2018, which of course included our transformative acquisition of timing. Then I will turn the conversation over to CEO, Tom Harty, who will update you on the integration of timing and the strategies we are pursuing to maximize our new and very exciting National Media Group portfolio and provide detail on our robust Local Media Group operations.
CFO, Joe Ceryanec will then discuss our full year and fourth quarter 2018 result and provide you with our financial outlook for the first quarter and full year of fiscal 2019. Since reporting fiscal 2018 third quarter results, we have made significant progress and anticipate agreements to sell Time, Sports Illustrated, Fortune and Money, along with our 60% equity interest in Viant in our early fiscal 2019.
Importantly, we don’t expect any tax leakage from these transactions. We also are reconfirming our goal to pay-down $1 billion of debt in fiscal 2019.
We will accomplish this by a combination of the $440 million of cash on our balance sheet at June 30 along with cash from the anticipated asset sales and expected cash flow from operations. We expect fiscal 2019 adjusted EBITDA to be more than double Meredith’s record EBITDA in fiscal 2017 before we acquired Time Inc.
This will be driven by a full year of revenue contribution from the Time Inc. acquisition, election year political advertising in our Local Media Group, and ongoing cost synergies.
We remain on target to generate more than $500 million in annual cost savings in the first 2 full years of operation post the Time Inc. acquisition, which will help us achieve our goal of generating $1 billion of EBITDA in our fiscal 2020.
Our digital business delivered record traffic and financial performance in fiscal 2018. Companywide digital activities generated a record $350 million of high margin revenue reflecting our broad and diverse digital footprint that includes advertising, e-commerce and paid products and services.
Traffic across our digital properties averaged nearly 135 million unique visitors in June of 2018, up more than 50% from the same month a year ago. This includes record performance from the People and Entertainment Weekly Network which averaged a record 60 million monthly unique visitors during the fourth quarter of our fiscal 2018.
In addition we leverage the power of our expanded portfolio to grow high margin revenue from our consumer activities. These include the revenues generated from our national media brands with their subscriber base of more than 40 million, affinity marketer Synapse, a robust brand licensee business ranked as the world second largest and our rapidly growing e-commerce activities.
Our Local Media Group delivered $60 million in political advertising revenues in fiscal 2018, a record for a non-political year. We anticipate a very strong political advertising cycle in fiscal 2019 potentially eclipsing the record $63 million generated in fiscal 2017.
In fact first quarter fiscal 2019 political advertising revenues are pacing well above the $60 million generated in the first quarter of our fiscal 2017. Stepping back now for just a few moments to review fiscal 2018 and it’s totality, we continued to aggressively executive a series of well defined strategic initiatives to generate growth in revenue and profit and increase shareholder value over time.
First and most importantly we completed the transformational acquisition of Time Inc. which creates an unparallel portfolio of national media brand with greater scale and efficiency.
Our brands now reach more than 175 million unduplicated American consumers including 80% of U.S. millennial women.
Meredith is number one as a magazine operator and we possessed leading content creation positions in celebrity, entertainment, food, lifestyle, parenting and the home categories. We also have much stronger advertising positions in the beauty, fashion and luxury categories.
The acquisition advances our digital position by adding significant scale with nearly 135 million monthly unique visitors and over 9 billion annual video views we now operate the leading network of premium content digital brand. National Media Group digital advertising revenues grew more than 50% in fiscal 2018 and represented nearly 35% of the group’s total advertising revenue.
Equally as important, by adding the Time Inc. properties, we are accelerating consumer revenue diversification and growth.
We expect more than 45% of fiscal 2019 National Media Group revenue to be generated from high margin non-advertising related consumer activities, including our robust subscription, brand licensing and e-commerce businesses. In fiscal 2018, our Local Media Group continued to deliver very strong performance.
Our portfolio of 17 high performing television stations in 12 markets delivered record revenue in fiscal 2018 and operating profit was a record for a non-political year. Performance was driven by growth in retransmission revenue, the addition of WPCH in Atlanta and MNI Targeted Media.
M NI offers clients targeted advertising solutions aimed primarily at the local and regional levels. Digital revenues in the Local Media Group more than doubled in fiscal 2018, driven once again by the contribution from MNI.
As I mentioned political advertising was the record for a non-political year and we are looking forward to a strong cycle this fall as well. In addition, we are simplifying and focusing Meredith’s national media portfolio through successful execution of a series of asset sales.
We have already closed on the sale of the Golf Brand, Time UK and Meredith Xcelerated Marketing during fiscal 2018. We anticipate agreements to sell Time, Sports Illustrated, Fortune and Money, along with our 60% equity stake in Viant to be finalized in early fiscal 2019.
These brands and businesses have different target audiences and revenue bases than the rest of our portfolio and we believe each is better suited for success with the new owner. As a quick reminder, discontinued operations in our fourth quarter include Time, Sports Illustrated, Fortune, Money and Viant.
Discontinued operations for our full fiscal year 2018 include those properties, along with the Golf Brand and Time UK. Finally, when we closed the Time Inc.
acquisition, we set in motion a 2-year plan to integrate and optimize our new and combined national portfolio. While there are still many moving parts, the acquisition positions Meredith on a growth track not realizable organically.
For example, we finished fiscal 2018 with record revenues and earnings before special items. As Joe will detail in just a few moments, we expect adjusted EBITDA in fiscal 2019 to be more than double our previous record high of $362 million, which we delivered in fiscal 2017, once again before the Time Inc.
acquisition. And we remain committed to delivering $1 billion of EBITDA in our fiscal 2020.
We also plan to aggressively de-lever and pay down $1 billion of debt in fiscal 2019 using cash on our balance sheet, expected cash generated from the asset sales, and ongoing operations. We are committed to returning cash to our shareholders through continued annual dividend increases.
We raised Meredith’s regular dividend in fiscal 2018 for the 25th straight year earning Meredith dividend aristocrat status. We are proud to have paid dividends for 71 consecutive years.
With that, I will turn the conversation over to CEO, Tom Harty to update you on the Time Inc. integration and the strategies we are pursuing to maximize our National and Local Media Group portfolios as we move ahead.
Tom Harty
Thanks, Steve. To start, let me elaborate for a moment on what the Time Inc.
acquisition means to Meredith from my perspective. Beyond increasing the quality and size of our magazine portfolio, the addition of Time Inc.
properties to Meredith accomplishes three meaningful objectives. First, our financial base is more diversified, because we now possess a much larger digital business.
Looking at our portfolio through a digital lens, we expect more than one-third of fiscal 2019, total National Media Group revenues to be generated via digital activities. This includes digital advertising, e-commerce and paid products and services, which are important growth areas.
For example, we generated more than 100 million referrals to online retailers in fiscal 2018. Second, our much larger footprint is generating stronger revenues and operating profit from consumers.
We expect more than 45% of fiscal 2019 National Media Group revenue to be from consumer related sources. Finally, we can operate the combined Meredith-Time portfolio much more efficiently as a single company.
We are on track to generate more than $500 million in annual cost savings in the first 2 full years of combined operations. When we announced the completion of the Time Inc.
acquisition, we outlined a go-forward strategy consisting of five key components, improving the advertising performance of the acquired Time Inc. properties to Meredith’s historical levels, aggressively growing revenue and raising the profit margins of the acquired Time Inc.
digital properties to Meredith’s high levels, accelerating the growth of high margin consumer revenue by leveraging our expanded brand portfolio, inducting a portfolio review of the media assets and divesting those not core to our business and fully realizing the high-end of the $400 million to $500 million range of annual cost synergies by the end of the first two full years of operations. Let me provide you with more detail on our progress for each of these initiatives.
As we previously communicated, it will take time to turnaround the performance of the Time Inc. legacy brands.
Since 2016, they have underperformed the industry due to a realignment of their advertising sales force by their previous owner. We quickly implemented Meredith’s strategies, standards and disciplines across the portfolio to improve performance.
These include installing publishers at the brand level responsible for brand specific sales for the print titles we acquired. Maximizing our very successful and experienced corporate sales team which acts as a central point of contact for our largest advertising relationships and streamlines client agency communication, leveraging our industry leading digital sales team and programmatic advertising efforts to focus on scalable and innovative solutions for our marketing partners and capitalizing on our performance marketing solutions and generating non-traditional revenue to our optimistic direct media sales team.
Regarding advertising performance thus far in calendar 2018, after a slow start to the calendar year, legacy Meredith comparable print advertising revenues have improved and in the June quarter we are in line with Meredith’s historical performance over the last 6 years. As we look into the first quarter of fiscal 2019, we see further improvement.
As we discussed previously it will take time to bring legacy timing print advertising performance in line with Meredith’s historical levels. As we look into the first quarter of fiscal 2019, it is trending in that direction.
And we expect to see continued improvement through the balance of the fiscal year. Turning to digital performance, for the past 5 years, Meredith operated a digital business that has delivered greater than 15% average annual revenue growth.
Its operating profit margins are consistently in the high teens or better. We believe there is tremendous upside raising Legacy Time Inc.’
s digital operating margins to Meredith’s historical level. We are pleased to report that the National Media Group comparable digital advertising performance has strengthened since our last earnings call in May with fiscal fourth quarter digital advertising revenues across the National Media Group up in the mid single-digits.
We expect similar performance in fiscal 2019. The combination of our enhanced audience scale, great portfolio brands and customer service continues to generate marketplace for us.
For example, since delivering our new go to market strategy to the advertising and marketing community at Meredith’s NewFronts presentation, we won a number of new business campaigns that took advantage of our new portfolio. This includes Reebok from the fashion category, Hulu from the entertainment category, Subaru among automotives and drug makers Eli Lilly, Pfizer and AstraZeneca.
Campaigns for these programs all capitalized on our powerful content creation expertise, proprietary insights and ad products, popular media brands and large consumer reach. Turning to our expanded consumer revenue strategy, we have launched a large scale initiative to use our much larger consumer database of 160 million individuals to cross promote titles to increase subscription revenue, lower acquisition costs and leverage newly acquired affinity marketer Synapse.
These are opportunities to – there are opportunities to optimize newsstand too. We control a greater number of pockets nationwide, now nearly 1 million compared to 300,000 at legacy Meredith.
And we are focused on higher value magazine and bookazine products which carry a higher price point to the consumer. For example, People magazine’s recent Royal Wedding issue sold as many issues at newsstand as the rest of the celebrity and entertainment set combined.
Finally, we see enhanced digital first opportunities including e-commerce and affiliate content marketing where we generated revenues by inspiring consumers to engage with premium retailers. This also includes revenue generated from lead generation in paid products including membership programs built around our brands.
Turning to asset sales, we have received proceeds of approximately $300 million from transactions that occurred either just before or right after we closed the Time Inc. acquisition.
In addition to that, we sold Meredith Xcelerated Marketing in early May. We expect to finalize agreements to sell the Time, Sports Illustrated, Fortune and Money brands, along with our 60% equity stake in Viant in early fiscal 2019.
Our final go-forward strategy is to deliver cost savings related to the combination of the Time Inc. and Meredith businesses and we expect to deliver more than $500 million of annualized cost synergies in the first two full years of operation.
As we have noted in our press release and financial tables this morning, these savings are already being reflected in our results as we improved adjusted EBITDA margins significantly in our National Media Group in the fourth quarter of fiscal 2018. We expect to deliver additional improvement in fiscal 2019.
About half of these savings will come from reductions in headcount, the other half will come from savings and vendor contracts, real estate and non-headcount related opportunities. Turning to the Local Media Group, fiscal 2018 full year non-political advertising revenues increased to $354 million led by the addition of WPCH along with stronger performance from the Phoenix and St.
Louis markets. Fiscal 2018 full year political advertising revenues were a record $16 million.
We received the majority of this in our fiscal fourth quarter due to stronger than expected primary activity for U.S. Senate and Governor’s races in Arizona, Nevada, Missouri and Tennessee.
This bodes well for the 2018 mid-term elections this fall. There are 9 open Governor seats in our markets the most we have seen in decades.
And we also expect several competitive races for the U.S. Senate, including open seats in Tennessee and Arizona.
In fact, fiscal 2019 first quarter political advertising revenues are pacing well above the $16 million generated in the first quarter fiscal 2017. Other revenues and operating expenses increased for both the full fiscal year and in the fourth quarter.
This was primarily due to the growth in retransmission revenues from cable and satellite television operators and the contribution from MNI Targeted Media. These increases were partially offset by higher programming fees paid to affiliated networks.
Local media group digital-related revenues more than doubled in fiscal 2018 driven primarily by MNI. Turning to ratings, we delivered strong performance during the May rating period.
Meredith stations in 10 of our 12 markets ranked number one or number two in morning or late news and our stations in 7 of our markets were number one or number two from sign-on to signoff. Now, I will turn it to Joe for further updates.
Joe Ceryanec
Thanks, Tom and good morning everybody. To summarize our fiscal 2018 full year results compared to the prior year, total company revenues from continuing operations grew more than 30% to over $2.2 billion and total ad revenues grew 20% to $1.1 billion.
Earnings from continuing operations, including special items in both periods were $114 million compared to $189 million. Special items in fiscal 2018 are primarily related to transaction, restructuring and integration costs, along with the re-measurement of deferred tax assets and liabilities due to tax reform.
Excluding special items, earnings from continuing operations were $148 million compared to $182 million and adjusted EBITDA was a record $421 million compared to $362 million, a 16% increase. Looking at our fiscal 2018 fourth quarter results compared to the prior year quarter.
Total company revenues from continuing operations grew 77% to $788 million. Earnings from continuing operations, including special items in both periods, were $17 million compared to $43 million.
Excluding special items, earnings from continuing operations were $31 million compared to $49 million and adjusted EBITDA was a record $160 million compared to $91 million, a 76% increase. As we look ahead into fiscal 2019, we see several growth drivers including an increased truck contribution from the acquired Time Inc.
properties. Further with our sales strategy now in place, we are in a position to market our enhanced portfolio for calendar 2019, large corporate ad buys which typically happened in the early fall, a larger and more profitable digital business.
With our expanded digital position and our flagship People.com brand generating record traffic, we expect our larger portfolio will drive record digital revenues for our National Media Group. We also expect our Local Media Group will benefit from a full year of contribution from MNI.
Growing high margin consumer revenue activities, we expect to generate record consumer revenues boosted by the addition of the acquired brands and a very profitable Synapse business, our industry best brand licensing business and growing lead generation and e-commerce activities. Improved adjusted EBITDA margins for our National Media Group, we expect adjusted EBITDA margins to reach the mid-20% range in fiscal 2019 driven by high margin brands and business activities along with ongoing cost synergies.
We are looking at a potential record political year boosted by the races that Tom mentioned. We expect political ad revenues in fiscal ‘19 to range from $55 million to $65 million with about a third of that being booked in our first fiscal quarter and about two-thirds being booked in the second fiscal quarter.
And again as Tom mentioned we are off to a very fast start in our first quarter. We expect stronger contribution from our non-political revenue sources in the Local Media Group.
This includes expected revenue and profit growth at MNI. We also expect to renew MVPD contracts representing approximately 35% of our subscriber base in fiscal 2019.
We do have to renew affiliation agreements with the FOX Television Network in five of our markets. So we expect some of those gains will be absorbed by higher expenses.
And finally, we expect a more favorable combined federal state tax rate of approximately 28% compared to our historical 39% prior to the passage of tax reform. Now with these drivers in mind for full year fiscal 2019, we expect total company revenues to range from $3 billion to $3.2 billion, earnings from continuing operations to range from $205 million to $225 million and this estimate includes significant non-cash depreciation and amortization as well as net interest expense, adjusted EBITDA to range from $720 million to $750 million and earnings per share from continuing operations to range from $3.25 to $3.55.
Now since this is the first time we have given specific thoughts on our outlook for fiscal ‘19 there are a few factors that I want to highlight to help you put our guidance into context. Historically, the first fiscal quarter ending September 30 is the smallest quarter of the year for legacy Meredith’s National Media Group.
This was also true for legacy Time Inc. when you remove the assets held for sale.
Second, the majority of our synergies we expect to deliver in fiscal 2019 will materialize in the second half of the fiscal year. This includes the impact of the previously announced headcount reductions, most of which are occurring throughout the first half of fiscal 2019 along with ongoing expense reductions as we integrate systems and transition functions from New York to Des Moines.
Finally, there are certain redundant costs and expenses we are incurring during this transition period. Now with that said, as we look at the first quarter of fiscal 2019, we expect the National Media Group revenues to range from $540 million to $550 million, Local Media Group revenues to range from $200 million to $210 million, earnings from continuing operations range from $2 million to $10 million, which again includes significant non-cash depreciation and amortization cost, and net interest expense and adjusted EBITDA to range from $122 million to $127 million.
Now, I will turn it back to Steve for our conclusion and to lead into Q&A.
Steve Lacy
Well, thank you very much both Tom and Joe. As you can tell from the discussion this morning, there has been a tremendous amount of work done since we completed the acquisition of Time Inc.
Let me close our formal comments this morning with what we continue to believe is a highly compelling investment thesis for the new Meredith Corporation. The diverse set of businesses that we own and operate produced consistently strong cash flow that’s driven by trusted national brands with an unrivaled reach to American women, particularly millennials.
A great group of television stations in large and faster growing markets and a highly profitable and growing digital business of meaningful scale. High margin consumer-related activities based on our strong National Media Group brands and a strong and proven management team was a very successful record of integrating acquisitions, a history of generating strong cash flow and growing shareholder value over time.
Once again in closing this morning, we are confident in our plan and have set a goal to deliver $1 billion in debt reduction in our fiscal 2019 and a $1 billion of annual EBITDA in our fiscal 2020. With that, we would be happy to answer any questions that you might have this morning.
Operator
[Operator Instructions] Your first question comes from John Janedis from Jefferies. Your line is open.
Steve Lacy
Hey, John. How are you?
John Janedis
Thanks. Good morning.
Great, Steve. How are you?
Steve Lacy
We are doing okay. How can we help you?
John Janedis
Good. Yes, two questions for you guys.
And two questions. One is I guess historic comment, you talked about the outperformance at the Time brands and I know it’s early, but can you talk about the pace of improvement in trends to-date and to what extent they are tracking in line with your expectations as you look out to ‘19?
And then separately and I guess related based on the ‘19 and ‘20 guidance, there is a pretty large implied growth rate and a tough political comp. So, is there a way you can help us bridge or maybe a loose bridge to $1 billion in ‘20?
Tom Harty
Sure. So as I talked about on the last call, it’s going to take a little bit of time for us to turnaround the Time Inc.
assets from a print advertising perspective, because the long lead time that print is sold and we expect to see quarter-over-quarter sequential improvement as we go through the year. So in the fourth quarter that we just closed disclosed they were down kind of in the low 20% range and we are seeing that improve in our next quarter cutting to that high-teen level, so kind of what we expected to see kind of a 6% to 7% improvement quarter-over-quarter.
And the good news I was talking about was Legacy Meredith has really significantly turned around. We have talked about this for a number of years, 6 years ago, we made the statement that we saw long-term print advertising declining in that mid to high single-digit range.
And we have quarter-over-quarter fluctuality sometimes in different years, but if you look at that historically, it’s been in that range. So, the fiscal third quarter, we actually were down kind of in that low 10%, low double-digit range.
As you look at the fourth quarter that we just disclosed we are down 7% and we are actually seeing that improve again as we go into the fiscal first quarter as we look it trending. So, overall, we are kind of seeing the marketplace improving, we are seeing Time Inc.
improve as we have kind of implemented our strategies and we are going to see sequential improvement as we go through the fiscal year.
Steve Lacy
Does that help, John? Did Tom answer your questions?
John Janedis
Yes.
Steve Lacy
The first part, okay.
Joe Ceryanec
Yes, John, let me take, it’s Joe, shot at the second. And again, in keeping at a very high level, because obviously there is a lot of moving parts, but as we look at our guidance for ‘19 we are in that 720 to 750 range.
That includes about $300 million of expected synergies that we expect to deliver in the year. As I have said in my comments, we expect that to be more back half loaded.
We have got a lot of integration work to do over the next 5 months to 6 months. We expect to have accounting systems, HRIS payroll systems integrated by the end of the year.
So then as we look at 2020, several of those synergies that will get in the back half of the year will get a full year impact on 2020. And then when you add some incremental synergies, we expect to get about another 250 in 2020.
So real round numbers if you take that call it 735, the middle of our range add another 250-ish of synergies, you got a lot of other puts and takes. Obviously, you have got political coming out, but you have got an impact, you have got an increase in retrans.
We expect this MNI in the local business will help boost the local profit as well to offset some of that political. And then when you take the growth in digital and licensing and some of the other things, you get yourself right around that $1 billion in 2020.
But the big drivers I think of it is $300 million synergies in ‘19 and another $250 million in ‘20.
Steve Lacy
Does that help John?
John Janedis
Yes, that’s helpful. Thank you.
Steve Lacy
Thank you, John.
Operator
Your next question comes from Jason Bazinet from Citi. Your line is open.
Steve Lacy
Hey, Jason. Good morning.
How are you doing?
Jason Bazinet
I am doing well. Good morning.
I think the answer to this question is yes, but just one based on the Mr. Ceryanec’s commentary, but I assume the outlook for ‘19 and including 1Q excludes all of those assets that are discontinued ops, right, there is not going to be any re-jiggering and if that’s true, how does that flow down once you get to things like interest expense?
Joe Ceryanec
Well, the answer is yes. All of our guidance would exclude the assets held for sale.
As Steve mentioned in our prepared remarks, we expect that we will get those deals closed earlier in our first half of fiscal ‘19. The proceeds of that plus the cash we have got sitting on the balance sheet, again we expect the pay down a billion of debt, which is roughly $50 million of interest that will come out as we move through the year.
So we do expect that interest expense to continue to ratchet down as we move through ‘19 and then again ratchet down in ‘20. And as we look forward the EBITDA – I am sorry EPS the reduction of interest plus, our depreciation and amortization is very heavy because of purchase accounting where we had to revalue all of Time Inc.’
s balance sheet. And so a lot of those intangibles we have rebuilt and that amortization and depreciation will continue to decrease over the next 2 years as well.
So we didn’t speak a lot about forward-looking EPS, but we would expect pretty significant improvement in EPS as we move over the next 2 years as well.
Jason Bazinet
Okay. Thank you very much.
Steve Lacy
Thank you, Jason.
Operator
Your next question comes from Kyle Evans from Stephens. Your line is open.
Kyle Evans
Hi good morning.
Steve Lacy
Hi, good morning Kyle, how are you, how can we help you?
Kyle Evans
Good. I am going to piggyback on John’s question a little bit and you gave up puts and takes on the ‘20 on the synergy side and you pointed a lot of stuff qualitatively that will move around some down, can you tell us what your NMG print ad assumption is for ‘20?
Joe Ceryanec
Down 7.
Kyle Evans
For the combined business?
Joe Ceryanec
Combined, which is you know Kyle that’s been...
Steve Lacy
That’s pretty much Kyle the historic average over the last 5 years or 6 years. It bounces around as Tom said a lot quarter-by-quarter, but interestingly enough when you tally it all up, it’s sort of that kind mid to high single decline over a long period of time looking back.
Kyle Evans
Got it. Can you unpack the unit volume and the pricing trends that are in the NMG circulation revenue segment for kind of trailing 12 months, which I am not asking for the quarter or even really specifics, but just broadly speaking kind of trailing 12 months and maybe next 2 years what you expect to see in terms of volume, pricing and circulation?
Steve Lacy
We have to get back to you with the detail and I don’t think we have that right at our hands, but I will say that we don’t expect volume to fall off from the perspective of circulation of volume – numbers of subscribers. We are in that – we are just short of 50 million, we are about 45 million subscribers now, our subscriptions, paid subscriptions in the portfolio and we don’t expect that to fall off.
Pricing, we are always looking to price up. We have opportunity to price up our circulation as we roll people into auto renewal and a big part of our strategy continues to be getting more and more people to give us auto renewal credit cards and we can actually bring them in at a lower introductory rate and actually price them up at renewal.
So the volume is our expectation remains flat.
Kyle Evans
Where is it on a renewal as a percent of total subs?
Steve Lacy
Yes. About 15% and we actually bifurcate that a little bit, it’s a little higher with our Synapse affiliated marketing business.
The vast majority of the Synapse business that we have which is really around generating subscriptions is really all auto renewal now, so we see that as we implement that, integrate that and primarily if that’s going to be a jump for us.
Kyle Evans
Got it. Lastly on re-trans, can you help us think about the timing of the 35% sub renewals where that happens within fiscal ‘19, walk that guidance forward just in terms of when you have renewals in forward fiscal years and when you have network renewals in forward fiscal years?
And then lastly talk just broadly about what kind of net retrans growth you think you can post looking forward? Thanks.
Steve Lacy
Joe is looking that up right now, so just hang with us a second.
Kyle Evans
Sure.
Joe Ceryanec
Kyle, so the biggest – our biggest MVPD is Comcast and that we expect will renew in the second quarter of fiscal ’19, that’s about 25% of our subs. Let’s see, Cox is also a Q2 renewal and that’s 10%.
So I have mentioned about 35% both of those will renew in the second quarter. I don’t know, actually one is in November, one in December.
So I would expect we will see the step up as we begin calendar ‘19.
Kyle Evans
And then looking forward how many more renewals in fiscal ‘20?
Joe Ceryanec
I am going to have to add that up, 58% renew in ‘20.
Steve Lacy
So that’s another help as we go into the next year.
Kyle Evans
Do those – are those front-end?
Joe Ceryanec
Fiber base will renew between ‘19 and ‘20?
Kyle Evans
Is that on the front end or the back end of fiscal ‘20?
Joe Ceryanec
So AT&T DirecTV’s Q4 of 2020 that’s about 25%, similar to Comcast, so that’s later in the year, Charter is 14% that’s in Q2.
Steve Lacy
Yes, it’s more back half loaded I think?
Joe Ceryanec
This is Q1, that’s 13%, so those are the three biggies that would renew in 2020.
Kyle Evans
And then network renewals in ‘20 anything…?
Joe Ceryanec
We have got as I have mentioned we have got FOX 12/31/18 and then a couple of our CDS will renew late in fiscal 2020. I think they are in kind of April 2020 timeframe we got St.
Louis, Hartford and Springfield and then the rest of the CDS will be in 2021.
Steve Lacy
Did that help Kyle?
Kyle Evans
It does. And then just kind of maybe some broad characterization of how you think that retrans can grow over the next couple of years?
Thank you.
Joe Ceryanec
Well, we have got revenue growing about 16% this year and I would say with the incremental renewals in 2020 that number ought to grow well over 20%.
Steve Lacy
And we think that the net amount of actual profit will continue to grow sort of in that mid to high single-digit range as we go forward.
Kyle Evans
Thank you very much.
Steve Lacy
Thank you.
Operator
Your next question comes from Marci Ryvicker from Wells Fargo. Your line is open.
Steve Lacy
Hi Marci, how are you doing this morning? Thanks for calling in.
Marci Ryvicker
Good, how are you?
Steve Lacy
We are doing great.
Marci Ryvicker
So I understand that step up in assets in liabilities is impacting your GAAP income, I guess the question I have and we have seen it in other deals, I am assuming you don’t get that step up on your taxable income, so how did that factor in terms of cash taxes. And then the second question I have related to the TV station business, given your focus on de-levering in general, how do you think about participating in some of the M&A that maybe coming on the market given you that discount is reinstated, we have seen stuff from Cox and some other companies that have put some assets on the market?
Steve Lacy
Well, it has been sort of an exciting time to follow all these activities, hasn’t it, Marci, with what’s going on. And I think you remember clearly from the beginning the way Joe built our debt profile.
He kept some dry powder there that we could continue to participate and we have along the way. And as Tom and Joe both mentioned we are aggressively paying debt down, so we are anxious to be in receipt of whatever decisions, Cox makes about their portfolio as they do their strategic work.
And in addition to that we are thinking that maybe there may be some opportunities now from the TRIB portfolio as that maybe comes back to market again. So our development folks are all over this.
And we just had a long conversation about it at our Board meeting earlier this week. So we are anxious to see what opportunities there might be to add to our portfolio.
You know that we would mostly be looking at mid-size or larger markets, probably nothing smaller than about market 70 or so. And if there was a duopoly opportunity as we tried already in St.
Louis we would be all over that.
Tom Harty
Marci on the tax I am going to have to get back to you on exactly how the purchase accounting works on the tax side. There are a couple of things I can’t point out those.
Obviously, our tax rate with the tax reform has come down significantly, number one. Number two, when we did acquire Time, there were some net operating loss carry-forwards and we have been searching for basis in the assets.
And you may have you may have caught it that we in the earnings release said the asset sales Time, Fortune, Money and SI, we do not expect any tax leakage. We obviously expect some gains from those sales, but we expect we are going to be able to shield those gains with NOLs and other tax planning that came to us through time.
But exactly how those assets step up and what kind of accelerated depreciation I may have to consult my tax guy.
Steve Lacy
We will get back to you on that one Marci, okay.
Marci Ryvicker
Okay. Thank you so much.
Steve Lacy
Thank you.
Operator
Your next question comes from Davis Hebert from Wells Fargo. Your line is open.
Steve Lacy
Good morning Davis, how can we help you this morning?
Davis Hebert
First, I wanted to ask on the balance sheet, given all the moving parts, can you tell us what your leverage is currently and how much in synergies is part of that EBITDA number?
Joe Ceryanec
Well, for the fourth – let’s see, we are reporting 421 and there was about $50 million of synergies in fiscal ‘18. So including those, our leverage without any forward-looking synergies would be about 6.4x.
If you include the synergies that I mentioned in response to the earlier question a new pro forma for those our leverage would be about 2.9.
Davis Hebert
2.9 and that’s on a net basis, is that right?
Joe Ceryanec
Yes, that’s in net debt.
Davis Hebert
And that includes the cash flow from the magazines you have held for sale?
Joe Ceryanec
No.
Davis Hebert
It doesn’t, okay.
Joe Ceryanec
What it includes would be the sale of those magazines and the reduction of debt.
Davis Hebert
I see, okay. On the digital side, could you talk about how Legacy Time and Meredith are performing on them on the National Media side from a digital perspective?
Steve Lacy
Yes, sure. Tom, can you help you with that?
Tom Harty
So, we had a very good fourth quarter. We had record digital traffic as we mentioned from – on the Time Inc.
side really driven by people magazine and the royal activity that was going on. So, we finished the fourth quarter in that mid single-digit growth and that’s what we are kind of anticipating as we go forward into fiscal ‘19.
Steve Lacy
Did that help David?
Davis Hebert
Yes, it does. And just last question kind of coming back to the balance sheet, you mentioned interest in TV M&A, I guess after you pay down the $1 billion of debt with fiscal year – by the end of fiscal year ‘19 where would your comfort level be on leverage, should you pursue TV M&A?
Steve Lacy
Well, I think we have always said that we like our leverage to be not a lot higher than 3x on a regular ongoing basis, but obviously we are willing to move above that for special opportunities and that can be on the television side. I mean the opportunity we had to several years ago to create the duopoly in Phoenix is just a barnburner and if we had that kind of an opportunity in another strong growth market, we stretch to get there.
Davis Hebert
Great. Thank you so much.
Steve Lacy
Thank you, Davis.
Operator
And your final question comes from Dan Kurnos from Benchmark Company. Your line is open.
Steve Lacy
Hey, Dan. How are you?
Dan Kurnos
Good morning, Steve. How are you?
Steve Lacy
We are doing great. How can we help you?
Dan Kurnos
So maybe one for Tom, I know that you mentioned the corporate buyers are coming up kind of in the fall timeframe, it might be a little early, I don’t know if you have any visibility on that, but just so people understand, can you maybe talk about sort of the magnitude of print improvement that you are expecting from that kind of transition as we head into ‘19. So I think that’s a bigger delta.
And then you also if I am remembering correctly you guys can’t cross-sell Time and Meredith in the portfolio yet, I think that was kind of an end of year thing, can you just talk about if that’s still on pace, could you accelerate that and what kind of uplift do you expect from that?
Tom Harty
Yes. So, we are right in the middle of negotiations with a lot of the large agency holding companies, where we do big corporate deals.
So we have finalized a few. We are in the middle of those negotiations.
So we feel very confident that we are going to be able to leverage the increased scale of the portfolio and we are going to see that sequential improvement. So I think that it doesn’t flip overnight, but we are anticipating as I mentioned on the Time side, we are going to see improvement in the fiscal first quarter, down from what they saw at the close in fourth.
We are going to see additional improvement on the Meredith side and that’s going to continue into the second fiscal quarter. And then really when we get into that third quarter or the beginning of the calendar year, that’s where we see both of the portfolios kind of getting into the same performance level.
So, that’s where we feel the Time Legacy titles will be kind of performing in that Meredith range or even a little better than us, because they have – we will have be up against such low comps. On your question about not being able to sell the portfolio together, I am not sure on that where we mentioned that, but we are out selling on both the digital side and the print side, a combined portfolio and the team on the digital side, so much of the business now is programmatic, automated buying in a bidding situation and the team did a tremendous amount of work on the digital side where they unified the digital platform.
So as of July 1, you can come in and buy the portfolio combined from a digital perspective. So, we are starting to see that that benefit.
Does that help?
Steve Lacy
Dan?
Dan Kurnos
Steve?
Steve Lacy
Yes, are you there?
Dan Kurnos
Yes, I am here. Can you guys hear me, alright?
Steve Lacy
Yes, we can hear now. I just want to make sure that did answer your question, Dan?
Dan Kurnos
Yes. I just wanted to make – it sounds like it’s kind of there at checkout, so that was kind of where I was going.
So that’s helpful. And then let me just one more on the digital side, so you have kind of guided sort of the mid single-digit improvement, I suspect you hope to do a little better than that, but I would assume before thinking about it right if the portfolio is going to kind of trend towards, let’s say 40% digital in 2020, I assume some incremental digital acceleration in the following year, I know you gave NMG print guide.
So I would think something maybe like high single is kind of where you are targeting, I don’t know if that’s above expectations or in line, but any sort of thoughts around and color as to how you get there?
Tom Harty
Yes. So that you are exactly correct.
So when we put together, we actually just presented our 3-year plan to our board this week. We are looking at that mid single-digit gain in fiscal ‘19 and that accelerates the kind of high single-digits in the following 2 years ‘20 and ‘21.
And that’s digital advertising. And as we have talked in our remarks that we are seeing a lot of digital activity on the consumer revenue side and we have much higher growth rates related to performance marketing and affiliate marketing related to the digital area.
Steve Lacy
And e-commerce activities too, Dan.
Dan Kurnos
Got it. Thanks for all the color, guys.
Appreciate it.
Steve Lacy
Hey, thank you. So we appreciate everyone dialing in this morning and especially your very thoughtful remarks and questions.
We will be available as always are through the balance of the day. We are excited to jump into the new fiscal ‘19 and excited to be back to you as we move forward with our accelerated performance as a new combined company.
So have a great weekend and thank you for dialing in this morning.
Operator
This concludes today’s conference call. You may now disconnect.