Nov 10, 2018
Executives
Mike Lovell - IR Steve Lacy - Executive Chairman Tom Harty - President and CEO Joe Ceryanec - CFO Jon Werther - President, National Media Group Patrick McCreery - President, Local Media Group
Analysts
Jason Bazinet - Citi Kyle Evans - Stephens Craig Huber - Huber Research Partners Davis Hebert - Wells Fargo Eric Katz - Wolfe Research
Operator
Good morning. My name is Denise, and I'll be your conference operator today.
At this time, I'd like to welcome everyone to the Meredith Fiscal 2019 First Quarter Earnings Conference Call. [Operator Instructions] Thank you.
Mike Lovell, you may begin your conference.
Mike Lovell
Good morning. Thanks everyone for joining us today.
Our call will begin with comments from Executive Chairman, Steve Lacy; President and Chief Executive Officer, Tom Harty; and Chief Financial Officer, Joe Ceryanec, then we'll turn the call over to your questions. Also on the line 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 our 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're 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 begin.
Steve Lacy
Well, thank you very much, Mike, and good morning, everyone. I hope you had the opportunity to see our news release that was issued earlier this morning.
I'll begin with a quick review of our fiscal 2019 first quarter accomplishments, then turn the conversation over to CEO, Tom Harty, who will update you on the integration of Time Inc. and the strategies that we're pursuing to maximize our new and exciting National Media portfolio and provide detail on our very robust Local Media Group operations.
CFO, Joe Ceryanec, will then discuss our first quarter fiscal 2019 results and provide our financial outlook for both our second fiscal quarter and the full year ended June 30, 2019. During the first quarter, we delivered EBITDA results that exceeded expectations.
That performance was driven by two key factors. First, our National Media Group delivered improved advertising performance and strong expense discipline that drove significantly improved year-over-year EBITDA and margin.
We expect continued margin expansion in our National Media Group throughout the balance of fiscal 2019. Second, our Local Media Group delivered a record $36 million of political advertising revenue.
With the elections just ending last night, we expect fiscal second quarter political advertising to range from $60 million to $65 million. All told, we now expect political advertising revenues to total between $95 million and $100 million for the first half of fiscal 2019, significantly exceeding the record $63 million we generated in all of fiscal 2017.
Beyond those two key accomplishments, we also generated more than $300 million of consumer-related revenue accounting for 40% of total Meredith revenue. Consumer-related revenue is a very important component to our strategy going forward, and we've made changes to our income statement presentation to reflect those initiatives.
We also made significant progress on our asset sales. That includes announcing and then later closing the sale of the TIME media brand for $190 million in cash.
We anticipate agreements to sell FORTUNE, Sports Illustrated, Money and our 60% equity stake in Viant to be finalized in fiscal 2019. As a reminder, these are the brands that constitute discontinued operations in our financials.
We also repaid $200 million of our debt during the first quarter and expect to repay another $300 million of our debt during the second quarter. Our goal again is to repay a total of $1 billion of our debt during fiscal 2019.
Looking ahead now to our fiscal second quarter. Along with record political advertising in our Local Media Group, we expect continued improvement in advertising performance by the National Media Group.
While it's still too early to look into calendar 2019 advertising with any real clarity because our clients budgets reset on January 1 for the new year. We have a lot to accomplish between now and June 30, and it's clearly too early to increase our expectations for the full fiscal year.
That being said, we continue to expect adjusted EBITDA for fiscal 2019 to be more than double the previous record high of $362 million that we delivered in our fiscal 2017. We remain committed to our goal of delivering $1 billion of adjusted EBITDA in our fiscal 2020.
In closing my comments this morning, I want to remind everybody that we continue to expect the process of integrating Time Inc. and optimizing our new and combined National Media portfolio to have a two year time line.
While there's still many moving parts, there is no doubt that the acquisition positions the new Meredith on a growth track that was not realizable organically. With that, I'd like to turn the conversation over the CEO, Tom Harty, to update you on the integration and strategies we're pursuing to maximize both our national and our Local Media Group portfolios as we move ahead.
Tom Harty
Thanks, Steve. I'll start with a review of our National Media Group's performance.
Fiscal 2019 first quarter National Media Group operating profit was 18 million. Excluding special items, operating profit was 31 million and adjusted EBITDA more than tripled to 87 million compared to the prior year period.
Revenues were up more than 125% to 543 million. These results exclude discontinued operations.
When we closed on 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 margin of the acquired Time Inc. digital properties to Meredith's high levels, accelerating the growth of high-margin consumer related revenue by leveraging our expanded brand portfolio, conducting a portfolio review of the media assets and divesting those not core to our business, and fully realizing at least $550 million range of annual cost synergies by the end of the first 2 full years of operation.
Let me provide you with more detail on our progress for each of these initiatives, beginning with improving the advertising performance of the acquired Time Inc. properties to Meredith's historical levels.
As we've previously communicated, it will take time to turn around the performance of the Time Inc. legacy brands.
We quickly implemented Meredith strategies, standards and disciplines across the portfolio to improve performance. We delivered improved sequential comparable print advertising revenue performance in the first quarter of fiscal 2019.
We expect continued improvement in the second quarter with declines moderating to the single-digit levels in total in the second half of fiscal 2019. Marketers and agencies continue to respond favorably to the combination of our large consumer reach, popular brand experiences, powerful content creation expertise, proprietary insights, ad products and our ability to authentically inspire consumers to action.
For example, since aligning our sales team earlier in the calendar year, we won new or expanded existing campaigns from our diverse group of clients and industries. This includes Ford, General Motors and Subaru in automotive; Clorox in consumer packaged goods; Hulu and News Corp in entertainment; American Express and Citizens Financial Group in financial services; Blue Diamond Growers, General Mills and Tyson Foods in food; Aetna and Aflac in insurance; Bolivar and Harry Winston in luxury; Eli Lilly, GlaxoSmithKline and Pfizer in pharmaceuticals; and Amazon, Walgreens and Walmart in retail.
Turning to digital performance. We are leveraging the increased scale of our combined digital portfolio to enhance sales initiatives.
We are now well positioned to benefit from fast-growing advertising platforms, including native, video, shopper marketing, programmatic and social. During the first quarter of fiscal 2019, National Media Group comparable digital advertising revenue increased, and we expect continued revenue and margin improvement as fiscal 2019 progresses.
We're accelerating the growth of the high-margin consumer-related revenue by leveraging our expanded brand portfolio. This includes cross promoting brands to increase revenue and lower subscription acquisition costs, leveraging affinity marketer Synapse and continuing to grow our brand licensing business ranked as the second in the world.
We also see enhanced digital first opportunities, including e-commerce and affiliate content marketing, where we generate revenues from lead generation and paid products such as membership programs built around our brands. During the first quarter of fiscal 2019, consumer-related revenue accounted for 42% of total National Media Group revenue, and we see that mix moving higher as fiscal 2019 progresses.
We continue to make progress on optimizing our media portfolio, including the sale of nonstrategic assets and positioning Meredith for continued growth. We announced the sale of TIME media brand on September 16, 2018.
We closed the sale on October 31 for $190 million in cash, and we anticipate agreements to sell Fortune, Sports Illustrated and Money brands, along with our 60% equity investment in Viant to be finalized in fiscal 2019. As we have said, these brands and businesses have different target audiences and advertising basis than the rest of our portfolio, and we believe each is better suited for success with a new owner.
Additionally, we took steps to best position our portfolio for continued growth. These include unveiling a new go-to-market strategy for our national portfolio and merging cooking light Magazine into EatingWell to create an even stronger competitor in the food category.
Our final go-forward strategy is to deliver cost savings related to the combination of the Time Inc. and Meredith businesses.
We expect to deliver at least $550 million of annualized cost synergies within the first 2 full years of combined operations. Approximately half of these savings are expected to come from already announced reductions in headcount and the remaining half from savings in vendor contracts, real estate and other non-headcount-related activities.
Turning to the Local Media Group. Fiscal 2019 first quarter operating profit was $68 million and adjusted EBITDA was $77 million.
Revenues grew 39% to $214 million compared to the prior year period. All of these metrics were records for a fiscal first quarter.
Performance was led by political advertising revenues, which were $36 million and more than double what we delivered during the last political cycle in the first quarter of fiscal 2017. Political spending was particularly robust in the Phoenix, St.
Louis, Las Vegas and Kansas City markets, primarily due to very competitive races for the U.S. Senate and House gubernatorial races and local contest.
Nonpolitical advertising related revenues grew 17% to $103 million, including the addition of MNI Targeted Media. We're excited about the opportunity that MNI brings to our Local Media Group.
MNI was a subsidiary within Time Inc. and is a media planning and buying company with 50 years of experience in targeted marketing at the local, regional and national levels.
Because of its local presence and execution, it makes sense to include it in our Local Media Group. MNI is a media brand and platform agnostic and about 70% of its revenues are generated from digital platforms.
MNI has sellers in 40 cities across the U.S. along with its proprietary technology, offer clients a variety of tools to help them build effective media campaigns.
This includes digital media strategy, planning, buying, reporting and billing, along with a full suite of digital products, including display, mobile, search, e-mail and one-to-one marketing. Annual revenues are in the $100 million range and had been growing in the mid-single digits on average over the last 5 years.
MNI's revenues were up in the low double digits in the first quarter of fiscal 2019. Consumer-related revenues in our Local Media Group increased 16% to $73 million due to growth in fees from cable and satellite television operators.
These increases were partially offset by higher payments to affiliated networks. Our consumer connection remains very strong.
The numbers of subscribers across our markets was up 2% in July 2018 compared to September of last year, driven by growth in OTT subscribers. Our stations delivered strong performance during the September rating period with stations in 10 of our 12 markets ranking number 1 or number 2 in morning or late news.
Now I'll turn it over to CFO, Joe Ceryanec for further financial updates.
Joe Ceryanec
Thanks, Tom, and good morning, everybody. To summarize our fiscal 2019 first quarter results compared to the prior year, total company revenues from continuing operations grew more than 90% to $757 million and total advertising-related revenues doubled to $423 million.
Earnings from continuing operations, including special items in both periods, were $16 million compared to $33 million last year. We recorded $14 million of net special items in the first quarter primarily related to restructuring and integration cost.
Excluding special items, earnings from continuing operations were $30 million first quarter 2019 compared to $31 million in the prior year, and our adjusted EBITDA than doubled to $143 million. A few other items of note for modeling purposes, beginning with synergies.
We continue to expect that the majority of the synergies we deliver in fiscal 2019 will materialize in the second half of the fiscal year. This includes the impact of the previously announced headcount reductions.
And as Steve mentioned, we repaid $200 million of our term loan B with the proceeds from the closing of the TIME media brand and currently have more than $400 million of cash on our balance sheet. With this, we expect to repay at least $300 million of our debt in the second quarter, which would bring us halfway or more towards our goal of paying down $1 billion of debt during the current fiscal year.
We also took advantage of favorable interest rates in October and repriced our Term Loan B, which will save us approximately $4 million of interest annually, including $3 million through the balance of our fiscal '19. We will get another quarter point step-down when our net leverage reaches 2.25 times, which we anticipate happening in our fiscal 2020.
You may have noticed that we made some changes to our income statement presentation. We are categorizing revenue as advertising related, consumer related and other.
We believe these changes better reflect the way we think about and manage our business. Advertising-related revenues include all revenues previously categorized as advertising with the addition of revenues we generate through selling advertising space and third-party platforms.
Consumer-related revenues include all revenues either driven by or otherwise linked to the consumer. This includes subscription and newsstand revenues previously categorized as circulation.
It also includes revenues previously categorized as other, including retransmission, affinity marketing and licensing revenues. We expect consumer related revenues to grow as we leverage our relationship with the tens of millions of consumers who purchase our products and interact with our brands every day.
We believe these presentation changes, along with more comprehensive disclosures in our SEC filings, will help investors better understand our business and its underlying drivers. Now turning to our outlook.
There's a few factors I want to highlight to help you put our guidance into context. First, demand for political advertising revenues in our Local Media Group exceeded our expectations.
We experienced some declines in nonpolitical advertising due to crowd out. However, the overall local television advertising market continues to be stable.
Second, the performance in our National Media Group, including our work to integrate Time Inc. is meeting our expectations.
Execution by our team remains strong. And as expected, we see improving trends so far in our fiscal second quarter.
With that said, we're in the process of negotiating a series of significant agency and client direct marketing programs for calendar 2019. And as Steve mentioned, it's still too early to see with any clarity into calendar 2019 advertising when budgets for our clients reset.
Thus, as we first stated in our August earnings call, we continue to expect full year fiscal 2019 total company revenues to range from 3 billion to 3.2 billion, earnings from continuing operations to range from 191 million to 211 million or $2.49 to $2.91 on a per share basis. And this includes a net after tax charge for first quarter special items of 14 million.
Our actual results for the full fiscal year may include additional special items that have not yet occurred and are difficult to predict with reasonable certainty. Excluding special items, we continue to expect earnings from continuing operations to range from 205 million to 225 million or $2.78 to $3.20 on a per share basis.
Finally, we continue to expect adjusted EBITDA will range from 720 million to 750 million for the year. Now, looking more closely at the second quarter of fiscal 2019.
We expect that total company revenues will range from 850 million to 870 million. That includes National Media Group revenues to range from 600 million to 610 million and Local Media Group revenues to range from 250 million to 260 million.
The Local Media revenues includes 60 million to 65 million of political advertising revenue, which will be partly offset by crowd out in nonpolitical ad revenues. Earnings from continuing operations to range from 78 million to 85 million, and this includes noncash depreciation and amortization of about 64 million and net interest expense of about 40 million.
It does not include special items. Actual results may include special items that have not yet occurred and again, are difficult to predict with reasonable certainty.
Finally, we expect adjusted EBITDA to range from 215 million to 225 million. These amounts adjust earnings from continuing operations by adding back depreciation, amortization, special items, net interest expense and income taxes, which we expect to be an effective rate for the quarter of 29.5%.
With that, I'll turn it back to Steve for our conclusion and lead into Q&A.
Steve Lacy
Well, thank you very much, Tom and Joe. Let me close our formal comments this morning with what we continue to believe is a compelling investment thesis for the new and very exciting Meredith Corporation.
The diverse set of businesses and brands that we now own and operate produce consistently strong cash flow that's driven by trusted national brands with an unrivaled reach to American women, particularly millennials; a fantastic group of television stations in large and fast-growing markets; a highly profitable and growing digital business, now of meaningful scale; high-margin consumer revenue activities that are based on both our National and our Local brands; and of course, the strong and proven management team with a very successful track record of integrating acquisitions; and a history of generating strong cash flow and growing shareholder value overtime. Once again, in closing, we're confident in our plan.
We've set a goal to deliver $1 billion of debt reduction in our current fiscal 2019 and $1 billion of annual adjusted EBITDA next year in fiscal 2020. So now, we'd be happy to answer any questions that you might have this morning.
Operator
[Operator Instructions] Your first question comes from Jason Bazinet with Citi.
Jason Bazinet
I just had 3 quick questions. I appreciate you guys outlining what's in consumer.
Do you mind us taking a second and telling us what remains in the other at the national group and the local group? My second question is I think on the last call, you guys said that the asset sales may in fact be completed by the early part of fiscal '19, and I just didn't know if the language today means that it may have slipped a little bit.
And then third, the number one question we get from the skeptics, the Meredith skeptics, is they just can't believe the cost synergies that you guys are talking about because the implied EBITDA margin is sort of 2x what you guys historically have done at the National Media Group. So other than just reiterating sort of your confidence in the $550 million of sales, can you just put some color around how -- why that's reasonable to assume such robust margins?
Steve Lacy
Yes, sounds good. So Jason, we're going to -- I've got your 3 questions down.
We're going to take them in a little different order. First of all, regarding the asset sales, stay tuned.
We're going to -- we'll have announcements as time progresses. And I think the only thing I would say about that is that we have had tremendous interest in a lot of competitive bidding activity.
But as you probably noticed with the Time brand, the purchaser was really an individual who would not have been thought of as a strategic buyer. So the amount of time that it has taken to help these interested parties really understand what they're buying and then to put in place some ongoing services agreements that help with the transition and help them be successful new owners was really a longer period of time than I would originally anticipated.
So we are very confident in the amount of cash that we will generate for these businesses and very, very confident that it will get done, but it's just taking a bit longer than I would have thought.
Tom Harty
Yes, Jason, just on the third question. On the synergies question, the margin question.
And I think we've kind of figured out where we've said this publicly before. But the part of the math equation that people don't understand is that, at former Time Inc., the assets that we are selling Times, Sports Illustrated, Fortune and Money, had margins that were under 10%.
And the real bellwether for us is People. And People, not only is it the most profitable brand at our new combined company, it's the most profitable brand in the entire industry.
And the margins on People actually exceed our best television station. So that's part of the math.
And then the rest, you get from the synergies. So when we usually have the National Media Group margins in the high double digits, we're budgeting this year fiscal 2019 to have margins approaching 25%.
And then the following year, when we fully realize all the synergies, it will be approaching 30%. So that's how you get to the math.
Steve Lacy
Yes. So it's a revenue mix.
And then the other thing is, Jason, and this is why, of course, it is beneficial for or strategic to buy a strategic, you have all of the duplicative functions that it never takes as many people when you put -- many individual employees when you put the 2 together. So you can just march right down the line, circulation, production, accounting, all those areas that were really moving those activities to Des Moines from New York and there's many fewer people at a lower cost per employee.
So it's a -- there's a cost play and then as Tom said, there is a very important margin play from the People brand, which is quite large in the portfolio. So does that help with 2 of your questions and then we'll go back to Joe on the revenue?
So the last question has to do with other, and I'll turn that one to Joe.
Joe Ceryanec
Yes, Jason, so when you look at other in total for the quarter, it was $33 million. If you look historically, that other category had grown to be a significant portion of our total revenues and it had retrans in it, it had licensing in it.
And so we felt putting the categories into the way we really think about the business, which is advertising and consumer, that reflects that. There still is a small amount of other, and as you would expect.
On the local side, it's really small. I think it's like $2 million, which is really dogs and cats, it includes things like running the obituaries on our TV stations.
On the national side for the quarter, it was about $30 million. And that's really what's left, I'll call it, in the B2B category.
So it's things like management's fees, custom printing, list rental, those type of programs. But really, more what I'd call now other stuff that's not core to the business.
When you get the 10-Q, which we'll file by the end of the week under the new revenue recognition standard, which we adopted this quarter, you're going to see a lot more detail in the Q in the footnotes, which will actually help all you guys because it will further break out the -- in the advertising related, it'll break out print, it'll break out the digital, it'll break out the third party sales. On the consumer-related side, you're going to see subscription, retransmission, newsstand, licensing, affinity marketing, all of that will now get broken out.
So when you get the Q, I think you'll be able to fine tune your model a lot better than maybe you had in the past.
Operator
You next question comes from Kyle Evans with Stephens.
Kyle Evans
I like the sound of this Q. How many quarters are you going to give us in this new reporting convention?
Steve Lacy
Every quarter going forward for the new Meredith.
Kyle Evans
What about going backwards?
Steve Lacy
Kyle, there's no way to do it, practically. We've sold things.
We've torn things apart. It's not a good use of anybody's time and we're not going to do it.
Kyle Evans
Okay. Several references on sequential improvement in print advertising.
Can you give us a clearer view of how the legacy Meredith titles fared versus the newly-acquired Time title on the print ad side for the 1Q period and then also how they're pacing in 2Q?
Steve Lacy
Yes. So first of all, again, this is the first quarter of a new fiscal year.
We've changed the way we're providing the revenue to reflect what is the new and combined portfolio. And the new and combined portfolio, Kyle, represents the new and combined Meredith.
So we have eradicated from our vocabulary legacy Time or legacy Meredith because it's not the way we're running the company and it's not the way we're reporting the results. And I'm going to give you a real, honest to God example of that.
Yesterday morning, about this time, Tom Harty and I were together on the phone with the very senior most leader, President of one of our top five advertising clients. And we were having a conversation about calendar '19 advertising and all the components of it, events, digital, social, print across the entire portfolio.
So nobody is talking about legacy Time, legacy Meredith. We're not operating it that way.
But what I will tell you at a very high level is that if you try to break that part, which is really hard now because we've even combined some brands, like Tom mentioned. We put Cooking Light and EatingWell together.
One of those comes from each side of the house. But what would have been legacy Meredith is continuing to perform actually a little better than what we would have seen in the prior fiscal year.
And legacy Time, as best you could break that apart is improving. And that's as much as we're going to really say as we go forward.
But Tom might provide just a little more color because he is really operating the business.
Tom Harty
Yes. So as I mentioned on the call, we did see sequential comparable improvement in advertising.
So total National Media Group advertising improved in the low double-digit range in September quarter that ended, and that was an improvement over the prior quarter. And then as we look further out into the Q2, we're seeing total National Media Group advertising down in the high single digits.
So low double-digit range in September, down high single digits in the December quarter. And when you look at the combined advertising portfolio, as Steve mentioned, it was down in the high teens in Q1 and will be improving to the midteens in Q2.
And digital was up slightly for the first quarter and we're going to see about the same in Q2. And as Steve mentioned, we'd mentioned this before, when you looked at the Time portfolio before we acquired it, the declines were kind of the same across all the brands in that kind of mid-double-digit -- mid-20s.
And it wasn't any brand that stood out that were up or down, more or less, it was all the same. And we're starting to see improvement, not only as Steve mentioned in the Meredith portfolio, but we're starting to see some of the Time Inc.
brands actually match the historical levels of Meredith. So we're seeing improvement quarter-to-quarter.
Joe Ceryanec
Yes, and Kyle, let me just clarify the beginning of Steve's comment. So, when you get the Q, which will be filed either later tomorrow or on Friday, you will see footnotes breaking out both the National Media and the Local Media revenues into these sublines that I talked about.
So under advertising related, you're going to see that broken out print and digital, and third party and under consumer, again, you're going to see the licensing broken out and newsstand, et cetera. And you're going to see that for both the quarter this fiscal year and you're going to see it for the comparable quarter last year.
So you are going to have a comparison quarter-over-quarter. Going forward, you will see that, obviously, on a year-to-date basis as well.
And I think the good news for everybody that's been trying to get comparable numbers, as we get into our third quarter, so when we report results in January, early February, and we start talking about the third quarter, we will mostly have been together. So the comparable results for the March quarter will be very comparable.
Obviously, there would be 1 month of time, given that we closed on January 31. But that's where you're going to start to be able to see comparable trends in the business.
So instead of trying to go back and recreate history and strip out held-for-sale, et cetera, you just going to have to bear with us for another quarter until the results start being more comparable.
Kyle William
What is the seller multiple end up being on Time? How much EBITDA is there still sitting in discontinued ops for sale?
And when you end up selling to a nonstrategic buyer and you end up having to do kind of a joint services agreement, how does that flow to the income statement?
Steve Lacy
So Kyle, we'll have to dig out those exact numbers. And I know we'll have a follow-up with you later.
But as it relates to the ongoing services agreement, everyone is going to be different depending on how the buyer wants to transition the activities. In certain cases, they're going to stay in our facilities and there's rents.
In certain cases, we're going to help them with circulation. We're going to handle their printing.
We're going to do some of those activities. So they're customized in such a way that we help the buyer be successful and we transition the business so that they can deliver on their promises going forward.
And there's going to be one of those and they'll be different in each case. And we'll look back and have that multiple information when we're together later, okay.
Operator
Your next question comes from Craig Huber with Huber Research Partners. Your line is open.
Craig Huber
Can we focus a little bit on the costs that you're taking out here, just for the cadence of maybe the annualized cost savings within the National Media? Like what was that number, for example, at the end of the quarter just finished, what do you think will be at the end of next quarter, please?
Steve Lacy
Yes. Joe can help with that.
We know what it was, and we know how we plan it to move forward. So...
Joe Ceryanec
Yes, I'm trying to pull that out. So I think as we've talked about in the past, as we think about the cadence, and I'll come back to the quarter.
As we think about the cadence over the years, we've talked about a target or a goal of 550 million in total. We recognized about 50 million of that in our prior fiscal.
So the June 30, we had about 50 million. We expect, over the course of this year, to recognize about $300 million and then over fiscal 2020, the remaining $200 million.
So $50 million, $300 million and $200 million to get you to the $550 million. And through the first quarter or the quarter ended September, we recognized between $120 million and $125 million cumulative to date of synergies.
Operator
Your next question comes from Davis Hebert with Wells Fargo. Your line is open.
Davis Hebert
I wanted to ask about leverage. Maybe if you could give us what the current snapshot is on leverage including and excluding synergies.
And then I wanted to ask about slide. I think it's 26, where you have the leverage over the next couple of years and in terms of what sort of synergies you're expecting there as well.
Joe Ceryanec
All right. So Davis, not including any synergies, and I know we've had these discussions.
Not including any synergies at September 30, our overall leverage would have been just above 5x, 5.1x. If you look at the way our leverage is calculated in our loan agreements where the lenders are giving us credit for $400 million of synergies going forward, less what we've always -- already recognized, which is, I just mentioned to Craig was about $125 million, that leverage would equate to 3.02x.
So that's how it will be calculated under our loan agreements. And the third way, as we think about it as a company.
If we can get to the full $550 million of synergies and take credit for that going forward, our leverage today would be a 2.6x.
Davis Hebert
2.6x. Okay, got it.
Joe Ceryanec
Yes. And now that's net.
So I'm taking net debt, which is about $2.85 billion. And then to reiterate on the slide, we expect to have at least $1 billion of debt paydown this year.
So we started the year with gross debt at $3.2 billion. And we expect to end of the year at $2.2 billion or less.
And then our real target is in 2020, when we expect to be at $1 billion of EBITDA, debt at last than $2.2 billion with leverage of less than 2x by the end of 2020.
Steve Lacy
Because all these synergies would be realized at that point.
Davis Hebert
Okay, understood. That's really helpful color.
And then maybe just a couple of follow-on. What would be your interest level in the Cox TV station portfolio?
At what point do you think you'd have balance sheet capacity? And then if I can just throw a second one.
But if you want to answer that, that's fine.
Steve Lacy
No, no, go ahead.
Davis Hebert
And then the second one was on People. I believe the last time discloses, it was 16% of revenue.
And obviously, there's been a lot of moving parts since then. I just wondered what percentage of revenue for pro forma Meredith would it be today if you can disclose it.
Steve Lacy
We never break out any information on any individual brand. It certainly is a significant part of the business.
And as Tom -- you probably heard earlier on the call, has a great deal to do with the margin improvement in that business going forward because of its high level of profitability. And again, even higher than our very best television station business.
But we don't break out revenue of any individual brand. And as it relates to Cox, again, we have a very longstanding policy of not commenting on M&A activity.
But every single deals that goes on, on either side, either major side of our business, we take a good look at. But I will also say that you have heard our very, very clear commitments to ourselves, to our Board and to the investment community to aggressively and quickly delever so that we have some headroom going forward.
And we are about that right now, $200 million already paid down, another $300 million to be paid down soon, the other $0.5 billion to be paid by the end of the fiscal, and that gives us a lot more headroom as we look out into the future, okay?
Operator
Your last question comes from Eric Katz with Wolfe Research.
Eric Katz
If I heard correctly, Steve, you mentioned you see national advertising declines improving to the mid-single-digit range in the second half of fiscal '19, which I assume is a combined print and digital number for the pro forma company. But you also mentioned it's a bit early to predict client budgets right now for calendar '19.
So what are some of the key metrics giving you confidence in that guide? And is there anything you can point to in the industry or industry trends that sort of you see at the end of the year helping you get there?
Steve Lacy
Yes. Well, first of all, Eric, you heard that exactly right.
And I'll start and then I'll ask Tom to jump on or he may appoint Jon Werther. This top 5 clients that I'm referring to that we talked about yesterday, we clearly understand the sources of revenue in calendar '18 and the negotiations we have in calendar '19 are for higher level of revenue, not a lower level of revenue.
And that is what really what the team is about. And also, I think you know, but just to remind you that about half of the revenue is really negotiated across these very large corporate buys, multi-brand, multiplatform.
And so as we get to the time that we will report our second quarter and start to give guidance for calendar '19, which is one quarter away, we'll have really a good bid on that early revenue stream. But Tom or John, anything you'd like to add, fire away.
Tom Harty
Yes, I think to your point, we are saying it's always tough to predict at this time of year exactly what's going to happen, but we felt confident putting the portfolio together, these 2 portfolios that we're spending the summer and the fall, as Steve mentioned, as you know, yesterday, have gone into market with the new portfolio. So we think you're going to see those results in 2019.
But also, you'll remember that, that period of time, especially our fiscal third quarter, it was the weakest quarter for us last fiscal year and it was also a very weak quarter for Time Inc. So looking at the comparables and looking at the second half of the fiscal year, knowing what we're doing going to market, we feel confident that we can get to that range in the second half of the fiscal.
Eric Katz
I do have another follow-up on the local side, if you don't mind. I guess for the nonpolitical, it looks like you guys are including MNI in there.
And I don't know if you have a particular figure in MNI for Q1, I know you mentioned about $100 million for the year. Or if you could give sort of what the nonpolitical advertising growth was, understanding there's displacement from political, so it could be down?
Steve Lacy
Hold just a second.
Eric Katz
I would also like to know if there's any similar pacing for in Q2.
Steve Lacy
Yes, Eric, we're going to have to dig out what MNI wants. But yes, there -- we always try really hard to figure out what in the heck the numbers would have looked like...
Tom Harty
Is about $100 million for the year.
Steve Lacy
For the year, it's about $100 million.
Tom Harty
I'm looking at the draft Q, Eric, and we're calling third-party sales within local $24 million.
Steve Lacy
So that's about fourth of the $100 million. That's probably about right.
Does that make sense?
Eric Katz
Okay, fair enough. And do you happen to know what the underlying ad pacings are for Q2 and what categories may be doing well?
Steve Lacy
Yes. So if you strip out MNI in the first quarter, nonpolitical was down kind of in the high single-digit range.
And it'll be probably a little better than that as we look into the second quarter. We can look at December and it looks good.
But again, it's kind of early.
Joe Ceryanec
Yes, December pacing up and second half of November is pacing up. Now, a part of that maybe People choosing to keep their ads out of October and early November and put those later.
So I don't know that pacing up necessarily means we feel like -- up is the new normal. But we feel like it's a very solid postelection.
Steve Lacy
Okay, thank you all for your interest, for listening in and for your questions. Obviously, as always, we're available for the balance of the day for follow-up, and we appreciate your ongoing support for the new Meredith.
Have a great day.
Operator
This concludes today's conference call. You may now disconnect.