Meredith's (MDP) CEO Steve Lacy on Q2 2016 Results - Earnings Call Transcript

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Meredith Corporation (NYSE:MDP)

Q2 2016 Earnings Conference Call

January 27, 2016 11:00 am ET

Executives

Mike Lovell - Director, IR

Steve Lacy - Chairman and CEO

Joe Ceryanec - VP and CFO

Paul Karpowicz - President, Meredith Local Media Group

Tom Harty - President, Meredith National Media Group

Analysts

Eric Katz - Wells Fargo

Dan Kurnos - The Benchmark Company

William Bird - FBR & Company

Kyle Evans - Stephens

Barry Lucas - Gabelli & Company

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Meredith Fiscal 2016 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct the questions-and-answer session. [Operator Instructions]. And as a reminder, your conference is being recorded.

I would now like to turn the conference over to your host. Mr. Mike Lovell. Please go ahead.

Mike Lovell

Hi, good morning, everyone and thanks for joining us. Our call this morning will begin with comments from Chairman and Chief Executive, Steve Lacy and Chief Financial Officer, Joe Ceryanec and then we'll turn the call over to questions. Also, on the line this morning are Local Media Group President, Paul Karpowicz and National Media Group President, Tom Harty. A transcript of today's discussion will be available later today on our Investor website.

Our remarks will include forward-looking statements and actual results may differ from forecasts. Some of the reasons, why are described at the end of our news release that we issued earlier today and in some of our SEC filings.

And with that, Steve will begin.

Steve Lacy

Thank you very much, Mike, and good morning everyone. I hope you've seen both of our news release issued earlier today. We'll spend the majority of our time this morning, discussing our strong second quarter earnings results and our improved outlook for the third quarter and the full fiscal year.

However, I'd like to take just a moment and recap, our announcement earlier today to terminate our merger agreement with Media General. In exchange for terminating the merger agreement, Meredith received $60 million in cash, which is in our bank account and an opportunity to negotiate for certain broadcasting digital assets that are currently owned by Media General. While we still believe in the strategic and financial benefits. Our merger with Media General would have created.

We're pleased with the financial benefits of the termination agreement and are also very confident and energized by the opportunities ahead for Meredith. We're fully committed to driving strong total shareholder return for our investors, as we move forward.

The key elements of our TSR strategies include our ongoing and increasing dividend with a very attractive yield. Opportunistically repurchasing our shares and seeking accretive acquisitions to grow, our already very strong cash flow, over time. Under the terms, of our merger agreement with Media General, we were restricted from both raising our dividend and repurchasing our shares.

We'll revisit both of those strategies in the very near future. Additionally, we will continue to execute our acquisition initiative, where we have recently added four Local television stations and two National multi-platform Media brands and several profitable digital properties. Meredith balanced and diversified business portfolio, positions us very well in key growth areas from broadcasting to digital, to multi-platform content creation.

We operate a highly successful television station group. Most importantly in large and growing markets and are poised to capitalize on the upcoming political cycle. Our digital business is posting double-digit growth and possess a wide range of monetization possibilities. And our diversified National Media Group includes brands with large followings. Serving over 100 million unduplicated consumers every month.

Our growing high margin brand licensing operations. And of course our prominent marketing services agency. Combined, these key elements with our aggressive TSR strategy that I just outlined and we're very bullish on the outlook for Meredith, going forward.

So now let's turn our attention to the very positive quarter, that we just reported. We're quite pleased to report strong advertising performance for both our National and our Local Media Groups in the second quarter of fiscal 2016. Additionally, digital advertising revenues set records on a company-wide basis.

Looking at fiscal 2016 second quarter performance in more detail. Earnings per share were $0.80 compared with the dollar in the prior year period, both excluding special items. As a reminder, our results reflect the absence of about $0.39 per share of political ad revenue as expected in an off election year.

We grew operating profit in our National Media Group by nearly 30%, on 10% higher revenue. Our performance was led by over 15% growth in ad revenue including the additions of the SHAPE and the Martha Stewart Media properties along with higher, brand licensing related revenue.

Non-political advertising revenue in our Local Media Group grew nearly 10% to a record $104 million. Growth was driven by the addition of television stations WALA and WGGB. Along with strong performance from existing stations KCTV in Kansas City, WGCL in Atlanta and WFSB in Hartford. Retransmission consent fees were also higher.

Total company digital ad revenue grew more than 15% to a record high, driven by both recent additions and organic growth. In our National Media Group, digital ad revenues accounted for about a third of total National Media Group advertising revenue. As we enter, a new calendar year, with an exciting advertising cycle ahead, that includes a robust political advertising opportunity.

We think it makes sense to just take a moment and step back and review, what in fact Meredith Corporation accomplished in calendar 2015. From a brand enhancement perspective, we strengthened many of our existing media brands and launched some new ones. In our National Media Group, this included rate base expansion for Allrecipes and EatingWell. Redesigns of Family Circle and Wood. And the premiers of Eat This! Not That! and Parents Latina.

In our Local Media Group, we completed the integration of four great television stations adding more than 30% to total Local Media Group revenue. Our station additions also created new duopolies in Phoenix and Springfield. Meaningfully, strengthening our competitive position in those markets.

We also improved and expanded local news particularly in St. Louis and Mobile. Second, we added attractive media brands and capabilities to our National Media Group portfolio through both acquisitions and long-term partnerships. We acquired the SHAPE brand, the leader in the women's active lifestyle category. We merged fitness into SHAPE to create a category killer and increased our digital traffic by 50%.

We also acquired the right to operate Martha Stewart's Media properties including Martha Stewart Living and Marthastewart.com. These actions increased our share of US Magazine advertising revenue by 150 basis points. Third, we continued to drive rapid growth across our digital mobile video and social platforms.

We acquired leading ads technology platform selectable media. Its powerful native and engagement based ad products provide us with more premium digital advertising inventory and they're driving CPM growth, across our digital business.

We established, a leadership position in digital shopper marketing, with the acquisition of Qponix. This technology shows shoppers, particularly those using their mobile phones, where they can buy recipe, ingredients right near them including ingredients on sale. This addition, immediately began generating incremental ad revenue for our food portfolio.

In our Local Media Group, we continue to enhance our digital and mobile destination, increasing monthly unique visitors by over 12% in calendar 2015. We also launched new Ad-Tech platform capabilities allowing us to sell, our digital advertising across the entire station group. In its first six months, this change has doubled the amount of revenue we're delivering locally from programmatic advertising.

Fourth, we diversified our revenue and profit base by growing non-advertising businesses. Our Local Media Group delivered significant growth in retransmission revenue, and is well positioned for increase profit contribution, as we entered calendar 2016. Brand licensing delivered excellent performance, driven by strong sales of products at Walmart stores across the country.

We expanded the Better Homes and Gardens real estate networks through our relationship with Realogy. And added promising new licensing relationships with SHAPE, Allrecipes and the EatingWell brands.

For the second consecutive year in calendar 2015. License! Global Magazine ranked Meredith as the third largest brand licensor in the world. Meredith accelerated marketing delivered growth in operating profit as the digital marketing agency leveraged it's content marketing capabilities, on behalf of clients in the automotive, casual dining, consumer packaged goods, managed health care and of course, the retail industry.

Finally, it's important to note the encouraging trends we experienced in core advertising, as we ended calendar 2015. Excluding the impact of acquisitions, we finished the December quarter with advertising revenues up year-over-year in both our National and our Local Media business, of course excluding political.

Now I'll turn the conversation over to Joe Ceryanec, our Chief Financial Officer for review of our operating performance for the quarter.

Joe Ceryanec

Thanks, Steve and good morning, everybody. I'll begin with a look at our National Media Group results. Fiscal 2016 second quarter revenues increased 10% to $267 million. Operating profit grew 29% and margins improved by nearly 200 basis points.

Operating profit in our National Media Business is generated from a diverse range of business activities and include brand licensing, custom marketing, digital and print magazines, which include both circulation and advertising.

Advertising is our largest revenue source and hereto, we continue to diversify. Total advertising revenues grew by more than 15% in the quarter, led by equally strong magazine and digital performance. Results were led by the prescription drug, beauty and direct response categories and digital advertising accounted for a third of total National Media Group advertising revenues.

Circulation revenues increased 12% to $66 million driven by the additions of Martha Stewart Living and SHAPE Magazines. We continue to expand our digital consumer marketing activities generating more than one third of magazine subscription acquisitions via digital sources, over the last year.

Our consumer engagement continues to be strong. According to the latest Magazine Media 360 Brand Audience Report. Allrecipes has the third largest audience for all brands measured. And Better Homes and Gardens ranks number five. EatingWell, Siempre Mujer and Parents each ranked among the 10 fastest growing brands in audience growth.

I'll wrap up the discussion of our National Media Group with an update on our brand licensing business, which is growing both its financial contribution and its product relationships. During the second quarter, brand licensing growth was driven by sales of more than 3,000 SKUs of Better Homes and Gardens licensed products at over 4,000 Walmart stores nationwide, along with the strong holiday season performed by our brands floral program with FTD.

One additional note about our Walmart relationship. We began to expand the program internationally, with a modest amount of products now available in Mexico and China and we anticipate further international growth. The Better Homes and Gardens real estate network added additional franchises in the quarter, bringing the number of agents to more than 10,000 across 32 states in Canada.

Finally, we recently announced two new licensing programs. First, Bellisio Foods will create a line of healthy frozen food entrees under our EatingWell brand that will be at National retailers in the fall of 2016. Second, Apparel Bridge will create a line of women's clothing under our SHAPE brand that combines performance with fashion and comfort.

This collection has already been picked up by kohls.com, exportinggoods.com, Equinox gyms and several speciality stores with more retail placements to come. We're excited about the strength of our existing licensing programs and the growth potential for new ones.

Now turning to our Local Media Group, our portfolio of 17 owned and operated stations are concentrated in large fast growing markets. We operate seven stations in the nation's top 25 largest markets and 13 in the nation's top 50. Fiscal 2016 second quarter revenues were $140 million and operated profit was $40 million. Results reflect the absence of $29 million of high margin political advertising as can be expected in a non-election year.

Non-political ad revenues were up 8%, led by growth in automotive, retail and furnishing categories. Digital advertising revenues at our TV stations were up nearly 20%. A particular note, comparable non-political advertising revenue grew more than 10% in Kansas City and were up in the mid-to-high single digits in Atlanta and Hartford. The combination of strong stations and large markets leads Meredith to consistently outperform the local broadcast industry as a whole.

For example, based on the most current TVB advertising data. Meredith's stations have delivered organic growth of 3% so far in fiscal 2016, which is outpacing the industry as a whole, by about two percentage points.

Other revenues and expenses both increased in the second fiscal quarter. Due primarily to growth in retransmission related revenues, we get from MVPD's and higher programming fees paid to the networks. During the quarter, we renewed retransmission agreements with a couple of MVPD's at attractive rates and we will be begin to see the benefits in calendar 2016 and beyond.

Now turning to corporate, our total debt was $799 million at December 31 and our weighted average interest rate was 2.6%. With $450 million effectively fixed at low rates. This made our overall debt-to-EBITDA ratio as defined in our credit agreements to 2.8 to 1 for the trailing 12 months.

We continue to focus on a successful total shareholder return program and as a reminder, key elements include an annual dividend of a $1.83 per share, that's yielding almost 5%. We paid dividends for 68 consecutive years and have increased them for 22 years straight. An ongoing share repurchase program with $94 million remaining under current authorizations and strategic investments to scale the business and increase shareholder value.

And as Steve mentioned, we look forward to discussing each of these elements with our board, this coming weekend. And options for augmenting our financial and competitive position.

Now turning to our outlook, based on the delivery of solid results for our first half of fiscal 2016. And a more favorable outlook for the second half, than we originally anticipated. We now expect, full year fiscal 2016 earnings per share to range from $3.05 to $3.25 excluding special items.

This compares to our previous range of $2.90 to $3.25. And as a reminder, we are cycling against of record $44 million or $0.59 per share and net political advertising revenues recorded by our Local Media Group in fiscal 2015.

As we look more closely at the third quarter of fiscal 2016 compared to the prior year. We expect total company ad revenues to be up mid-single digits. National Media Group revenues expected to be up slightly and Local Media Group revenues expected to be up low double digits. We expect our fiscal 2016 third quarter earnings per share to range from $0.77 to $0.82 compared to $0.56 in the prior year period, where $0.71 excluding special items.

With that, I'll now turn it back to Steve for a few closing comments. Then we'll open it up for questions.

Steve Lacy

Thank you very much, Joe. To conclude this morning, I'm pleased with our strong momentum thus far in fiscal 2016. As a reminder, we continue to aggressively pursue the following key strategies. First, growing our existing businesses organically and rapidly expanding our digital and our video capabilities.

Second, continuing to pursue opportunities to add to our business portfolio. Third, increasing revenues from business that are not dependent on traditional advertising. Fourth, aggressively managing our cost. And finally, as we've mentioned a couple times this morning. Continuing to execute our total shareholder return strategy, as highlighted by our ongoing dividend increases and corresponding very attractive yield.

Our share repurchase program and seeking accretive acquisitions to grow, are already strong free cash flow over time.

With that, we'd be happy to answer any questions, you might have.

Question-and-Answer Session

Operator

Thank you, ladies and gentlemen. [Operator Instructions]. Our first question is from the line of Eric Katz from Wells Fargo. Please go ahead.

Eric Katz

So I think the obvious question is, where do you go from here? I understand, you're looking at of some of the mixed assets, but outside of that, how do you view the broadcasting and publishing, M&A landscape for Meredith going forward?

Steve Lacy

Thank you very much, Eric and I do appreciate the comment and the question, as it relates to the merger. And I'm going to get to answer your question in just a second. But, first of all, I strongly believe that the original agreement we had with Media General that we announced back on September 8, made a lot of sense. Strategically and financially and was clearly in the best interest of our shareholders.

In addition, I believe the merger of equals proposal we made on January 7, was also in the best interest of the Meredith shareholders. And finally, while we had the contractual right to match the unsolicited Nexstar offered to buy Media General, as we analyzed that deal. I'm equally confident that it would not have been, in the best interest of our shareholders.

So we decided to collect the termination fee up front, along with the opportunity to negotiate for certain assets that Media General owns. I think that the broadcasting landscape will be pretty quiet, Eric, as we go forward until the auction is completed, which is late in the fall. I think that gives a lot of people in the marketplace, the opportunity to warm up some potential partners and I love our position, with very, very low leverage and really cheap debt.

But in addition to that, we have some digital assets that we're interested in. One of them interestingly enough would be beneficial for our Local Media and our National Media business and we're going - presenting a couple of them to our board this coming weekend and we've done a lot of deals overtime and we will continue to be aggressively on the outlook.

In addition, this is the time of the year that we look at our dividend and it's already yielding as Joe said, it's almost 5%. So we think, that will be very attractive and at our current share price. We think our repurchase program is quite an attractive way to reinvest money in our business. So we got a lot of leverage to pull here and you're going to see us pulling.

Joe Ceryanec

Yes and Eric, its Joe, just to pile on, as Steve mentioned. Our January board retreat is when we, review the current dividend with our board. So you'll probably hear more from us in the next week or so on that and as Steve mentioned earlier, we have not been able to buy our shares back and while we've been under the merger agreement and now that's behind us.

I look forward to having that opportunity as well and expect that, we will be probably more aggressive on that front than we've been. So, in addition to what Steve mentioned on M&A and deals. I think, we feel pretty good coming out with our, what we're calling TSR 2.0.

Steve Lacy

That answer your question, Eric?

Eric Katz

Yes, it does and I'm sure, you'll get more M&A questions, going forward. So I'll jump into, I guess a more boring question. What was the Local and National core advertising growth in fiscal Q2, if you strip out any M&A. And how is it pacing in Q3 for both.

Steve Lacy

Joe will take that.

Joe Ceryanec

So Local, Eric on an organic basis was up, I think 3% to 4% for the quarter, which I think was pretty consistent with our Q1. And frankly, as we look into Q3. Although, it's still a little early, we're pacing about that same place. So kind of, I'll say 3% to 4% organic. On the National Media side, organically our print in Q2 was actually flat. Which was the first time in a while, that print is been flat organically and digital was up, high single-digit.

So on a combined basis, we were up a 2% organically. As we look into Q3 again, we're a month in, we see print down probably kind of low-to-mid single digits. Digital looked strong up probably mid-teens. So from an organic basis, we're probably flattish, when you combine the digital and print, considering digital is now released this past quarter, almost a third of the ad revenue.

Eric Katz

Great, thank you.

Operator

Thank you and our next question is from Dan Kurnos from Benchmark Company. Please go ahead.

Dan Kurnos

I guess, I'll ask a different M&A question for you. Just maybe Steve, you know look before all of this ongoing saga. You kind of had laid out, your high level thoughts on strategic transactions, acquisitions, interactions with both of the business segments in this particular instance you happen to be a seller. It sounds like you're going back into not unexpectedly acquisition mode near-term at least, but maybe high level. Can you just refresh us on how you think of unlocking strategic value between the two assets, if there is sort of an order of operations between the two businesses and maybe just start with that? Thanks.

Steve Lacy

Sure. Well again, the challenge in the M&A space as it takes a willing buyer and willing seller. So it's not exactly like shopping for Better Homes and Gardens products at Walmart, where they're all for sale. But, we have a hit list and there continue to be some great opportunities for consolidation really across all of our platforms near-term. The ones that, we're looking at include as I mentioned the Media General properties and some digital properties and I think, the television M&A world, as I said is going to be a little quite, till we get through the auction.

But we have again really low debt and what we look for, are the assets that we think add the most to our total shareholder return strategy. So it has mostly to do, to how much cash flow do they throw off and what improvements can we make to those properties. And I think, we have a long list of those opportunities, where we have taken either an orphan property and adding to our sort of the big machine or we just moved into a whole another space, that has created a new sales and marketing opportunity for us.

So, we've been frozen out of that now, for a while. So we got to get that ramped up again, but we're - I would say kind of agnostic as long as its accretive, and as long as we feel, we can add value to the property and make it better than it was, standalone. And I think, if you go back a little ways, the Allrecipes acquisition was probably, the best opportunity. Doubled the size of our digital business, it didn't make any money, when Allrecipes owned it.

It makes a lot of money now, we've been able to launch a magazine now from under that brand. It's very aggressive, in terms of our mobile capabilities and our shopper marketing. And those are the kind of home runs, that we will continue to look for. Does that help at all?

Dan Kurnos

Yes, no that's helpful. Just returning to, just the fundamentals operating business here then. Congratulations Steve on the licensing deals. I know that you guys have been talking about getting some more programs out there. Maybe if you could just give us the sense I know, that Joe gave a little color around timing of implementation, but maybe a sense of how those scale your expectations size of those programmes and how that, went ultimately, that high margin business will fall through to the bottom line.

Steve Lacy

Yes, these programs, all three of them are very much in their infancy. I think it's important to remember, that Walmart program that we announced several years ago, we had only 600 SKUs and not in every Walmart. So now we've got 3,000 SKUs and we will put a lot of muscle behind these programs because we can make them available to our audience and take it kind of selling those products digitally, but also really push them from a brand perspective and little bit like the real estate business. It was kind of slow going in the beginning, but it's very large and very viable at this point.

So probably a little early to give you a prediction, but I like more hooks in the water and that supports SHAPE, it supports Allrecipes, it's very helpful to EatingWell. It's a whole line of business, we haven't been in before and we're really excited about those programs and they could scale very nicely. But they're very early and we'll give you more on that, as it evolves. I promise.

Dan Kurnos

Okay, good color and then just last one from me. Maybe on the Local side, your guidance especially and thanks Joe, for kind of the pacing commentary, sort of implies at to me that, there may have been some upside to retrans in your most recent renewals, which is pretty consistent with what we've heard across the industry. But that's been sort of one of the knocks on you guys in the past. So I don't know, if you care to comment on how retrans went versus your expectations on a go forward in terms of that step up. Thanks.

Steve Lacy

Yes, I will do that in just a second and I'll have Joe do that, but Paul, I think I'd like you to comment just a bit on, how you're feeling the business is pacing in the market. I know, that we went through our recent revenue reviews and I would think from a ratings perspective and a performance, it was probably the best set of revenue meetings with our properties that we've had at least in the time, in the decade you and I have worked together. So you might give, just a little color about how the business feels in the market and then Joe, can add a little more detail on retrans. Okay.

Paul Karpowicz

Sure, yes we did just come through our series of entitlement meetings, where we review with each of the stations both their Local and their National business. Not only the current quarter, but then a look ahead into the next quarter and Steve is absolutely correct. I mean, generally you go through that process and you'll have a couple three stations that are not performing at the levels, where you would expect, but I will say that coming out of that last series of meetings, we were almost at 99%, where we were very, very pleased with the results that we were seeing across the board.

So some of our markets that had lagged a little bit traditionally have now come into fruition and based on some very strong rating books, the last cycle we've seen that performance translate into revenue. So we're feeling really again, I use the term a lot cautiously optimistic but you look at our primary categories of automotive and retail, and restaurants, and legal, and telecom. And across the board, we're looking at some very, very positive results and our expectation for political continues to be pretty strong going forward too.

So fundamentally, we're looking at a very, very strong market place in the quarter ahead.

Joe Ceryanec

And Dan, as far as little more color, on the retransmission. I think as you know, we've said that 40% of our subs renew in our fiscal 2016 and another 40% in fiscal 2017. Together with Paul and his team, we've just completed a few contracts. I'm not going to get into who it was and I'm for sure, not going to get into rates. But, they did come in favorable to kind of our internal expectations and that is one of the real key elements of why, we felt very comfortable taking call it the midpoint of the guidance range up a bit.

So that we'll start seeing some accelerated benefit in our third quarter. As I looked at the second quarter kind of year-over-year revenue, we were up about 20% in that category, the other and in the third quarter and fourth quarter, that number is going to be more than 30% up year-over-year. So we'll just, we'll start seeing that benefit really in the second half of this fiscal.

Steve Lacy

Does that help?

Dan Kurnos

Yes, it's perfect. Thanks guys.

Operator

Thank you and our next question is from the line of William Bird from FBR. Please go ahead.

William Bird

Steve, I was wondering, if you could just discuss your thoughts on financial leverage. And I guess specifically, how you think about striking the right balance between maintaining dry powder for deals and possibly adding leverage for buybacks? Thank you.

Steve Lacy

So, I'm going to ask, Joe to drill down a bit. But from a philosophy point of view, the great news is, that we have such a strong financial position, that when we add leverage, we do it in a very, very favorable way. I think, Joe said our overall borrowing was like 2.6% or something and we have really, really low debt. So we have a tremendous amount of dry powder, if you recall in the merger of equals proposal that we made, we would have been comfortable.

We were as you recall, the ones going to be operating the business, getting that leverage up for a short period of time, to the high fours, close to five. And I believe again that creates tremendous opportunity for us as long, as we feel that the properties we're looking at draw up a lot of cash and we could pay that leverage down very, very quickly.

So we have a lot of room and we're just very, very careful about the deals we do and we have to stop and walk away. We stop and walk away.

Joe Ceryanec

Yes, I think Bill, your question is very valid on balancing uses of capital. We always try and look at, what might be in the hopper from an M&A perspective and what need that might be, balancing that with the dividend which is a commitment. We're 22 years straight growing it, hopefully soon to be 23 years.

And the buybacks and believe me, it was killing me. When we were in the 30s, that we were not able to get into the market because we've tried to be opportunistic. When we've seen maybe somebody exiting their position and we can go in and take some shares off the market, but you're right, it is a balance. But I think you'll see us, be more aggressive.

Coming out with the TSR and the share buyback and we're looking at the dividend. But of course, we do want to maintain that, kind of about ongoing as we've said, we're comfortable kind of in that 2.5 running the business. We'd stretch it for M&A, but we're almost right there, so we can pretty much use any free cash flow for things other than debt service at this point.

Steve Lacy

Does that help?

William Bird

Yes, very helpful. And separately, I was wondering if you could talk about circulation revenues. And I guess, anything you can share in terms of strategies for incrementing circulation revenues. Are you trying anything new to promote or bundle, anything that you could share with us on that? Thank you.

Steve Lacy

Tom, Joe will dig out the numbers and answer the question. But maybe you'd give, a little color on our auto renewals program from a digital perspective and the prospects, we have for that as we go forward and I think that's probably the part of surf, that I'm the most excited about as we look ahead.

Tom Harty

Sure. I think overall, the great news circulation side of the business is that the consumer demand for our magazines in the print form continues to be very, very strong. Response rates both in traditional direct mail and digital performing very, very well. And the strategy is, as Steve mentioned we're kind of working on two things. We do bundle our products and we have this tremendous database with a lot of data.

So when we add in a new product like SHAPE or Martha Stewart, we're able to bundle those with our other titles and brands and offer them to consumers at very, very favorable rates. And then Steve mentioned, we've talked about this before in other calls. Our CRT program or our Consumer Revenue Transformation which is a three-year to five-year program, where we're really focusing in on auto renewal.

Where consumers are giving us their credit card information and like other products in the marketplace like Netflix, we are able to auto renew them. And - it takes a little bit of time because you have to run out, how long the subscriptions are, but it's very, very favorable and the lifetime value of an order renewal subscription compared to a traditional check payment is very substantial.

So we're right in the middle of that and all the - our efforts are growing very, very strong.

William Bird

And what percent of your subscriptions are auto renewal now and what do you think, it could go to?

Tom Harty

We can dig out the exact percentage, but we're scaling it. Again, we offer on a term perspective. We've done a lot of testing in the last 12 months to 18 months. I think, we'll be approaching somewhere close to 10%, when we get done with this fiscal year from an auto renew perspective.

Steve Lacy

Yes, on that. we've given two numbers in the past about a third of our circulation transactions now are digital. And as Tom said, the auto renewal part of that, now has grown to be about 10% of the file and that is, in all sincerity the greatest financial opportunity in circulation that I have seen in all the years that I've been here at Meredith. It just eliminates the decision and causes the consumer to take a proactive step to turn it off and it's worth a lot of hard work and investment to grow that part as we go forward because as Tom said, our leadership and all of that, is very, very strong.

So keeping them on the file and making more money from that part of the business is really, a great future opportunity.

Joe Ceryanec

Technically, Bill just to give you some numbers how we look at it in the P&L from a GAAP reporting standpoint. I think we were up 12%, we said that was Martha and SHAPE coming in because we didn't have those last year and that really was the growth. When you look at the organic, you really have to break it into both the subscription and the newsstand.

Subscription for us has been quite flattish. There we really manage though to the margins, so if we can get rid of agent subscriptions and bring them online, the impact is probably lower revenue because you're getting less per copy, but you're getting a lot more profit because we're taking that to the bottom line and not paying agent commission. So I think of - our subscription as flattish, but we're really, we're seeing the decline luckily it's not a big part of our business, but that's on the newsstand, that continues to be very difficult.

And so when you blend the newsstand with the subscription down a few percent is what we're seeing on an organic basis, but I'd really chalk that up to the newsstand being very challenged than frankly that's where we were at in Q2 and kind of our expectations, as we look through the second half of the fiscal.

Operator

And our next question will come from Kyle Evans from Stephens. Please go ahead.

Tommy Moll

Hi, Steve. It's Tommy in for Kyle.

Steve Lacy

Hi, Tommy.

Tommy Moll

First, I just wanted to double back, Joe. I think you said for LMG you posted 3% to 4% organic growth, was that for non-political advertising exclusively?

Joe Ceryanec

Yes.

Tommy Moll

Okay and then, shifting to National Media Group. Prints flat organically versus last quarter when I think it was down somewhere in the teens?

Joe Ceryanec

Yes.

Tommy Moll

Can you take us through what improved there, quarter-to-quarter?

Joe Ceryanec

I'll let Tom speak to it because he lives it every day, but I think at a high level and Tom mentioned this on the call. We saw a lot of accounts going out for renewal with the agencies. And we think that, probably had a dampening effect on Q1, that came back and we saw, flattish in Q2, which is better than kind of our long-term thesis. So I think, a large part of it, it was really timing between Q1 and Q2. But I'll let Tom, share his thoughts?

Tom Harty

Yes, I think to Joe's point, we mentioned that in the last call, that over the summer and the beginning of the year, there were a lot of accounts, they were up for a review with agencies. So we were waiting for the agencies to be selected, which did transpire and we saw, our two biggest categories, our biggest advertising category is food, and the second one is pharma and they were both up in the quarter and pharma is really been driving in the last 12 months.

We've been getting a lot of pharma business. And also when we look at the calendar year period, which most of our advertisers are working on, we continue to take share. We finished calendar 2015 in our core print business up three basis points, when you compare that to the other magazines that we compete against. And our food, which is our largest category again in pharma are both at record share heights for calendar 2015.

So and we chopped that up a lot to what we've mentioned before to is, our print sales guarantee that were out, where we're guaranteeing sales lift and we think that, that's driving our share gains in the market place.

Tommy Moll

Great, thank you for the color. Steve, if I could ask one more. Can you tell us anything more about the first look right that you'll have with the Media General assets in terms of, what assets, what the timings and what is the right? What does it mean to have a first look?

Joe Ceryanec

Well, Tommy I'll answer that. Basically, as part of the settlement agreement, we have an exclusivity period. We're not going to get into the detail on what properties, as we mentioned it's looking at a few broadcast stations. As I'm sure, you're aware there are some overlapped markets that Media General and Nexstar has. And so it gives us an opportunity to look at those properties and see, if we can reach a deal as well as some of the digital properties as well. And basically, it's a fair market value if you will negotiations.

So, while we have a first look, obviously there is no predetermined economics. So it's a deal, if there is a deal, would have to be good for both Meredith and something that Media General and ultimately Nexstar, feels in their best interest as well. But we're looking to undertake that pretty quickly over the next 30 days to 60 days.

Operator

Thank you. Our next question will come from the line of Barry Lucas from Gabelli and Company. Please go ahead.

Barry Lucas

Joe, it looked like you booked about $3.5 million of merger-related transaction costs in the quarter. So I guess, I'm wondering how much more did you spend in January and what would the net after tax at $60 million look like?

Joe Ceryanec

Well, Barry I haven't. I'm not really looking forward to this, but started accumulating, what we would have spent, so far in January. Obviously, you can look at what we call out in the first quarter and the second quarter and I think combined, it's probably close to $16 million in those two quarters. We will have some more in January, but it's really going to be just legal fees, which I don't think will be that much.

So hopefully, we've now capped that at around call it maybe $17 million, if there is another $1 million, this quarter. Again, we haven't asked the attorney's for their final bills, yet. The $60 million will be taxable, so which is to assume what our effective rate is, we'll come off of that and then if you take the fees out of it, although, a lot of those have already been paid in cash in the first quarter, with the signing of the contract, we had some banker fees that were payable. We had the fairness opinion, that was deliberate, that was payable. So a lot of that cash, is actually already been paid.

To answer your question, if you want to try net to $60 million down, take the tax affect and then say, $16 million or $17 million of expenses, many of which have been paid, but would be netted against that amount.

Steve Lacy

That helped, Barry?

Barry Lucas

Sure, thanks, Joe. Appreciate that.

Joe Ceryanec

Barry, one last question because I got this, at a call earlier and I just wanted to clarify. I think you guys would realize this, but the $60 million, we will book in our third quarter, it will be below the line. We'll call it out obviously, it's non-operating. But the question I got was, did you take the bottom end of your guidance up because of that $60 million or the answer is, absolutely not, I mean.

We will exclude that from the guidance. It's really the ongoing business that allowed us to take the guidance up.

Barry Lucas

Thanks for clarifying that, Joe. I'm looking at the performance in the National Media business maybe over the longer term, Steve and maybe Tom, can talk about this a little bit. What do you see in the way of cost pressures? And given the contribution of digital advertising coming up to a third now and some pretty high margin licensing business, when do we really begin to see that manifested in EBITDA or operating income margins for the National Media Group?

Steve Lacy

So let me take, a high cut at that Barry and then certainly would ask Tom to add color. First of all, you're right about the ongoing growth of the digital business and we're not a long way away from that growth exceeding the print declines, if you sort of kept it in kind of the mid single-digit range which is been for either four years or five years in a row now and obviously that's a big part of why we've been building out these multi-platform businesses.

And then, the other two major drivers, one of them we already talked about was the auto renewal, the circulation business that helps us get less dependent on both agents and direct mail sources. It also helps us get younger because they're digital. And then the other part of it is, the continued growth of our licensing, which you know is very, very high margin business. So, all that comes together and I think gives us a lot of confidence, the National Media business as we go forward.

And Tom, whatever you would like to add to that, I mean we're not Barry, yet in a position to give fiscal 2017 guidance or anything like that, but obviously Joe wouldn't have, tighten the range and pulled up the guidance without confidence really about, both of the major businesses that we operate at this point. So Tom, anything else you want to add to that?

Tom Harty

I would just add, we're balancing, we're always balancing investments in our digital business also. We just went through a re-platforming [ph] of our Allrecipes website, which was not insignificant to really gear that up for the changes in consumer habits really going mobile. And we're starting to see those results, where they had the month of December, Allrecipes had an all-time high in traffic and actually had it, all-time high for any food site on the internet and that took significant investment for us to re-platform that brand and the website.

So we're - I just would add that we're always balancing organic investment in our brands from a digital perspective.

Barry Lucas

Great. Thanks for that color, Tom.

Steve Lacy

Anything else, there?

Barry Lucas

No, I'm good, Steve. Thank you.

Steve Lacy

Well we've kept all of you for nearly a full hour. So we're going to wrap the call at this point in time and appreciate everyone's interest and continue to support and as always, Joe and I are available for follow-on calls and otherwise, we're all going to get back to work. So, have a great day and thank you for participating.

Operator

Thank you and ladies and gentlemen. That does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.

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