Meredith Corporation (MDP) Q1 2021 Earnings Conference Call November 5, 2020 8:00 AM ET
Company Participants
Mike Lovell - Investor Relations
Tom Harty - President and Chief Executive Officer
Jason Frierott - Chief Financial Officer
Catherine Levene - President and Chief Digital Officer, National Media Group
Patrick McCreery - President, Local Media Group
Conference Call Participants
Dan Kurnos - The Benchmark Company
Kyle Evans - Stephens
Jason Bazinet - Citi
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the Meredith Fiscal 2021 First Quarter Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mike Lovell from Meredith Investor Relations. Thank you. Please go ahead, sir.
Mike Lovell
Good morning, and thanks, everyone, for joining us. Our call will begin with comments from President and Chief Executive Officer, Tom Harty; followed by Chief Financial Officer, Jason Frierott.
Remarks this morning will include forward-looking statements, and actual results may differ from our forecasts. Reasons for the differences are described at the end of our news release that was issued earlier this morning and in our SEC filings. Certain financial measures that we are discussing on this call are expressed on a non-GAAP basis and have been adjusted to exclude the impact of special items. Reconciliations of these non-GAAP measures are included in our slide presentation. Our earnings release and slide presentation are available in the Investor Relations section of meredith.com. An archive of our prepared comments will be available on our website later today.
Now I’ll turn the call over to Tom.
Tom Harty
Thank you, Mike, and good morning, everyone. I hope you’ve had the opportunity to see our news release issued earlier this morning and the presentation, which should also be available. It includes disclosures we think you’ll find very useful.
I’ll start with Slide 3. We are off to an encouraging start to fiscal 2021. To summarize, we delivered year-over-year growth in EBITDA, as growth in digital advertising and political spot revenues partially offset adverse COVID-related impacts. We had the best first quarter free cash flow performance in our history. We finished the quarter with more than $200 million of cash in the bank. This performance has enabled us to meaningfully strengthen our liquidity and fuel our number one priority, which is net debt reduction.
Looking at the current market trends, we are encouraged by the rebound in advertising demand from our shorter lead time platforms, namely digital. Some categories remain soft due to COVID, including auto, travel and entertainment. That said, the reopening of the U.S. economy in recent months is driving improving trends in certain categories, including pharma, beauty, home and online retail. We see some filmmakers ramping production and expect improving spend ahead in the entertainment category. We’re encouraged by these trends and expect continued improvement as the U.S. economy recovers. We also continue to experience strong consumer engagement across our media platforms. For example, evening newscast ratings are strong; response rates to our magazine subscription solicitation offers remain above historic norms; and traffic to our national media sites is up.
Looking more closely at our broadcast portfolio, we delivered record political advertising results, competitive races, led by those affecting our Arizona, Georgia, Missouri media markets, drove 43% growth versus 2 years ago. Nonpolitical advertising was impacted by political crowd-out, but improved sequentially versus the prior quarter. We launched people television show across 12 markets of our Local Media Group. PEOPLE debuted on September 14 and is the number one news show of this season according to Nielsen ratings. We recently announced an agreement with Sony Pictures Television to syndicate the show to non-Meredith stations beginning in the fall of 2022. Television is a natural extension for the PEOPLE brand, and this is another opportunity to grow, monetize and promote it across our media properties. We’ve assembled a great team, including Emmy winning executive producer and show-runner, Rob Silverstein, who spent many years in a similar role at Access Hollywood. Other talent involved with the show includes special contributors, Nancy O’Dell and Gretchen Carlson; and co-host, Kay Adams and Lawrence Jackson. We are looking forward to strong contributions in the future from PEOPLE TV.
Turning to our National Media Group. Starting with our magazine business, we are encouraged by our continued recovery in print advertising, which generally requires lead times in the 4-week to 6-week range. We are seeing sequential improvement from the prior quarter, and results have been in line with our expected range. We are also encouraged by the sustained strength in print magazine subscription solicitation. For example, response rates to direct mail campaigns were up nearly 30%, and we sold 30% more subscriptions across all of our online channels. Both measures compared to the same period last year. These strong response rates allow us to grow the profit contribution from our subscription activities over the long term.
The other side of the National Media Group is digital. Traffic to our digital properties grew significantly. For example, People.com had its best traffic performance in its history and remains the number one destination in the entertainment category. AllRecipes, the world’s largest digital food site, had its best fiscal first quarter in its history. Year-over-year digital advertising revenues grew 15% to a record first quarter high. Importantly, we are encouraged by the continued sequential recovery we’re seeing since the fourth quarter and by the multiyear integrated partnerships we are signing with key advertisers.
Our multiyear project to bring all of our brands together on a single digital platform is driving strong consumer engagement, along with growth in advertising and e-commerce revenues. Among our enhancements, we launched the Meredith Data Studio during the first quarter of fiscal 2021. The data studio is aimed at bringing together our valuable first-party data and predictive insights to help clients improve returns from their advertising investments with us. We’ve also advanced our video and audio strategies. Video views to our owned and operated properties grew by 9%. And video-related advertising revenues grew strongly compared to the prior year period across our owned and operated properties. And we announced new podcasts from our PEOPLE and InStyle brands. The capabilities we are bringing to bear in our data studio, along with the growth we’re delivering in sessions and video views, are benefits of the technology platform we highlighted last quarter. As a reminder, the new platform brings together consumer profiles, real-time insights and intense signals to: one, predict trends that inform our editorial and product road map; two, provide personalized experiences to our consumers; and three, give our advertisers the ability to tailor the right messages and products to the users most likely to buy at any given time. It also prepares us well for a world where third-party cookies are no longer supported.
Our new proprietary technology platform and data capabilities are already playing a role in recent wins, including an exciting new partnership with Walmart. For example, we have a new tool that matches items that consumer sees in Meredith articles, videos or pictures with retail products from Walmart in real time. The shop everything capability is powered by the Meredith proprietary AI-powered pairing engine. In the food category, the tool lets consumers take pictures of ingredients they have on hand, and it populates with recipes and meal ideas. Inspiration for these ideas can come from a user search history or from local trends. The tool creates a shopping list that’s linked directly to Walmart for store pickup or home delivery. We recognize there’s a lot of work to be done and the macroeconomic backdrop is still uncertain. But despite these challenges, we’re off to encouraging start to fiscal 2021.
With that overview, I’ll turn it over to Jason. And I will come back to highlight certain trends we are seeing in our second quarter and offer closing comments. Then we will invite your questions.
Jason Frierott
Thanks, Tom. I’ll begin on Slide 4. Looking at 1Q ‘21 consolidated performance, revenues were $694 million, down 4% from the prior year period. Adjusting for portfolio changes announced over the last year, total revenues would have been down 1% on a comparable basis. As a reminder, the changes reduced revenues while improving profitability. We will have cycled through these portfolio changes at the end of this calendar year. Advertising related revenues were $359 million, lower by 6% from the prior year period. On a comparable basis, excluding $11 million of portfolio changes, advertising-related revenues were down 3%. COVID continues to impact our results, particularly in the advertising space. As we continue to progress through the pandemic, quantifying the specific impact becomes more challenging. Thus, we’re providing estimated ranges as compared to the more granular quantification provided in the past few quarters. Our estimate of the COVID-related revenue impact for the first quarter totaled between $45 million and $65 million across both the National and Local Media Groups.
Consumer-related revenues were $319 million, down 1% from the prior year period. On a comparable basis, excluding $11 million of portfolio changes, consumer-related revenues were up 2%, driven by $12 million of retransmission revenue growth. Other revenues were $16 million, down 28% from the prior year period. And this was primarily the result of sunsetting service agreements for sold brands. We generated earnings from continuing operations of $42 million compared to $12 million in the prior year period, driven by National Media Group, digital advertising revenue and political spot advertising revenue growth.
On a consolidated level, adjusted EBITDA was $143 million, up 17% from the prior year period. Growth was driven by $52 million of political spot advertising revenues and 15% growth in National Media Group digital advertising revenues. This growth was partially offset by the negative impact of COVID across advertising, consumer and other revenues. Cash flow from operating activities was $79 million compared to the use of $14 million in the prior year period, as we benefited from digital and political spot advertising revenues, effective working capital improvements, lower compensation-related items and lower restructuring payments. Free cash flow for the quarter was $70 million, $99 million better than the prior year period.
Now turning to Slide 5, I will provide greater detail on our segment performance, beginning with the National Media Group. Revenues were $468 million, down 12% from the prior year period. The portfolio changes I mentioned earlier accounted for $22 million, with consumer and advertising impacted equally. On a comparable basis, excluding portfolio changes, the National Media Group revenues were down 8%. The National Media Group continues to experience COVID-related cancellations and delays in advertising, consumer-related and other activities, primarily in the print platform. We estimate the COVID-related revenue impact totaled between $25 million and $40 million in the first quarter. Advertising-related revenues were $228 million, down 16% from the prior year period. Adjusting for portfolio changes, advertising-related revenues were down by 12%. That includes comparable print declines of $41 million, partially offset by digital advertising growth of 15% or $14 million.
Giving some more color on our advertising performance during the quarter. Advertising platforms with a shorter lead time rebounded more quickly, particularly digital, in this uncertain economic environment, advertising clients are placing a premium on flexibility, and our digital platform addresses that demand. The print platform is recovering in line with our expectations. Here too, clients are looking for flexibility and brand safety. As a result, our magazine brands are outperforming their competitive set and continue to take share. For example, according to Media Radar, Meredith’s share of the U.S. magazine advertising market stood at 35% for the first 9 months of calendar 2020, up from 31% for the same period a year ago.
National Media Group consumer-related revenues were down 7% from the prior year period. Adjusting for portfolio changes, consumer revenues were down 2%. Subscription revenues were down due to portfolio changes, along with the success of our solicitation efforts, as we shift our mix toward direct to publisher and away from third-party agents. Newsstand revenues declined $8 million due to COVID-related declines. These declines were offset by strong growth from licensing and e-commerce. Other revenues were $41 million, down 19%, primarily the result of sun-setting operational support to sold brands I referenced previously.
Operating profit was $32 million, up 12% year-over-year. Adjusted EBITDA was $76 million, down 16%. The key drivers are COVID-related declines, partially offset by digital advertising, licensing and e-commerce growth. Given the 15% digital advertising growth and strong e-commerce performance we delivered in the first quarter, we wanted to provide additional insights into key drivers on the right side of the page. Traffic, measured by sessions, was up 19% from the prior year period. We saw a stronger performance at our largest site, People.com, as the entertainment industry adjusted to the COVID environment and celebrity news regained popularity sequentially from the June quarter. Additionally, our food sites led by Allrecipes.com, continues to see strong year-over-year growth. However, the record gains we saw in 4Q ‘20 during the height of the pandemic began to settle in the first quarter. We are encouraged by the recovery of CPMs, which have sequentially continued since the onset of the COVID pandemic. We’re seeing particularly strong performance from our programmatic platform, as it offers the flexibility advertising clients are currently looking for. And looking beyond advertising, at the bottom right of the page, our licensing and e-commerce activities continued to gain traction, growing more than 20% in the first quarter, this includes Apple News+, content commerce and digital couponing activity.
Turning to Slide 6, Local Media Group revenues were $226 million, up 17%. Political advertising revenues of $52 million and retransmission revenues of $91 million offset declines in nonpolitical spot advertising revenues, driven by COVID-related cancellations, delays and crowd-out by our record political demand. We estimate crowd-out from political spot and advertising revenues to have lowered first quarter nonpolitical spot advertising revenues by approximately 8 to 10 percentage points. We estimate the COVID-related revenue impact totaled between $20 million and $25 million in the first quarter.
Putting our first quarter performance in the industry context, according to the most recent data available from the Television Bureau of Advertising, our total spot advertising revenues were up 17% for the first 2 months of our fiscal first quarter compared to growth of 1% for the industry as a whole. We believe our unique station footprint positions us well to continue outperforming the industry. Operating profit was $64 million, up 66%. And adjusted EBITDA was $80 million, up 63%, with both measures primarily driven by political demand.
Looking more closely at political spot advertising, we have included the map on the right side to show where we experienced the most spending, as depicted by the scale of the shaded circles. In the first quarter, political spot advertising revenues were up 43% from the prior cycle 2 years ago, driven by strong spending for political, for presidential and senate races. Nearly half of the first half revenues came from the senate race in Arizona. We also benefited from strong spending in Georgia and Missouri. Through Election Day on November 3, we estimate that the second quarter of 2021 political spot advertising was approximately $90 million. In Georgia, at least one U.S. senate seat is headed for a runoff. And our stations in Atlanta will continue to see political advertising spending in that market through the rest of fiscal second quarter and the first few days of January as runoff elections are scheduled one January 5.
Turning to Slide 7, cash flow, liquidity and balance sheet strength remain critically important to Meredith, particularly during this time of heightened uncertainty. Net debt reduction is our number one priority and we continue to target a leverage ratio of 2x over the long term. As a company, we’re measuring our performance in this environment by free cash flow. We generated $70 million of free cash flow in the first quarter. It was the strongest free cash flow generated during the first fiscal quarter in our company’s 119-year history and reverses a use of $29 million in the prior year period. This improvement was primarily driven by our strong digital and political spot advertising performance, working capital improvements, lower compensation-related items and lower restructuring payments.
Looking at the bottom of the slide, we ended 1Q ‘21 with $201 million of cash in the bank compared to $27 million in the prior year period. Our revolver balance was 0 at September 30 and remains unused today. We continue to see positive momentum in our efforts to improve cash flow, helped by strong political advertising demand. Looking at the long-term, our continued improvement in operating cash flows and efficiency supports our long-term capital allocation goals. On that note, we had more than $300 million of cash in the bank as of October 31, and we expect to continue generating positive free cash flow each quarter of fiscal 2021.
Now I’ll turn it back to Tom for closing thoughts on Slide 8.
Tom Harty
Thanks, Jason. Our consumers today continue to focus on food, home, entertainment and the health and well-being of their families, along with news and information about their local communities. These subjects are the cornerstone of the Meredith Corporation. As we think about our priorities today, I want to leave you with four key thoughts. First, as Jason said, our number one priority is net debt reduction. Our goal is to reduce our net debt to a leverage ratio of 2x and we are making progress with more than $300 million of cash in the bank at October 31. Second, we are seeing encouraging progress in the advertising marketplace, particularly our digital platforms and record demand for political advertising. Nonpolitical spot and magazine advertising are recovering at a more measured pace, as we expect continued improvement as the U.S. economy strengthens.
Since our last earnings update in August, advertising trends have continued to improve. For example, RFP activity has picked up across digital, magazine and broadcast. And we’re seeing pacings data strengthen as well across platforms. For example, we’ve seen pacing for key magazine accounts improving for the last 10 weeks straight. Third, consumer demand for our brands and services remains strong, and we believe offers a long runway of opportunity. Consumer-related revenues now account for nearly half of the total company revenues, up from approximately 25% over a decade ago. A consumer-focused strategy offers several benefits. These important activities are more contractual and include retransmission, brand licensing and digital sources, along with stable subscription revenues. And the consumer reach of our portfolio, coupled with engagement, form the basis of our value proposition to advertisers. Our consumer engagement is a differentiator and positions us to benefit from incremental advertising spend when the economy recovers.
Lastly, as we look into our fiscal 2021 second quarter, assuming no changes in trajectory due to COVID-19 or other macro factors, we expect National Media Group digital advertising up in the mid to high teens. Comparable print advertising revenue continue to recover sequentially and finished Q2 down in the mid-teens. These expectations translate to digital advertising revenues exceeding print advertising in the National Media Group for the first time. We expect Local Media Group nonpolitical spot advertising revenues down in the mid to high teens, with continuing impact from crowd-out and political spot advertising to be in the $90 million range, with runoff election dollars incremental to that.
In closing, we are encouraged by our performance in the first quarter and trends for the first half of fiscal 2021. We’re cautious as we look into the second half of fiscal 2021 as there continues to be significant variables at play. These include ongoing social and economic uncertainty related to COVID, which is currently on the rise across many parts of the United States, and limited visibility into advertising demand, which could also be impacted by COVID.
With that, we will open it up to questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] And your first question here comes from the line of Dan Kurnos from The Benchmark Company. Please go ahead. Your line is now open.
Dan Kurnos
Great. Thanks, good morning. Tom, your digital commentary is a marked turnaround from kind of what I think we heard last quarter and some of the concerns out there. And so I’d really like to kind of dig in on sort of what’s giving you confidence going into Q4. We’ve obviously seen sort of the broad based advertising recovery, especially in multiple digital channels. I know that you guys were – had issues just due to being more levered to programmatic. But can you talk maybe a bit about advancements in video, growth of inventory, maybe some more granularity around CPMs. And then really how you are – you mentioned it in your prepared remarks, but how you are working to continue to get the portfolio in shape in a – as cookies continue to be sun-setted?
Tom Harty
Great. Thanks, Dan, good morning. What I would say is that we are – there is two things mainly that’s driving our digital business. And then I’m going to ask Catherine Levene, who’s on the line, who’s – who runs our digital business to kind of make some additional comments. But the two things are the strength of our brands and the session growth that we’ve been seeing in Q1 is looking to continue into Q2. And then as we’ve talked about, open programmatic CPMs, which were greatly affected by the COVID recession, have been kind of sequentially improving week-to-week and quarter-to-quarter. So we’re seeing CPMs recover starting in October, really, really back to almost where we were last year. So with that, I’ll turn it over to Catherine.
Catherine Levene
Hi, Dan, how are you? So as we – as Tom mentioned, a good portion of our growth is coming from our increased sessions, our impressions per session and improving CPMs. And we – as you said, CPMs are going to continue to improve. But on top of that, you asked about other areas of growth. And a good portion of our ad revenue comes from non-open programmatic advertising categories. So we have direct IO, and we have all of our premium programmatic categories. We have video, etcetera. And we’re positioning the portfolio to take advantage of that 60% plus that we get from non-open programmatic revenue. So, a couple of things to talk about there. Obviously, the strength of our brands and the importance of our content to the everyday lives of women is critically important and the trust they have with us. But you layer on top of that, the real improvements that we’re making in our technology and the investments that we’ve made in particularly our platform. I think we started to talk about that. But our platform really pulls together all of our content onto one similar platform, same platform. Two, it takes all of the first-party data that we’ve been gathering from our consumers over the years and continue to gather. And first-party data is critically important to your second question, which is how do we make ourselves less dependent on third-party cookies? That first-party data is critically important. And it positions us very, very well for a time in the very near future when third-party cookies are deprecated. So, all that first-party data helps us create a proprietary identity graph. That identity graph allows us to profile consumers and predict future trends. And the key point about that is that we can target – highly target consumers with first-party data at scale. So, the first part of that being the scale and the relationship with our consumers, the data that we layer on top of that allows us to really target our consumers at scale with first-party data. And that third piece leads to our relationship with our direct advertisers. And some of the predictive advertising capabilities and trends that we are bringing on to the platform helps us with really long-term, multiyear, large relationships with advertisers. On the video side of the business, as we mentioned in our last call, we are investing in video. We were not able to invest as much as we wanted to in video these past two quarters because of the COVID impact, but still the production is up 16%. And we’re growing revenue on our O&O significantly from that increased both production and usage of video in our properties.
Tom Harty
Thanks, Catherine. Dan?
Catherine Levene
Thanks.
Dan Kurnos
Okay.
Operator
Your next question comes from the line of Kyle Evans with Stephens. Please go ahead. Your line is now open.
Kyle Evans
Hi, thanks. Cay you hear me?
Tom Harty
Good morning, Kyle.
Kyle Evans
Hey, good morning. Congrats on the free cash and digital. A few tough questions for Patrick, if he is there.
Tom Harty
Yes, Patrick is on.
Patrick McCreery
Good morning, Kyle.
Kyle Evans
Hey, good morning. I appreciate the political displacement estimate, the 8% to 10% number. But your peers are going to put up probably similar cycle growth on political. I don’t know if they’ll give us a displacement number, but it looks like your core is materially below peers. Can you help us reconcile that?
Patrick McCreery
Well, I think our political is materially above our peers. And so I think our crowd-out number is larger than our peers. Our footprint is aligned to have taken a larger chunk of political this year. And frankly, we saw – historically, we take about 10% of presidential monies, and then that goes back since I’ve joined the company 20 years ago. This cycle, we’re taking about 24% of our total revenues in presidential monies. So that’s providing for the larger-than-normal displacement.
Kyle Evans
Got it. And then on – one of your peers made some net retrans commentary yesterday that I think spooked the market. Can you help us think about your outlook for growth and net retrans for calendar ‘21 and beyond? What’s the renewal schedule on subs and networks going forward? And do you still see growth when you look at net retransmission out 1, 2 and 3 years?
Tom Harty
Yes. No, it’s a good question. And to review the numbers that we had, in fiscal first quarter, we saw a 15% increase over prior year, and that was mostly due to the differential with DISH during our outage last year. But we did also see – incurred sequential quarter-over-quarter growth. And sub declines are real and they are happening, and ours are somewhere in a little more than 1% range quarter-over-quarter. We do see continued growth in this space. It’s just not going to be the meteoric growth that we have seen for the last 12 years. As far as our renewal schedule, we only have about 5% of our subs up this fiscal year, and those are all the small guys in the individual markets. And we don’t have any network affiliation agreements up this year. So really, I think it’s a timing issue for us.
Kyle Evans
Got it. Can you help us think about fiscal ‘22 for both those numbers?
Tom Harty
Yes. Let me look at the – on the renewal rate for fiscal ‘22, we’ll have about 1/3 of our subs up, and we’ll only have 1 network affiliation agreement up with our NBC station in Nashville.
Kyle Evans
Great. This is for Jason. Congrats on $100 million year-over-year swing to free cash. The deck references working capital benefits on Slide 7, could you put some brackets around those and talk about maybe further opportunities there?
Jason Frierott
Yes. I mean the team did a great job in terms of cash for the quarter. As we said, this is the biggest quarter in terms of free cash flow generation. In terms of working capital, areas that we continue to work on are receivables in terms of past due collections. I think that we have opportunities there in terms of just the aging of some of those items, and we continue to make progress in those areas. The inventory, in terms – as you think about paper, continuing to make sure that we are purchasing paper, not too far in advance, but making sure that we’re not putting our operations at risk. And then on the payables side, I have said this before, but continuing to identify opportunities where we can have vendors and partners that have payment terms that are more in terms of industry norms. So we continue to work on that in terms of areas of opportunity for us as we continue marching forward.
Kyle Evans
Great. Two more quick ones, and then I will get back in the queue. Catherine mentioned that she expected CPMs to continue improving and I was wondering what were the underlying drivers that gave her the confidence looking forward?
Tom Harty
Catherine?
Catherine Levene
Yes. Well, we watch CPM on a daily basis. And we are just – compared to year-over-year, we are seeing in the early part of the year those continuing to increase. So I think with the recovery of the economy and the continued demand for advertising, it’s a pure supply and demand kind of scenario here. As demand increases, prices are going to increase. And so we are continuing to watch this on a daily basis and on a weekly basis. And we do see that continued improvement moving into the fourth quarter – fiscal second quarter.
Kyle Evans
Got it. And then lastly, we look at adjusted numbers here for portfolio changes on the magazine side. Any changes as you look out 6 to 12 months that you think you might be making on magazine titles?
Tom Harty
Yes. Right now, we don’t have any plans to change any titles. We obviously look at this on an ongoing basis from both the frequency. And we have also disposed of some titles, but right now, we don’t have any plans for the foreseeable future to make any changes.
Operator
[Operator Instructions] Your next question here comes from the line of Jason Bazinet with Citi. Please go ahead. Your line is now open.
Jason Bazinet
Thank you so much. I just had a question on the national side. On Slide 8, you talked about hitting that magical digital crossover, I think, in the second quarter in terms of more digital dollars than print. What do you think is a reasonable time frame where the national ad dollars in aggregate grow? Because sometimes, we have seen print decline more than digital grows. But I assume we are sort of within some reasonable time frame of actually hitting crossover. Do you guys have a reasonable view of that just in terms of a range?
Tom Harty
Yes. I think – it’s a great question, Jason. We spent – we have been spending some time looking at that actually. Obviously, the Q2 for us – or calendar Q4 in the National Media Group is our biggest quarter for advertising. So when we reached a quarter like this where we – for the first time in our history, where digital advertising in pure dollars is greater than print, is a big occasion for us because we have been driving for this for a long period of time. If we – it’s harder for us to look at the second half of the fiscal year today on November 5 and be able to come up with a perfect projection. But we do see – and not only on the revenue, we see on a contribution perspective that digital is significantly growing year-over-year, and we will probably have more to talk about that in the next quarter. We have a little bit more visibility. But we are – we see this trend continuing, even with print recovering sequentially that the digital growth that we are seeing, and when we look at our digital business, it’s not just an advertising business. We have advertising, we have commerce, content commerce and then we also have content licensing. So those three put together, we are seeing significant growth year-over-year.
Jason Bazinet
Super helpful. Thank you.
Operator
Your next question comes from the line of Dan Kurnos with Benchmark Company. Please go ahead your line is now open.
Dan Kurnos
Alright. I am back. Sorry, Catherine, I am well, thank you. I hope you’re well, too. I don’t know what happened there. Jason, can you just – the other piece that I wanted to ask about was on the cost side of the equation. You probably had about, I don’t know, $20 million, $25 million in incremental NMG costs that came out. I am just trying to understand sort of your view under – knowing that you can’t control the environment, but just what’s kind of your view of some of the cost cut permanents right now? And is there any way to kind of bracket what you think is sustainable on a more normalized basis?
Tom Harty
Yes. I think that in terms of – we took some actions in terms of headcount in the middle of September that affected both the Local and the National Media Group businesses. In terms of our spend in the pandemic, our spending levels are down, thinking about T&L and other type – T&E and other types of discretionary spend. As I think about – there is a continued movement for recovery. If you are thinking about that type of scenario, we would expect costs in the second half to obviously rise as travel and people go back to the doctor, and benefit costs and things like that become higher as things become more normal. But the future is a little bit unknown there, but – so the good news is that we are trying to manage costs as effectively and efficiently as possible today and position ourselves for an exit as the pandemic subsides, or hopefully, there is a result to it, that there were not much more competitive position, cost-wise, upon that happening. But I would expect the second half costs to be a little bit higher than the first half costs as you think about a normal recovery to normalcy.
Dan Kurnos
Got it. That’s super helpful. And then maybe, Tom, just on what you just mentioned just around the licensing. And if I missed this, I apologize. But licensing and e-com, obviously, you’re in this environment, putting on my internet hat for a second. You are seeing a ton of digital-first businesses come out now. And it feels like the affiliate opportunity is rapidly rising here. I mean is there anything that you can highlight in terms of partnerships or I – we have seen PayPal by Honey earlier in the year. I know that you guys have sort of your own internal couponing program, but is there any way to get more aggressive in that channel now understanding kind of some of those? Catherine mentioned some of the cost limitations and investment at this point.
Tom Harty
Yes. Strategically, we are focused on the consumer side of the business. You heard us talk in our remarks about the growth of consumer overall for the company is at about 50% now. On the National Media Group side, we’re in the middle of planning our strategy. And our strategy is leaning in and taking our relationship with our powerful brands and all the consumers we have, and to get a piece of that consumer wallet through products and services. We started the strategy a number of years ago. Dan, you have been following us for a while. There has been some small tuck-in acquisitions. A number of years ago, we bought a small commerce company – digital commerce company on the West Coast called ShopNation. We integrated that into our platform, promo codes, Magazines.com. So it’s something that we’ve been doing, and we’ve been growing, what I would say, leaps and bounds from nothing a few short years ago. But it’s still a small percentage when you compare it to the digital advertising. And our overall strategy is to make that a much bigger part of our business. Especially since we have all this data and we had this integrated platform, it sets us up well for that.
Dan Kurnos
Alright, great. Thank you very much all of you for the color. Appreciate it.
Tom Harty
Great. We thank you all for your participation. We are very excited about our – the beginning of our fiscal year, and we look forward to catching up next quarter.
Operator
And ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.
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