TEGNA (TGNA) Gracia C. Martore on Q2 2016 Results - Earnings Call Transcript

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TEGNA, Inc. (NYSE:TGNA)

Q2 2016 Earnings Call

July 26, 2016 10:00 am ET

Executives

Jeffrey Heinz - Vice President of Investor Relations

Gracia C. Martore - President and Chief Executive Officer

David T. Lougee - President-TEGNA Media

Matthew W. Ferguson - Chief Executive Officer, CareerBuilder LLC

Alex Vetter - President & Chief Executive Officer, Cars.com LLC

Victoria Dux Harker - Chief Financial Officer & Executive Vice President

John A. Williams - President-Digital Ventures

Analysts

John Janedis - Jefferies LLC

Barton Crockett - FBR Capital Markets & Co.

Dan L. Kurnos - The Benchmark Co. LLC

Tracy Young - Evercore Group LLC

Douglas Middleton Arthur - Huber Research Partners LLC

Marci L. Ryvicker - Wells Fargo Securities LLC

Kyle Evans - Stephens, Inc.

Alexia S. Quadrani - JPMorgan Securities LLC

Michael A. Kupinski - Noble Financial Capital Markets

Operator

Good day and welcome to the TEGNA Second Quarter 2016 Earnings Conference Call. This call is being recorded. Our speaker for today will be Gracia Martore, President and Chief Executive Officer; and Victoria Harker, Chief Financial Officer.

At this time, I would like to turn the call over to Jeff Heinz, Vice President, Investor Relations. Please go ahead, sir.

Jeffrey Heinz - Vice President of Investor Relations

Thanks. Good morning and welcome to our earnings call webcast. Today, our President and CEO, Gracia Martore; our CFO, Victoria Harker, and members of our leadership team, will review TEGNA's second quarter 2016 results. After that, we'll open up the call for questions.

Hopefully you've had the opportunity to review this morning's press release. If you have not yet seen a copy of the release, it's available at tegna.com. Before we get started, I'd like to remind you that this conference call and webcast include forward-looking statements and our actual results may differ. Factors that might cause them to differ are outlined in our SEC filings.

This presentation also includes certain non-GAAP financial measures. We've provided reconciliations of those measures to the most directly comparable GAAP measures in the press release and on the Investor Relations portion of our website.

With that, let me turn the call over to Gracia.

Gracia C. Martore - President and Chief Executive Officer

Thanks, Jeff, and good morning, everyone. And let me join Jeff in welcoming you to our second quarter earnings call.

I'm going to provide some highlights on TEGNA's overall performance in each of our businesses, and then I'm going to turn it over to our business leads, Dave Lougee, President of TEGNA Media; Alex Vetter, CEO of Cars.com; and Matt Ferguson, CEO of CareerBuilder, for a closer look at each of their respective businesses. And after that, Victoria will go over some of the financial highlights for the quarter. So let's jump right in.

The end of June marked TEGNA's one year anniversary and we're all proud of everything that we've accomplished today. Over the last four quarters, we've grown both operationally and financially and have launched several successful initiatives and partnerships.

More importantly, we remain on track overall toward achieving the goals we reviewed with you at our Investor Day last summer. The media and digital landscapes continue to evolve, and we've seen tremendous changes even since this time last year.

As always, our entire team has worked diligently to stay ahead of the trends and ensure that we remain as relevant as ever to our audiences and customers. But one thing that hasn't changed here at Gannett (sic) TEGNA (2:19) is the set of key drivers for our business, which include top tier properties and their significant footprint, strong margins and steady cash flow, a talented team of experienced industry leaders, and a shareholder-first mindset with regard to the use of capital.

So, looking at our second quarter results, as you saw this morning, companywide revenue increased 7% over last year and 9% on a pro forma basis, a result of positive top-line growth across our segments. Our revenue growth substantially outpaced the low-single digit growth in operating expenses. And as a result, our profitability was up significantly. Non-GAAP operating income increased 19%, adjusted EBITDA grew approximately 14%, and non-GAAP earnings per share were up 67%. We also generated $79 million of free cash flow.

Now during the quarter, we continued our strategy of partnering with and investing in leading-edge companies that are as focused on the same kind of innovative audience engagement as we are. For example, last month, we announced a strategic investment in Kin Community, the premier home-focused content brand and creator community that inspires and informs young women. This new partnership will enable content sharing across TEGNA Media's properties and give us exposure to a new group of young viewers.

On the flipside, building on our efforts to leverage the strong creativity we possess in-house, this quarter we cleared our original show, T.D. Jakes, to air this coming September in more than 50 markets, reaching over 40% of the country.

Another example of how we are joining forces with innovative third parties is our announcement today that we have entered into an agreement, subject to regulatory approval and customary closing conditions, to acquire DealerRater. DealerRater is the industry's leading car dealer review site. So it is an outstanding fit for Cars.com as they grow their brand and their consumer connections. And Alex is going to discuss this further in his remarks.

Now I'll provide a few more specifics on each of our individual businesses, and I'll begin with the Media segment. There, as you saw, revenue was up 10% year-over-year, in line with our guidance. Top line growth was impacted by the timing of political spending as we noted on our first quarter earnings call. We noted then the potential for a lull in political advertising in the second quarter before spending related to the Presidential election campaign picks up in earnest.

This year, the primaries were especially dramatic and drawn out and didn't ramp up until mid-June. As a result, spending from Presidential Candidates is just now beginning to come in. But we are confident that spending will continue to ramp up in the back half of the year, typically where about 80% to 85% of all the political dollars we get occur especially during the five weeks or so between Labor Day and Election Day. As we all know, that's when candidates typically really feel the pressure to grab those voters. And when the real political dollars start flowing in TEGNA is very well positioned in many of the key Presidential swing states as well as contested Senate and gubernatorial races.

We also saw substantial bumps in digital and retransmission revenues. The initiatives we are launching, including Hatch, continue to gain traction. And if you remember from last quarter, our Hatch initiative involves fully integrated marketing campaigns designed to give TEGNA access to company's marketing spend beyond just advertising. As well, our content transformation continues to progress, and Dave is going to give us more details on all of that in a moment.

So let's turn to the Digital segment. Their pro forma revenues were up 7% year-over-year. The key driver there was Cars.com, which continues to achieve meaningful revenue growth. Auto manufacturers and large dealer groups contributed significantly to the growth this quarter.

Cars.com is also seeing an uptick in its new product sales, particularly with the new sell-and-trade offering, and they continue to build their new product pipeline. And Alex is going to share more details on all of that in a few minutes.

Shifting to CareerBuilder, we were very pleased to see a return to growth in the second quarter with its HR Software-as-a-Service platform continuing to be the key story. With its small acquisition of Aurico last quarter, CareerBuilder continues to lead the pack with the best most compelling offerings among its peers providing solutions that are cleanly and powerfully integrated. There's obviously a lot going on at CareerBuilder, and Matt's going to be able to speak to all of it in just a few moments.

But first, let me hand it over to Dave Lougee for a deep dive into TEGNA Media.

David T. Lougee - President-TEGNA Media

Thank you, Gracia. At the midway point in the year, we remain on track for a record year at TEGNA Media. Let me first dive deeper on Gracia's comments on political. We are headed for another tremendous year in political spending. Two factors led to this temporary lull in the second quarter that Gracia referenced.

The first is that we didn't have any significant primaries in our particular footprint in the quarter. The second and more significant, the party's candidates, as Gracia referenced, were decided much later than four years ago. So this year, the start of the much larger spending for the General Election or main event, if you will, just got underway at the end of the quarter.

Conversely, the Obama-Romney event four years ago was well underway in early second quarter. And as a reminder, we are, as Gracia said, positioned very, very well for that main event. We're in states that matter most, including Ohio, Florida, Virginia, North Carolina, Colorado and Michigan. And given the close polling, we know Hillary will have a growing war chest coming out of this week's convention.

I also want to address the so-called Trump factor. His funding will now accelerate following the convention last week. And major Republican donors who don't give to him are going to move their money and are moving their money to control over key Senate, House and gubernatorial seats, and our footprint there is equally strong. We have contested Senate races in Ohio, Florida, Missouri, North Carolina and Arizona, and the Trump factor may widen the playing field further and open up other races. For instance, there are now polling – he and Hillary Clinton are now polling neck and neck in one poll in Georgia.

The bottom-line, spending for all races is now beginning and accelerating fast, as expected. In addition to the Presidential race, major buys for Senate, House and Governor's races, and a very big statewide issue category are now being placed with that number growing by the day. Those races always begin in earnest in the third quarter.

Now turning to core advertising. Core advertising was down slightly for second quarter, and we were unfavorably affected by two factors, not having the Final Four game on CBS this year and a negative variance in the insurance category due to ObamaCare spending last year. We finally cycled past that issue starting in this third quarter.

On the Digital side, we're continuing to see strong growth in Q2 and sequential improvement over Q1, excluding a one-time revenue reclassification. And our G/O Digital marketing services continues to grow strong at 35% and is a home run with both new and existing clients.

The Rio Olympics begin next week, and we will have another year of record results. We are way outpacing the last – well outpacing the last Summer Games in 2012, and already have more revenue on the books today than where we finished in 2012. And we're way ahead of the Sochi Winter Games in 2014.

As with all past Olympics, our NBC stations will be among the very highest rated. And using our scale, we have a centralized crew in Rio that will be co-producing with NBC Sports a nightly half-hour program for all our NBC stations, giving us higher rated lead-in programming for primetime coverage as well as more inventory to sell.

Now, let me turn to initiatives we've been talking about since Investor Day last year, all aimed at closing the net retrans gap in 2017, the gap due to the original TEGNA NBC stations paying reverse compensation for the first time starting in 2017.

As we said in our last call, those initiatives will contribute $30 million of EBITDA this year, and we remain on track to do just that and are rapidly ramping as projected, giving us even more confidence in our ability to close that gap next year.

Hatch, our centralized client solutions group that Gracia referenced, is ramping nicely and it's ramping off of an essentially fixed cost basis. Our central pricing initiative is also ramping nice. We have established a centralized pricing desk and are beginning to rollout our SaaS-based pricing software, which are both contributing to pricing and revenue share gains right now. They're putting dollars in our pocket by using data and analytics to make better and faster pricing decisions as political orders come in at the last minute with little visibility.

Now turning to our content transformation, it is wide-ranging and in full swing. In the news area, we have a development pipeline of 20 pilot projects as well as a number of new proven practices that are being scaled across the division that will accelerate our growth in share of viewing in our linear newscast as well as other platforms.

For example, one of those proven practices we call social listening. Using software programs like CrowdTangle, our journalists are now using crowd sourced data to make real-time content decisions on every platform. The result is less repetition and more relevance, all part of our culture of data-driven decision-making across the board. An example of one of those pilots is called Verify, which we are piloting across all of our Texas stations next month after a successful test run at a Republican convention last week.

Verify lives at the intersection of Anthony Bourdain and local news, if you will, at a time when consumers are skeptical of what's fact and what's not, Verify will offer them a packaged transparent look at the truth.

In the non-news arena, we have six different pilots now of new live local shows underway in six markets. And in the syndication space, as Gracia referenced, our T.D. Jakes show begins taping tomorrow, he premieres on September 12. The show is now cleared in 58 markets across 43% of the country, and shortly we expect to announce a national distribution deal with another program outlet.

Awareness of T.D. Jakes has skyrocketed in the aftermath of the tragic police shootings in Dallas. He was sought out by civic leaders and media outlets everywhere and was a healing voice for the city and the nation on both traditional outlets as well as social media.

The Justice channel, a targeted content multicast channel of which we have an ownership interest, continues to grow nicely and is about to grow to 60% clearance of the country, of which we make up 30% of the total or 50% of the 60%, if you will.

Innovation and content, sales and process on all platforms is now the cultural norm at our stations. And together, we are executing on the strategy we had laid out.

With that, I want to turn it over to Matt Ferguson from CareerBuilder.

Matthew W. Ferguson - Chief Executive Officer, CareerBuilder LLC

Thanks, Dave. CareerBuilder had a strong second quarter returning to growth as we build solid momentum behind the sales of all of our human capital solutions. Our pre-hire platform, which is the first and only of its kind, provides huge benefits to our clients in terms of reducing the cost and time it takes to hire someone. It also provides a competitive advantage for CareerBuilder, no one else comes close to delivering the scope of advertising software and services in one place. We have the most cutting-edge recruitment offering on the market and employers are very excited about what we can do for them.

In March of this year, CareerBuilder expanded upon our platform by acquiring Aurico, a leader in background screening and drug testing. We're off to a great start with Aurico and are driving a lot of sales opportunities for them. In Q2 alone, Aurico's revenue was up 27% year-over-year and their invoicing was up 29%. With our sales, marketing and brand behind this business, we expect strong growth to continue at Aurico in the back half of the year and beyond.

As CareerBuilder continues to evolve as a company, we're seeing a positive trajectory for our revenue. In the second quarter, CareerBuilder generated $181 million in revenue, growing 3% year-over-year. This shows improvement over previous periods where revenue was down 2% year-over-year in Q1 and down 5% year-over-year in Q4.

Contributing to this growth is the strong performance of our software solution. Software invoicing sold by CareerBuilder in North America was up 10% year-over-year from December 2015 through June 2016, and monthly recurring revenue was up 12% in Q2 2016 compared to Q2 2015.

In addition, our source and screen business is a good example of how we're reinventing our products. In 2015, we saw a sizable and anticipated revenue decline when we moved away from the transactional approach to this business. After transitioning to a platform-based offering, this business was up 47% from June 2015 to June 2016 and is trending the same way for July.

As we look forward, it's important to note we recognize that job posting business will continue to experience pricing pressure at the unit level in 2016, and we have reflected that in our projections. So the price per unit will be lower. There's a good opportunity for us to increase the job posting inventory in our side as we go after mainstream higher volume jobs.

Innovation is an everyday occurrence at CareerBuilder. In the coming months, you'll see us rollout exciting new software solutions. We'll also continue to explore acquisitions that build on the success of our current offerings and create new revenue streams. We fully expect double-digit growth in our SaaS-based software solutions, resume database and employer services this year.

I'll also reiterate we anticipate mid-single digit revenue growth in 2016. We are seeing some really good signs from some of the bigger deals that we've been working on from the Aurico pipeline that we expect to hit really as we get closer to Q4. In addition, we still expect to reach 10% growth by the end of 2017.

With that, I'll hand it over to Alex Vetter, CEO of Cars.

Alex Vetter - President & Chief Executive Officer, Cars.com LLC

Thank you, Matt. We're pleased that all of our retail channels are growing, resulting in nearly 8% increase in revenue compared to the second quarter of last year. This growth has been primarily driven by an increase in dealer market penetration and direct markets, new products and increased purchase of display advertising by auto manufacturers. Our strongest growth can be attributed to auto manufacturers and major dealer groups. Our major accounts team is up 9.1% and national revenues are up 15.3%. So combined, we're up more than 11%.

As we've discussed in the last few earnings calls, we have been disappointed with our affiliate sales performance and have taken steps over the past several months, including additional training and support on product materials to help them improve their trajectory. We're pleased that in the second quarter, they began to reflect some improvements in their trends and we expect that to continue into the future.

In addition, some of our direct sales channels' initiatives kicked off in the first quarter took longer to ramp this year. Both of these factors have contributed to a shortfall in the year-to-date overall growth rate, but we're expecting improved performance in the second half across all channels to be around 9%. This is a result of our ramped initiatives as well as even the quicker product expansion through DealerRater, which we originally have been planned to have occurred through organic product development.

As you heard earlier today, we've entered into an agreement to acquire DealerRater, the industry's largest automotive consumer review website. We know through a leading automotive consumer experience management company that nearly 80% of car buyers and 70% of service customers, site – review site is the most helpful resource in selecting a dealership.

Then transaction is the natural extension of the Cars.com business and strategy and enhances our focus on dealers who provide great local end market experiences to shoppers. With the completion of this acquisition later this summer, we will solidify our position as the leader in online automotive reviews and the preeminent authority for car shoppers and owners for deciding what to buy and now where to buy it and who to buy it from.

A strong reputation and successful word-of-mouth referrals go hand-in-hand, and we're uniquely positioned now to help dealers leverage their reputation and connect with in-market shoppers to the power of social.

On the product front, we're pleased to also welcome Tony Zolla, our new Chief Product Officer. He comes to Cars.com with 18 years experience building and leading high-performance organizations at some of the nation's top consumer brands. Most recently, he was the Senior Vice President of Products and Customer Experience for the $2 billion retailer Redbox, and prior to that at Ticketmaster.

We also have good news to share regarding our new products. Last quarter, we launched the next phase of our sell-and-trade product offering, which includes a new Quick Offer mobile app, which allows consumers to easily sell their cars in real-time offers from local dealers.

Dealers buy into the program to access a new audience of consumers and build their used car inventory. We're off to a great start with our sell-and-trade portfolio of products this year. Q2 sales are up over Q1 and we expect further updates in the sell portfolio soon.

Sales of our campaign-based event positions – products are up year-over-year due to an increase in vehicle sales incentives in the Memorial Day holiday, and our dealer positions, a prominent display product, continues to perform well more than doubling revenue expectations year-to-date.

In the near-term, we'll see additional new products hit the market, including our cross-device offsite ad targeting products, Cars 360X and our deep linking offering, which allows users to connect directly to the vehicle detail page on a dealer's website directly through Cars.com. This direct connection provides a seamless shopping experience for consumers and drive shoppers into our customer's environments even faster.

We continue to improve our app experience for our highly engaged mobile audience. A few weeks ago, we launched price drop notifications alerting shoppers of a price reduction on cars of interest, bringing back repeat visitation.

And in the automotive industry, we know that consumer usage of third-party sites is undisputed. Shoppers trust the independent editorial opinions of sites like Cars.com to guide them through the decision-making process of what to buy and now where to buy it. We're harnessing the power of our independent credible voice through a variety of strategic initiatives.

First, every year, Cars.com editors evaluate cars by segment type using their own in-house expertise, outside experts and consumers looking to buy new cars. In a series of multicar comparisons known as challenges, in June, we hosted the Midsize Sedan Challenge and awarded the Volkswagen Passat as the best-in-segment honors. The selection was supported by an integrated marketing and social media campaign that included cross promotion efforts by the winner, and there's a licensing agreement that allows Volkswagen to promote the award in all of its advertising and in-dealership collateral.

In addition, we're expanding our presence across other media channels with the weekly segment called Driving Smart that will air at Saturday mornings on more than 30 TEGNA Media stations. These segments are produced by Cars.com in our studio, and we use for our website video production and will feature our editors covering topics such as car shopping one-on-one and other automotive news of interest to consumers. Our first segment aired last week.

We're thrilled with the DealerRater transaction, the tremendous growth coming in from auto manufacturers and major dealer groups, the potential in our product pipeline and the momentum we're beginning to gain with our affiliates, and the ways that we're leveraging our unique editorial voice with consumers.

Thank you for your time. I'm now going to turn it over to Victoria.

Victoria Dux Harker - Chief Financial Officer & Executive Vice President

Thanks, Alex, and good morning, everyone. As Gracia has already mentioned, we're very pleased with our solid results this quarter, driven by the strong performances of our businesses across both the Media and Digital segments.

Before I review our consolidated financial results as well as capital allocation during the quarter, I'd like to note that there were just a few operating special items, which showed $11 million, primarily related to a voluntary early retirement program within Media, which began last quarter. Altogether, these items unfavorably impacted GAAP EPS by about $0.03 per share.

Beyond this, total non-operating special items totaled $5 million, impacting EPS by about $0.02 per share, driven by the write-off of a small equity investment and costs related to M&A activity.

As a reminder, although I'll be focusing on our non-GAAP performance results today, you can find all our reported data and comparatives in our press release. Now let's briefly review the operating results for the quarter.

With strong performances by both Media and Digital segments, we achieved earnings per share of $0.50, an increase of 67% over last year. Total company revenues of $812 million were up 7% year-over-year.

On a pro forma basis, excluding the impact of PointRoll, which we sold at the end of last year, total revenues were up 9% and in line with our full-year projections, driven by significant growth in the Media segment's retransmission and political advertising revenues as well as continued growth in Cars.com and stronger CareerBuilder revenue within the Digital segment.

During the quarter, total company operating expenses of $575 million were higher by 3% over last year, mainly due to higher programming fees, expenses associated with revenue growth and our ongoing investments in growth initiatives within both the Media and Digital segments. These were offset in part by a reduction in corporate expenses and the absence of publishing unallocated costs as well as our continued efficiency efforts.

Now let's turn to a more detailed review of Media and Digital segment results. Media segment revenues of $459 million increased by 10% year-over-year, driven by significant growth in retransmission revenues as well as higher political advertising and digital revenue. Retransmission revenues boosted by agreements negotiated at the end of last year as well as annual rate increases within existing agreements were up 33% this quarter.

As Dave mentioned, political campaign spending continues to track and we achieved revenues of over $10 million of advertising in the second quarter. Despite the impact of the drawn-out nomination process, fewer contested primaries in our footprints in the second quarter and delayed Presidential campaign spending.

Beyond this, Media segment digital advertising revenues were also up 12%, driven by digital marketing services which continue to gain traction across the television stations, driven by G/O Digital sales, extended reach networks and national digital revenues.

As Dave mentioned, excluding a one-time publishing segment revenue reclassification at the time of the spin last year, digital revenues would have increased by 17%.

Now focusing on third quarter expectations within Media, based on current trends, we anticipate increases in retransmission revenue, political advertising, Olympic advertising and digital revenue to result in Media segment revenue growth of 20% to 25% for the third quarter of 2016 compared to the third quarter of 2015.

As you would expect, revenue growth will in part be dependent on political spending in the second half within the Presidential campaigns as well as for contests in both the House and the Senate.

During the second quarter, the Media segment operating expenses of $271 million were up 15% year-over-year, primarily due to increased programming costs and investments in our digital sales initiatives, including sales force transformation expansion to support newly launched product offerings.

Now on to the Digital segment. During the quarter, Digital segment revenues of $353 million increased by 7% year-over-year on a pro forma basis, reflecting continued growth in dealers, consumer use as well as new product launches at Cars.com and higher revenue at CareerBuilder.

Cars.com revenues sold directly were up 8%. Including the impact of affiliate revenue performance revenues increased by 6% year-over-year, reflecting ongoing strength in market penetration within the direct sales market.

This was bolstered by the continued success of new products such as sell-and-trade, campaign-based event positions and dealer position enhance. National advertising revenue was also strong, up over 9% due mainly to an increase in display advertising by auto manufacturers.

CareerBuilder revenues were up 3% year-over-year, the first quarterly increase since early last year, as CareerBuilder continues its sales momentum with strong margin Software-as-a-Service solutions. As Matt mentioned, the acquisition of Aurico and a higher resume database revenue also contributed to the growth this quarter. These were partially offset by headwinds on our job posting business.

Digital segment operating expenses of $288 million were up 5% due to an increase in expenses primarily reflecting accelerating investments in sales force and growth initiatives within both Cars.com and CareerBuilder, partly offset by the absence of expenses at PointRoll.

As a result of this strong operational execution across the segments, TEGNA overall achieved solid adjusted EBITDA of $288 million this quarter, and our EBITDA margin was up 35%, up 200 basis points compared to last year.

Capital investments of $24 million during the quarter reflect our ongoing commitment to reinvestment in business priorities, and include digital development, media content, product integration and platform enhancements, including automated sales tools, order tracking and other critical product enhancements.

During the quarter, solid cash flow from operations was used to fund share repurchases of $76 million at an average price of $22.68 per share, and we made dividend payments of $31 million.

During April, we also extinguished $193 million of 10% senior notes, which reached their maturity. This resulted in net reduction of over $14 million in annual interest expense respectively. At the end of the quarter, our long-term debt was $4.3 billion and cash on the balance sheet was $102 million.

With that, I'll turn the call back to Gracia for her closing remarks.

Gracia C. Martore - President and Chief Executive Officer

Thanks, Victoria. Looking back at this first year as TEGNA, we've accomplished a great deal. It was a very productive first year, but we have only scratched the surface in terms of what we are capable of doing. I want to thank you all very much, all of our employees for your effort during this first year. There's a lot more to come through the rest of 2016 and beyond. Stay tuned.

With that, I'd like to open the call up to questions. Tanisha?

Question-and-Answer Session

Operator

Thank you. We'll go ahead and take our first question from John Janedis. Please go ahead. Your line is open.

John Janedis - Jefferies LLC

Thanks. Good morning. Maybe for Dave or for Gracia, acknowledging the timing issues, have you changed your internal projections for the political season and can you also talk about your underlying assumptions for political and Olympics in the third quarter? I think going back to 2012, it was $37 million for Olympics and maybe $40 million in 2014, and then can you also remind us of your pro-forma political revenue either for third quarter of 2012 or 2014? Thanks.

Gracia C. Martore - President and Chief Executive Officer

Dave, why don't you talk about Olympics?

David T. Lougee - President-TEGNA Media

Yeah. Olympics, as we said, are really strong. Remember, these dollars aren't all incremental, but we are again ahead of the – we did a total of $48 million back in 2012, we're ahead of that today. And we are in high-single digits, John, right now on pace for that.

Gracia C. Martore - President and Chief Executive Officer

So I think clearly exceeding both 2012 and certainly 2014 in a meaningful way.

David T. Lougee - President-TEGNA Media

Significantly over 2014, yeah.

Gracia C. Martore - President and Chief Executive Officer

And on the political side, John, I think you're asking about 2012?

John Janedis - Jefferies LLC

The pro forma 2012 or 2014 number for the third quarter, just trying to benchmark, yeah.

Gracia C. Martore - President and Chief Executive Officer

Yeah. In 2014 third quarter, which would be including Belo obviously, $40 million in the third quarter and about $92.5 million in the fourth quarter. In 2012, which would be a comparable Presidential year, third quarter was about $56 million of political and fourth quarter was $114 million of political.

John Janedis - Jefferies LLC

Have you changed your internal projections, Gracia, for the season given the 2Q numbers?

Gracia C. Martore - President and Chief Executive Officer

I think the only thing we've changed is quarter-to-quarter because as we got into the year, as we said on our first quarter earnings call, it was clear that the primaries were going to last much longer.

Unfortunately, we had a great footprint in the first quarter. We said on our call last time that our footprint of primaries in the second quarter wasn't particularly robust. We expected the money in those states to go to other lucky broadcasters. But – so I think it's more of a switching among quarters rather than any concern about the totality of political for the year. But Dave, if you want to add anything?

David T. Lougee - President-TEGNA Media

That's right, John. I mean, second quarter is the least dynamic in Presidential – back in 2012, Presidential was a disproportionately large piece of that. Because all of the other money, if you will, everything but Presidential, which for the year is by far a larger piece doesn't get going until the third quarter. So the Presidential not starting – the General Election not starting in the second quarter had a disproportionate effect on us in 2Q.

Gracia C. Martore - President and Chief Executive Officer

Cause you had seen Obama spending and other spending early in Q2.

David T. Lougee - President-TEGNA Media

That's right. Obama was – his war chest was – on by the beginning of the quarter last time around, he was on early.

Gracia C. Martore - President and Chief Executive Officer

Yeah.

John Janedis - Jefferies LLC

Got it. All right. Thanks, Dave. And maybe a related question. As you know, there's been some concern related to certain ad categories on broadcast. I know it's hard to speak to core with political and Olympics, but can you speak to underlying strengths in maybe a couple of your top categories. And by that, I'm thinking about consolidation in maybe the telecom pay-TV space and some of the pressure on retail to name a couple different, some of the press out there.

David T. Lougee - President-TEGNA Media

Yeah, I can speak on it. We are down slightly in retail but that's mostly driven by a large advertiser in the South that we sort of chose not to take for some pricing issues. And in the telecom space, it is down slightly but not like what we've seen frankly in the first quarter. So it's on the video side of the business, John.

Gracia C. Martore - President and Chief Executive Officer

But the positive categories as you've ask also, auto very strong, services very strong.

David T. Lougee - President-TEGNA Media

Yeah. Yeah. Yeah.

John Janedis - Jefferies LLC

Great.

Gracia C. Martore - President and Chief Executive Officer

Media telecom together actually up a little bit and home-improvement up. So a mix of categories, but really glad to see that in our top category that's 25% or so of our business, a nice increase in auto.

John Janedis - Jefferies LLC

Great. Thank you very much.

Operator

Thank you. And we'll go ahead and take our next question from Barten Crockett. Please go ahead. Your line is open.

Barton Crockett - FBR Capital Markets & Co.

Okay. Thanks for taking the question. I wanted to ask about the job listings decline that you saw at CareerBuilder. What is behind that? Is that a shift in how employers are seeking to recruit people, maybe the things like LinkedIn or is that macro? I mean, I think it's hard for us all to figure out what's happening with the jobs picture with the government data looking great in June and terrible in May. How would you describe the sources of the pressure there?

Matthew W. Ferguson - Chief Executive Officer, CareerBuilder LLC

I think there is the competitive dynamics in the way people buy jobs today that you mentioned, whether it's LinkedIn or other people in the space. I think it's the way they get price today versus a couple of years ago. I think on the economic front or macro front that you talked about, the numbers have bounced around. I think the labor market in my opinion is still similar and that skilled positions is pretty tight. And you're seeing wage increases and a lot of demand for labor, not that much supply when you get into more of the mainstream jobs, it's less so. I haven't seen a change that has gotten worse or noticeably worse or that much better. I think it's more status quo.

Barton Crockett - FBR Capital Markets & Co.

Okay. And then, if I could, follow-up a little bit on the questioning about the ad environment. I understand the category commentary and I appreciate that. But I think we're all kind of scratching our heads to kind of figure out, is this a good ad environment generally or not with all of the kind of noise between political and Olympics and the upfront looking great at the national broadcast. So just in general, I mean, how would you describe the feel of the ad market at its core level at this point?

Matthew W. Ferguson - Chief Executive Officer, CareerBuilder LLC

I would say, generally it's actually marginally improving for the course of the year. For us, in the second quarter, it marginally improved through the quarter, so -and going into third, it feels like it's marginally better. The other thing, I think, I guess to give you some commentary on is that relative to the value of inventory, sports continues to kind of grow in its relationship to the value of the brand advertisers. And for us, we don't have a lot of that inventory much at all in the second quarter, that's our lull, and so categories like the NFL continue to grow. So I think you're seeing people move some dollars into those high ticket events.

Gracia C. Martore - President and Chief Executive Officer

And I think Olympics probably take some of those core dollars.

Matthew W. Ferguson - Chief Executive Officer, CareerBuilder LLC

Definitely. Sucks it out of the market and puts it in our hands.

Barton Crockett - FBR Capital Markets & Co.

Great. Thank you.

Gracia C. Martore - President and Chief Executive Officer

Thanks, Bart.

Operator

Thank you. And our next question comes from Dan Kurnos. Please go ahead. Your line is open.

Dan L. Kurnos - The Benchmark Co. LLC

Yeah. Great, thanks. Good morning. Just a few questions from me. Just to be clear, Dave, good numbers on the Olympics, but is any of that potentially at risk with some of the negative headlines or if it ends up turning out to be a disaster?

David T. Lougee - President-TEGNA Media

No, not at all, not at all. We've seen no impact at all from any of those events. I know that's a good question, it's been asked in the past. And we frankly had faced that with Sochi and other things, but what we find is the more news and noise about the Olympics, all it does is raise the interest and there's been nothing to scare away advertisers.

Dan L. Kurnos - The Benchmark Co. LLC

Great. And then, shifting over to Alex here on cars. Some good commentary around affiliate improvements. Maybe if you could just remind us exactly what you've done to bolster that and maybe sort of your thought process on where you can get them to over the next six months in terms of growth, your expectations there. And then also on DealerRater, just any color you can give around either price paid, it's monetization mechanism and your plans for integration would be helpful. Thanks.

Alex Vetter - President & Chief Executive Officer, Cars.com LLC

Sure. On the affiliate performance, we've spent a lot of time in the first quarter just making sure they understood the total opportunity that's in front of them in their markets comparing our direct market performance and what we've been able to do to what their local teams have done.

We've also dedicated some of our sales support resources to help them in market four-legged calls to help them understand the products and how they can bring value to their end users. And I think, the combination of that as well as engaging with management to see the opportunities they have, they have started to earmark more resources towards pursuing Cars.com product sales in their market.

It is a little bit of a mixed bag because we're doing this on a market by market basis. But we've made it through most of the affiliate markets and those that we've been involved with, we've seen them turn their performance around.

So, as for guidance on the rest of the year, we feel like we need to keep the pressure up with them to help make sure that our products stay top of mind, but we do see modest improvement in their performance throughout the rest of the year.

On the question regarding DealerRater, the deal will close later this summer, and we're not sharing details on the transaction. We do think it presents an enormous opportunity for us to diversify our revenues. As many dealers are already subscribing to Cars.com, we now have yet a new solution to offer them that leverages our vast sales network where DealerRater had a great product that really lack the sales of the structure that we have.

So I think the combination there has tremendous synergy for us to bring a new solution to market that helps dealers capitalize on word-of-mouth and social marketing.

Gracia C. Martore - President and Chief Executive Officer

Dan, I would just add to what Alex said is that, we'll spend the next few months integrating obviously the teams and products and the rest. But clearly, the opportunity we see there is, as Alex said, to bring to bear the enormous sales force that Cars.com has to sell this product. And it's something that we hear a lot of enthusiasm about from dealers, from clients. You have some statistics about how important that is to the conversation, and deploying the Cars sales force on top of a modest sales force that DealerRater should really lead to some very significant increases on the revenue side in both 2017 and 2018 once it's been fully integrated.

Dan L. Kurnos - The Benchmark Co. LLC

Thanks. That's really helpful. And maybe just one more, if I could, because I don't think there's a lot of talk about profit improvement or cash flow improvement on the digital side. Just you gave sort of guidance for where that was going to trend over the course of the year. Understanding that Cars has had maybe a little bit of a revenue shortfall still sounds like you guys are on track from a cash flow perspective, is that fair for both Cars and also CareerBuilder?

Gracia C. Martore - President and Chief Executive Officer

Yeah. I think we are pleased. What we said at the end of last year was that we were going to continue to ramp investment in the first half of this year both at Cars.com as well as at CareerBuilder, on technology resources, on sales, on marketing efforts and a number of investment areas. That spend will not be as significant in the second half of the year because we've done a fair amount of investment here in the first half of the year. We hope to start harvesting more of those investments in the second half of the year and beyond.

Dan L. Kurnos - The Benchmark Co. LLC

Great. Thanks for all the color. Appreciate it.

Operator

Thank you. And our next question comes from Tracy Young. Please go ahead. Your line is open.

Tracy Young - Evercore Group LLC

Yes, hi. One question on Media, and one question on Digital. We may have talked about this in the past on the political spend, but could you give us a percentage of Presidential versus issue?

David T. Lougee - President-TEGNA Media

Yeah. And when you say asset, Tracy, just to be clear, are you talking about non-Presidential issue money?

Tracy Young - Evercore Group LLC

Yes.

David T. Lougee - President-TEGNA Media

Yes, okay. Issue can often be close to as large, but Presidential will at best be a third of – about a third of our revenue in a Presidential year, and the issue money can be a quarter related to just issue money not tied to other races. But we have lots of what we call issue, tax spending relative to the Senate races, to House races, the Governor's races, but if you're just talking about state issues, which is a sizable amount across our mutual fund and that can often be around a quarter of the dollars.

Gracia C. Martore - President and Chief Executive Officer

And on that third roughly on Presidential, that does include PAC spending.

David T. Lougee - President-TEGNA Media

That's right, not the candidate. That's right.

Gracia C. Martore - President and Chief Executive Officer

The true candidate money is at the lowest rate whereas the...

David T. Lougee - President-TEGNA Media

Bigger dollars, that's right, the PACs.

Gracia C. Martore - President and Chief Executive Officer

...the bigger dollars are coming at the market rate.

Tracy Young - Evercore Group LLC

Great. Thank you very much. And then, again on Cars.com, you gave a lot of good color. Is there any way to give us a percentage of the affiliate versus direct during the quarter in sales?

David T. Lougee - President-TEGNA Media

Sure. About – our wholesale revenues really are sub-30% of our total. So our retail revenues make up the majority of our volume and affiliate sub-30%.

Gracia C. Martore - President and Chief Executive Officer

We generally talked in the press about 25%, 26%.

David T. Lougee - President-TEGNA Media

Yeah.

Tracy Young - Evercore Group LLC

Okay. Thank you very much.

Gracia C. Martore - President and Chief Executive Officer

Thanks, Tracy.

Operator

Thank you. We'll take our next question from Doug Arthur. Please go ahead. Your line is open.

Douglas Middleton Arthur - Huber Research Partners LLC

Yeah, thanks. Two questions. Question for Dave on costs. I mean, the cash costs in the first half in broadcasting were up about 16%. Is there any way to sort of disaggregate how much of that was due to the sort of accelerated spending on new marketing initiatives versus programming? And then I've got a follow-up on Cars. Thanks.

David T. Lougee - President-TEGNA Media

Yeah. So, our total expenses when you factor out our programming fees are under 5% for the first half of the year. And that includes the spending that we have on initiatives, including our core initiatives and programming initiatives and that gives you some color.

Douglas Middleton Arthur - Huber Research Partners LLC

Okay. And then, Alex, on the affiliate improvement, how much flexibility do you have over the next few years if you have a certain affiliate that just continues to underperform and not sort of react to the supported incentives, what kind of flexibility do you have contractually?

Gracia C. Martore - President and Chief Executive Officer

Doug, we baked into our agreements when we acquired Cars from our partners and kept the affiliation agreements in place certain performance metrics around them. So there are triggers if an affiliate is performing particularly poorly to address those kinds of issues. But I think we've taken the tack that we would rather work with the affiliates and make sure that we bring to bear all those learnings that Alex and his team have to improve their performance. And it was heartening to see that improvement in performance in the second quarter with hopes that that performance improvement will continue through the remainder of the year.

As you know, we are about almost two years into the five-year agreement, and obviously we'll be looking at all of those factors, performance, et cetera, when we get to that point in time when we begin discussing the future of those agreements.

Douglas Middleton Arthur - Huber Research Partners LLC

Okay, thank you.

Gracia C. Martore - President and Chief Executive Officer

Thanks, Doug.

Operator

Thank you. Our next question comes from Marci Ryvicker. Please go ahead. Your line is open.

Marci L. Ryvicker - Wells Fargo Securities LLC

Thanks. I think we're struggling a little bit with political. With Q2 coming in so late, what gives you the visibility to push money into Q3 and Q4 that you make your internal budget? Do you have a candidate who is not spending and you have finite inventory.

Gracia C. Martore - President and Chief Executive Officer

First of all, I'll start and then Dave please add on. Our budget for political in the second quarter reflected that it wasn't going to be a robust quarter to start with. We are always well aware when we're budgeting that 80% to 85% of the dollars come in, in the back half of the year. So what you're talking about is a delta is a few million dollars or so being pushed one way or another.

So it isn't an enormous amount of money that we're talking about moving. And given all the factors that we've talked about, I think, Dave, in looking at all of the races and looking at the expanded portfolio of places that we now think are going to be more in play than we would've thought back in November or December when we were putting our budget together. I think Dave feels confident about that, but I'll let you speak.

David T. Lougee - President-TEGNA Media

That's right, Marci. Second quarter is a very small piece of the overall total as it always is. And the other thing, again, and the factor that drove it to a lull is, it's the one quarter that's sort of completely dependent on Presidential whereas the rest of the year, Presidential is sort of overstated. It's what gets the noise and attention, but as I said earlier, even in the back half of the year, it's at best probably a third of the total. To the question earlier, issue can often approach Presidential in total.

So the rest of the year is a mutual fund of all of these other races which are all there and all coming in. So it's just you have a real anomaly and again the second quarter, which as Gracia said, was a low base anyway as a percentage of our whole.

Marci L. Ryvicker - Wells Fargo Securities LLC

Dave, you talked previously about Trump spending. Is that an expectation or are you actually seeing dollars being placed after the Republican convention?

David T. Lougee - President-TEGNA Media

We do have some dollars being placed by Trump, but I think my point about his spending is that, I think, publicly you'll see that if some people – he may not get as much PAC spending as Romney does, but that doesn't concern us, because that money – those people that out of principle won't give to Trump are then going to give money to the RSCC and the House Congressional Committee. And we're as good or better in terms of our footprint on those contested races, Marci, as we are Presidential. So, for us, it's just a shift of funds.

Marci L. Ryvicker - Wells Fargo Securities LLC

Okay. And I have one question on Digital. I think the comments were pretty fat. So, just clarification, was there guidance for the second half growth at Cars.com for revenue to be up 9%, and then the second part is, how much would DealerRater contribute to that?

David T. Lougee - President-TEGNA Media

The first answer is yes. And the second part of the answer is, not meaningful. It will ramp, as Gracia commented, more in 2017 and 2018 once the integration is complete.

Marci L. Ryvicker - Wells Fargo Securities LLC

Great. Thank you.

Gracia C. Martore - President and Chief Executive Officer

Thanks, Marci.

Operator

Thank you. And we'll take our next question from Kyle Evans. Please go ahead. Your line is open.

Kyle Evans - Stephens, Inc.

Hi, thanks. Most of mine have been asked and answered. This is maybe hairsplitting since Gracia, you've already said that Aurico deal was small, but what was the year-over-year growth rate in CareerBuilder excluding Aurico?

Gracia C. Martore - President and Chief Executive Officer

Aurico?

Kyle Evans - Stephens, Inc.

Aurico, thank you.

Gracia C. Martore - President and Chief Executive Officer

My sense is that Aurico – when we look at all of the categories that were up, Aurico was not a significant factor. The other categories were the more important ones that drove the dollars.

Matthew W. Ferguson - Chief Executive Officer, CareerBuilder LLC

Yeah. And we felt like we drove a lot in that growth year-over-year because we had it for the whole quarter, and those deals are signed and up. And again, I think about that service, it's not a subscription service. Right? You signed up, so you have to drive growth in that all the time. And we feel like our brand and sales team spent a lot of time in helping them achieve that 27% growth, and so then we feel like it was a big part of that story.

Kyle Evans - Stephens, Inc.

Gracia and Dave, you were kind enough to give quarter-by-quarter political pro forma in 2012 and 2014 for the second half. Would you mind giving me first and second quarter for 2012? I know what the unit was, I believe, it was 198 (50:35).

Gracia C. Martore - President and Chief Executive Officer

Yeah, 197 (50:37), but who's counting. Q1 was about $6 million and Q2 was about $20 million in 2012.

Kyle Evans - Stephens, Inc.

Okay.

Gracia C. Martore - President and Chief Executive Officer

And Olympics were $46.6 million in 2012, just to complete your model.

Kyle Evans - Stephens, Inc.

Got you. Lastly, Alex, you mentioned some TV spots coming from the production of the Cars.com employee base. Could you expand a little bit on that? What's that look like from a cost perspective, revenue perspective, is that meant to drive revenue or just expand the brand. Just help us think a little bit more clearly about that.

Alex Vetter - President & Chief Executive Officer, Cars.com LLC

Sure. First of all, we have an in-house team of editorial experts that have been on the payroll for decades. And most of their video content has been posted on YouTube or on our own website. Merely what we're doing now working with TEGNA is, extending the reach of that great content on to TEGNA TV. And as you know, Saturday is the peak auto shopping day of the week, and Dave's team was able to leverage our editorial content on the Saturday morning newscast before people head out shopping for the day. So we think contextually, it's phenomenal placement, it's leveraging an existing expense base and just drawing a wider net.

David T. Lougee - President-TEGNA Media

And those Saturday morning newscast get a very high cum (sic) [cumulative] (51:53) of reach of viewers across a given morning. So, as Alex said, it's ideal placement.

Alex Vetter - President & Chief Executive Officer, Cars.com LLC

And importantly, we've already noticed a few local auto advertisers buying television advertising now around that Saturday morning segment. So it's helping, I think, on both sides of the house.

Kyle Evans - Stephens, Inc.

Just out of curiosity that TV ad bought by the local dealer around the content, does that flow through Cars or does that flow through the station?

Alex Vetter - President & Chief Executive Officer, Cars.com LLC

It goes to the Media segment.

Kyle Evans - Stephens, Inc.

Got you. Okay. Thank you.

Operator

Thank you. And we'll go ahead and take our next question from Alexia Quadrani. Please go ahead. Your line is open.

Alexia S. Quadrani - JPMorgan Securities LLC

Thank you. I hate to beat a dead horse but I still think there is a fair amount of confusion on this political forecast or expectations for the back half just given emails I'm getting. Dave, maybe can you give us what you guys are expecting for Q3, Q4 for political spend this year? And then I have a follow-up.

David T. Lougee - President-TEGNA Media

Yeah, I don't have a guidance on an actual number, but just to maybe give you an answer relative to Marci's question earlier, Alexia. I think I should've given a better answer to Marci's question, which hopefully will help answer yours. Our miss to an internal plan on dollars in second quarter is inconsequential relative – on the politically piece, right. Because I said the base is so small anyway relative to what we expect. So even though within the quarter, it looks sizably significant. If you just look at it in terms of raw dollars, it is insignificant compared to the total expectations as it always is in the quarter.

Alexia S. Quadrani - JPMorgan Securities LLC

So did you give a full year political number that we could base that off of? There is a lot of moving pieces you gave the 80%, 85% post-Labor Day, to figure out the exact number on Q3 or Q4. Is there any more color – are there any numbers you can put around it?

David T. Lougee - President-TEGNA Media

I think it's just – it will be big. We obviously can't be – given a number with exactness, there's a lot of variables to go obviously as you can all publicly see relative to which races are contested and aren't and stuff like that. But we know it will be significant, and are very comfortable and it's going to be a large number.

Gracia C. Martore - President and Chief Executive Officer

I think Dave had talked previously about the fact that it will be a record year on political. And I believe that we continue to see that given all the factors that we've observed, all the additional states that are in play, and all of those kinds of – and our great footprint of stations in Florida, Ohio, Colorado, you name it. So we feel very confident that we will achieve more than our fair share of political this year.

Alexia S. Quadrani - JPMorgan Securities LLC

And then just following up on the core, your comments earlier with some categories getting – auto obviously still very strong, but some categories actually improving. And I think you said sort of the overall ad market feels a little bit better in Q2 versus Q1 should we assume then, and I know there's a lot of noise with the Olympic particularly as we assume that core is up slightly again in Q3 then?

David T. Lougee - President-TEGNA Media

Well, again for us, it's up significantly obviously with the benefit of the Olympics. But point I guess I'd say is, we saw sequential improvement through 2Q in the markets relative to overall market expectations. So we have nothing that tells us any differently. But you're right, we've got a lot of noise in the third quarter because of Olympics.

Alexia S. Quadrani - JPMorgan Securities LLC

And then just last question, thanks for all the color on the update on the initiatives trying to close the gap in the Media segment for 2017 for the reverse comp step up from NBC. I guess given what you're seeing and the progress you're making there, should we still assume just sort of a modest net negative on net retrans in 2017 given the kicking of that contract?

Gracia C. Martore - President and Chief Executive Officer

No. I believe that what Dave said earlier, and he'll correct me if I'm wrong, is that based on the gap – no, remember, we still have some MVPDs that we've got to renegotiate at the end of year. But assuming they can't comment as we anticipate, what Dave is saying is that the uptick from the initiatives, he is confident will more than offset the net reverse retrans decline that would come as a result of the NBC payments that we'll begin making on our original stations.

Alexia S. Quadrani - JPMorgan Securities LLC

Okay, thank you very much.

Gracia C. Martore - President and Chief Executive Officer

Great. I think we have time for one more question.

Operator

Thank you. We'll take our last question from Michael Kupinski. Please go ahead. Your line is open.

Michael A. Kupinski - Noble Financial Capital Markets

Thank you. Just two quick questions. Number one, you mentioned that your Digital is very strong in the quarter, and I was wondering if you can talk a little bit about when you cycle through that contract with your digital and what maybe the annualized revenues might be for that you receive from Gannett on G/O Digital?

Gracia C. Martore - President and Chief Executive Officer

Yeah. Mike, we cycled through that, and I believe Dave indicated that they will be moving away from it in June of 2017 – June of next year. The revenue actually is not significant, because the revenue is recognized primarily at the publishing company rather than at G/O Digital. So G/O Digital is getting a monthly fee primarily for the services and a few other dollars.

Michael A. Kupinski - Noble Financial Capital Markets

And that annualized number is not that big of a deal Gracia or, I mean, have you quantified that?

Gracia C. Martore - President and Chief Executive Officer

Jack Williams is sitting here. He can speak up and tell us.

John A. Williams - President-Digital Ventures

Yeah. Actually the total dollars that TEGNA gets at G/O Digital is over 50% from TEGNA Media and G/O Digital's direct sales and less than 50% from Gannett at this point. And by the time we get around to next year, it will be significantly higher from TEGNA Media and G/O Digital Direct. So it won't be a very big impact.

Michael A. Kupinski - Noble Financial Capital Markets

Got it. And then, the only other question I have is just going back to the health of the core. Can you just talk a little bit about – I know there's a lot of moving parts, a lot of national advertising coming in that sort of thing, but can you maybe talk a little bit about the health at the local market level and maybe just talk about trends local versus national excluding all these events like Olympic and political, and especially if there are any regional disparities among your TV stations?

David T. Lougee - President-TEGNA Media

Yeah, I think local has remained stronger. And for us, that's also part of our – that's where our focus and our initiatives are relative to our own performance. And overall, it's pretty – I think we've seen – the top 10 markets in terms of size of markets were a little softer than others. And as we've said earlier, we've had a little regional softness in Texas due to some issues there related to oil but that is getting better.

Michael A. Kupinski - Noble Financial Capital Markets

Great. Thank you very much.

Gracia C. Martore - President and Chief Executive Officer

Thanks, Mike. We'll turn it now back to Tanisha.

Operator

Thank you. And that does conclude today's program. We'd like to thank you for your participation. Have a wonderful day. And you may disconnect at any time.

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