Earnings Call Transcript - SSP Q2 2020

Operator, Operator

Ladies and gentlemen, thank you for joining us for the Scripps Second Quarter 2020 Earnings Conference Call. As a reminder, today’s call is being recorded. I will now hand it over to Ms. Carolyn Micheli, Senior Vice President of Corporate Communications and Investor Relations. Please proceed.

Carolyn Micheli, Senior Vice President, Corporate Communications and Investor Relations

Thanks, John. Good morning, everyone, and thanks for joining us for a discussion of The E.W. Scripps Company’s financial results. You can visit scripps.com for more information and a link to the replay of this call. A reminder that our conference call and webcast include forward-looking statements and actual results may differ. Factors that may cause them to differ are outlined in our SEC filings. The COVID-19 pandemic enhances the uncertainty of forward-looking statements we make about our operations and financial conditions. Because of this rapidly changing economic climate, we are not issuing third quarter 2020 guidance. We do not intend to update any forward-looking statements we make today. We will hear this morning from Scripps’ President and CEO, Adam Symson; CFO, Lisa Knutson; Local Media President, Brian Lawlor; and National Media Executive Vice President, Laura Tomlin. Also on the call is Controller and Treasurer, Doug Lyons. Here is Adam.

Adam Symson, President and CEO

Good morning, everybody, and thanks for joining us. Over the last three years, Scripps has articulated a strategy for transformation to create a more durable, higher performing company by improving our short-term financial performance while continuing to build value over a longer term for our shareholders. Over those years, we have executed quite a few important initiatives in pursuit of this strategy, including initiating an enterprise-wide restructuring and cost-cutting, exiting radio, buying the four Katz networks, and later launching Court TV, acquiring the digital audio infrastructure and measurement leader, Triton, and of course, last year, acquiring 27 high-quality local television stations to more than double the size of our local media portfolio. All the while, our focus has been on improving the operating performance of our local television business. We met or exceeded guidance for ten straight quarters before the pandemic hit this spring. Today, as the fourth largest local broadcaster, our station group is more effective, more efficient and operating with greater strength than it was a year ago. During last quarter’s earnings call, in the midst of the most sudden and profound business disruption this country has ever seen, we told you that our company would seek opportunity in the chaos to continue our transformation into a stronger company on behalf of our employees and shareholders, and that’s exactly what we’ve been doing. Most recently, we announced the sale of our podcast leader Stitcher to capture a return of more than double our total investment. The sale of Stitcher is an affirmation of our national media strategy and a testament to our ability to create and unlock value through several different paths. In contrast to our pure-play local broadcast peers, Scripps has taken a dual-pronged approach. We believe in the continued strength and durability of local television. Simultaneously, we are developing growth businesses that look out over the horizon to the future of the media landscape, where we know we’ll recognize high rates of return on our investments, just as we’ve done in podcasting. This strategy has also positioned us well to navigate the economic crisis. We came into 2020 with greater TV station durability, alongside diversified revenue streams coming from our national businesses. Our second quarter results, through the depth of the business disruption, illustrate the point. We held our own with peer performance on Local Media core and successfully renewed 30% of our pay-TV households at rates that we consider an affirmation of our investment thesis. And we turned in National Media results that well outpaced the overall advertising marketplace. I’d like to highlight Katz, in particular, for its standout performance during this challenging time. In fact, Katz has outperformed our expectations and certainly those of many investors since we bought it nearly three years ago. At that time, we saw that consumers were quickly moving to being content-focused and platform-neutral in their TV viewing. They were pulling together their own custom programming bundles combining cable, over-the-air and over-the-top to create a full viewing experience. Since then, over-the-air viewing has continued to grow side-by-side with over-the-top and subscription video-on-demand, as consumers recognized the value of free, high-quality, linear network television. In a study last year, Nielsen projected that 21 million U.S. TV households would come to rely on over-the-air within the next two years. We continue to believe in the future value creation opportunity of over-the-air viewing, and Katz’ financial growth supports that confidence. Remember, their revenue was up more than 30% in last Q4 and Q1 before COVID-19. Even during the pandemic, Katz has continued to outperform the broader advertising marketplace. Despite the tremendous headwinds associated with COVID-19, Katz finished the quarter flat. That strength is driven largely by its balance of general market and direct response advertising. Many people wrongly dismiss Direct Response as low-rate, low-quality ads, but the category has grown and changed tremendously in recent years. Direct Response is a flexible, efficient and measurable way for advertisers to reach their customers. And in case you haven’t been watching, it now goes well beyond the 1-800 and dot-com calls to action. Big name advertisers, including Procter & Gamble, Johnson & Johnson, Pizza Hut and State Farm now put aside a good portion of their ad dollars for Direct Response. And one industry report estimated Direct Response spending at $12 billion to $18 billion last year. Katz has been a pioneer in crafting content that complements brands’ direct response strategies through audience targeting. So the three levers to Katz’ growth have been high-quality programming, over-the-air audience growth and resilience in the national advertising marketplace. At Scripps, we are fond of saying that two things can be true at the same time. We are big believers in the opportunities ahead in local broadcast television. And the success at Katz, for example, underscores Scripps’ view of the way we’ll also create value in the evolving TV landscape, as we capitalize on consumers’ changing media habits and take advantage of diversified revenue streams. Today, I believe our National Media strategy is not fully appreciated by investors. As we come through the business disruptions and economic fallout from the pandemic, however, I believe it will become even clearer that Scripps has positioned itself well to succeed and to thrive across all of our businesses. Now here is Lisa.

Lisa Knutson, CFO

Good morning, everyone. The second quarter unfolded generally as we expected in our Local Media division and even better than we expected in our National Media businesses. Since our last earnings call in early May, we’ve also announced the sale of our podcast industry leader, Stitcher, and the option exercise on WPIX in New York. In addition, we are currently in a retrans blackout with satellite television provider Dish. I will discuss each of these events in my remarks this morning. Let’s start with our second quarter Local Media results. All comparisons of the division financial results are on an adjusted combined basis, continuing our treatment of the former Nexstar-Tribune and Cordillera stations, as though we own them in the full period a year ago. You can find our as-reported results in today’s press release. Local Media core advertising revenue was down 39%, driven by the pandemic-related advertising slowdown. That number is 37% if you exclude the impact of WPIX and the loss of Yankees and Mets baseball on that station. As we had expected, we see improvement from April to May and from May to June. We continue to see core ad revenue improve month-to-month through the third quarter. And right now, we expect core advertising to end this quarter down mid-teens on a year-over-year basis when you factor out the impact of PIX. Political advertising revenue of $13 million came in higher than expected in the second quarter that was driven by strong spending in the presidential race and other key contexts. Because of the robust pacings and the number of competitive races, we now expect to bring in north of $200 million in political ad revenue this year. Brian will give more color in a moment on our political advertising outlook. Our retransmission revenue was below expectations due to the unwillingness of Dish to agree to fair and reasonable contract terms but still up 27% from a year ago. Our Dish contract expired on February 29, and we continue to provide service at our old rates under the extensions until we went dark on July 25. We expect to receive the new Dish rate retroactively for the extension period. We did sign a new retrans agreement with a slightly larger distributor that took effect July 1 and now have completed more than 30% of the 40% we are renewing this year. Dish accounts for the final 10%. Local Media expenses decreased 3%, and they came in 10% below the second quarter of 2019 when you exclude programming expenses. The division had imposed various cost savings initiatives that included merit pay freezes, reductions in capital expenditure and travel and marketing. Segment profit was $32.3 million. Now let’s discuss National Media division results. Since Stitcher is reported as discontinued operations, the division results no longer include Stitcher for any period. National Media division revenue held up well against the pandemic headwinds in the second quarter. Our national businesses particularly benefited from direct response and OTT advertising, which recovered quickly after an initial decline in the early days of the pandemic. The division delivered total revenue of $81 million, essentially flat from the second quarter of 2019. Looking ahead, we expect modest growth in National Media division revenue from the third and fourth quarters. National media expenses came in at $70 million, about flat with last year. And National Media segment profit was $10.3 million compared to $12 million in the 2019 quarter. Our shared services and corporate expenses were $13 million in the second quarter, down about 15% from our pre-COVID expectations. We expect that line to remain consistent for the third quarter. In May, we told you we plan to make about $85 million in proactive expense control and cash management measures this year. With the sale of Stitcher, we now expect those reductions to total about $75 million this year, about $35 million of savings has been realized year-to-date and another $40 million will come by year-end. This company-wide savings includes lower capital expenditures, a hiring freeze, a freeze on merit pay increases, reductions in executive pay and general expense cuts, including travel and marketing. We made about $4 million in dividend payments in the second quarter. The company’s 2Q loss from continuing operations was $0.22 per share. Now, I would like to briefly discuss the Stitcher and WPIX sales, which were announced on July 13. You can find more details on those transactions in the press releases and investor call transcript from that day. After a strategic review that began last year, Scripps entered into an agreement with SiriusXM to sell its podcast industry leader, Stitcher, for $325 million. That price includes $60 million in earn-outs over two years. Our full sale price represents a multiple of 4.5x Stitcher’s 2019 revenue. Our deal represents the largest transaction in podcast industry’s history and a return of more than double Scripps' investments since it entered podcasting five years ago. Stitcher’s annual losses were in the high teens millions of dollars, so you should see improvement in both National Media division segment profit and in company EBITDA for the previous adjusted reporting periods and going forward. We are filing for Hart-Scott-Rodino clearance this week and expect the Stitcher sale to close in the third quarter. Nexstar Media group informed Scripps in mid-July that it had transferred its option to purchase WPIX, the New York City CW affiliate to Mission Broadcasting. At the same time, we were told that Mission was exercising the option to purchase the station. Our pre-agreed price is $75 million, plus about $5 million in interest. Pending regulatory approval, the WPIX deal is expected to close by year-end. Taking into consideration the gain on each of these sales, our cash tax bill for 2020 is expected to be about $24 million, the majority of which we expect to pay in the fourth quarter. The balance would be due in Q1 of ‘21, depending on when the PIX sale closes. Separately, we mentioned in May that we expected to receive a $14 million cash refund in the third quarter that is the result of carry-back claims available with the Cares Act. So we expect to see a net cash outflow of about $10 million this year, assuming all taxes on the gains are paid this year. And now a few liquidity items to update you on, our current forecast for full year cash interest is about $85 million. The savings reflects the decline in LIBOR and our plan to pay off our revolver. Our full year capital expenditures are estimated to come in at about $30 million. On June 30, our net debt was $1.9 billion and cash totaled $99 million. Our net leverage at the end of the second quarter was 5.8x per the calculation in our credit agreement. Finally, we were free cash flow-positive in the second quarter and expect to be free cash flow-positive for every quarter of 2020. And now here is Brian.

Brian Lawlor, Local Media President

Thank you, Lisa. Good morning, everybody. Well, as expected, the COVID-19 pandemic took a toll on Local Media core advertising in the second quarter, but we’re happy to report results in line with our peers, down about 37% year-over-year. And that’s without the impact of WPIX and despite the loss of NBA finals on our many ABC stations. Our largest categories improved month-to-month in the second quarter. Our largest category services was flat in June, as was Home Improvement and we continue to see further recovery in July. We expect improvement in the auto category throughout the rest of the year, as manufacturing plants reopen and new car inventory picks up. Dealers already are seeing strong demand and high performance on used cars, as people are starting to migrate away from public transportation and ridesharing for health reasons. One important way we have combated the slowdown in local advertising has been an aggressive approach to new business development across all of our stations. In mid-March, we initiated a new business sales contest to keep our account executives engaged and focused during the pandemic. Our sellers made thousands of new calls and closed deals with hundreds of new businesses, resulting in $15 million in new business running in the second quarter and more than $30 million booked for the full year. In some ways, the pandemic brought out the best in our account executives and sales leadership. These new to TV advertisers are an important component as we continue to grow our local advertising business. Political advertising revenue also was a positive story in the second quarter, exceeding our expectations. And based on strong fundraising figures and limited ability to hold in-person events, we continue to have a very positive outlook for TV spending this year. In fact, our July political revenue has already topped our whole second quarter. Here’s some color on the different elections in the Scripps footprint. In the Presidential race, we are seeing both Trump and Biden campaigns, amping up their fundraising to levels well beyond those of 2016. Both candidates are advertising in key states today and Trump has already laid in significant pre-buys for the fall. Right now, they seem most focused on our markets in Arizona, Florida, Michigan, Nevada, Ohio, and Wisconsin. In the U.S. Senate, Scripps stations are well positioned in six hotly contested races: Arizona, Colorado, Iowa, Kansas, Michigan, and Montana. In Montana, the Senate race has its term-limited governor, Steve Bullock, running against junior senator Steve Daines in what will be one of the closest Senate races in the country. In addition, the battle for the Senate majority has sparked unprecedented fundraising and spending so early in a political cycle. And with President Trump’s cartels getting shorter, incumbents in Kentucky, Texas, and Iowa are now considered a bit more at risk. In the U.S. House races, pre-book buys from both parties show that packs and campaigns are spending just as we expected. We think our list of 35 competitive seats in Scripps markets should remain stable. We also have an open toss-up governor’s race in Montana, where we have the top-ranked station in each of Montana’s five largest markets, resulting in Scripps capturing a large amount of the political dollars being spent in that state. Finally, we expect a high percentage of our political advertising revenue to come from issue spending, where fundraising continues to exceed the experts' forecast. All in all, a very good presidential election year is unfolding. Turning to our retransmission revenue line, as Lisa mentioned, we were still booking our old rates with Dish in the second quarter. Then we went dark with Dish in the third quarter, beginning July 25, after five months of negotiating on extensions. We were very disappointed to have experienced our first blackout with a pay-TV provider. As you know, Dish is a veteran of many blackout battles, while Scripps prides itself on getting deals done and, in fact, already has completed several successful negotiations, including two large providers this year. Because of those other deals, however, we are confident in our new market value and the appropriate industry contract terms, and we just can’t agree to nonstandard proposals that would disadvantage us. Scripps retrans household subscriber base declined 2.5% in the most recent reporting period ending March 31. That’s a step down from the reporting period, which ended December 31, when they were about flat over the prior quarter. I would like to conclude by building on Adam’s comments about the ongoing strength of the five Katz networks as this business reports to me. They have delivered an impressive 14% revenue growth year-to-date. That growth has been driven by strong general market and direct response advertising rates. And both the Grit Network and Court TV saw especially strong revenue growth in Q2, driven primarily by Direct Response. We also continue to see strength in audience viewing at the networks. Viewership at both Bounce and Grit was up 8% over the same time last year due to strong programming, new movie debuts, and ongoing pandemic-related increases in TV viewing. At Court TV, we continue to grow that audience as well. Courts across the country have begun to reopen and just this week, the network is carrying the high-profile Doomsday Trial, preliminary hearings in Idaho. In early May, Court TV carried the historic first live oral arguments from the U.S. Supreme Court. And as protests continued and social unrest heightened, the team saw an opportunity to create an original special, Black and Blue, examining the justice system’s relationship with the black community. The special broadcast across all of the Katz networks on June 22 and viewed by nearly 2 million people. Distribution continued to expand in Q2, with Court TV now live on YouTube TV and it’s got its own channel on SiriusXM. Katz’ over-the-air coverage has also grown with Bounce, Mystery, Grit, and Laff, each reaching 94% to 96% of the U.S. and Court TV now reaching 91%. Katz continues to benefit from the growing scale of over-the-air viewing as more and more consumers discover the large amount of free quality programming available there. Now here is Laura.

Laura Tomlin, National Media Executive Vice President

Thanks, Brian. Good morning, everyone. We were very pleased by the resilience of the Katz and Newsy businesses, as the pandemic took its toll on the U.S. economy during the second quarter. Ending the quarter with our division’s revenue nearly flat to the year-ago quarter seems remarkable given the headwinds, and we will continue to build back in the second half of this year. Overall, the national advertising marketplace has fared better than other ad markets since early March. Big brands quickly recast their messages to create relevance, urgency, and currency. We saw consumer products companies and other businesses shift brand messaging to consumers during stay-at-home orders and a bit later in the quarter on social justice messaging around the unrest. Higher viewership across the five Katz networks and Newsy helped us to capitalize on this spending. At Newsy, we saw record viewing levels, as Americans sought information on the coronavirus and the social unrest across the country. Over-the-top viewership driven by Newsy’s younger demographic was 60% higher during the prior year quarter and streaming viewers stayed with Newsy as their new source. Newsy has also launched its first weeknight newscast exclusively on OTT. The new show in the loop is designed to give a straightforward look at the day’s biggest headlines and a conversational style that is relatable to its digitally savvy audience. Also, Newsy and the Scripps Washington Bureau received more noteworthy national recognition for their joint documentary, A Broken Trust. The RFK Journalism Grand Prize and the top prize for domestic television was awarded to the project, which examined how centuries of inequities and legal loopholes have left Native American women vulnerable to abuse. Our SaaS digital audio business, Triton, also delivered a good revenue performance in Q2. Triton actually had 11% year-over-year growth if you factor out the impact of our sale of a non-core piece of its business in Q2 of 2019. Triton’s global sales pipeline began to pick up as we ended Q2, and the company recently announced a series of new deals with international companies. In the second quarter, Triton expanded its podcast ranker to the U.S. This new measurement product, the podcast report, provides both publishers and advertisers with trustworthy third-party data, allowing them to make informed decisions around advertising, with NPR, NBC News, and many big terrestrial radio companies. A more robust measurement system is much needed, as that industry grows in reach and scale. And speaking of scale and podcasting, one of the reasons we are selling Stitcher is a very positive outlook for podcasting in the larger digital audio space. We were early to podcasting, and watching the new large company entrants helped us see the opportunity to best capitalize on that investment. As Adam has said, we are constantly evaluating the various paths we can take for our businesses value creation. Regardless of the path, as we were with Stitcher, you can count on us to be disciplined investors in these businesses, focused on fostering growth to achieve the greatest ROI. And now operator, we are ready for questions.

Operator, Operator

And first to the line of Kyle Evans with Stephens, please go ahead.

Kyle Evans, Analyst

Hi. Thanks for taking my questions. Brian, would you mind calling it the 2.5% decline on sub count in 2Q, what’s your outlook for the rest of the year? And then I have some follow-up questions.

Brian Lawlor, Local Media President

Hey, Kyle, it’s Brian. As we look out now, we typically see seasonality associated with sub counts that have improved in the fourth quarter. It seems like when football starts, those people are canceling their MVPDs. Like you, we have seen, just this week, including this morning, some of the MVPDs reporting positive sub counts that would indicate that maybe the next quarter. And again, they work a quarter ahead of us, maybe more positive than what we saw.

Kyle Evans, Analyst

Great. Those Cordillera stations in Montana are looking like a really good acquisition. Congrats on that.

Brian Lawlor, Local Media President

Thank you.

Kyle Evans, Analyst

Any other key races that you would point at that could swing that annual number that you guys are floating to the Street?

Brian Lawlor, Local Media President

No. I really don’t think it’s one race. I mean, as you can see, we are very heavy and six competitive Senate races. You talked about Montana. Montana is just going to be huge. All of the cards are falling in place between the Gubernatorial and Senate race there. That will be one of our biggest. But I think as you look at Michigan, we will be very strong between the Presidential, strong Senate race there, a couple of House races there. We expect Arizona, again, Presidential, McSally Senate race there. It’s a very competitive – the competitive – Gardner Senate race in Colorado as well. So I don’t think it’s one race. And I think we have enough that if one were to drop out in the last couple of weeks, a few extras have kind of moved our way. If you remember on the last call, we were talking that in the Senate, we were highly contested in five of the races, now that’s moved to six. So – and then you see things like McConnell and Kentucky, which we are getting in both Lexington and Cincinnati that has become more aggressive. So actually, I don’t think there’s one particular race that puts us at risk. I think we have a lot of coverage across the entire country.

Kyle Evans, Analyst

Sticking with political and understanding that 2016 was an anomaly, roughly speaking, what do you think Presidential will account for as a percent of that total?

Brian Lawlor, Local Media President

It’s usually about 20% in Presidential year. In Q2, it was just over 10%, which was more than 2016 and more than 2012, so we are off to a good start there. But I think when it’s all said and done, when you consider the pack money and all that’s going to influence it, it’ll probably be 20%, maybe a little bit north of 20% of our total political spend.

Kyle Evans, Analyst

Great. And then I was under the impression that blackouts were kind of a no no right now per the FCC. Did I miss something there with regards to your Dish disputes?

Brian Lawlor, Local Media President

I think in the heat of the pandemic, the FCC had asked all parties to try and avoid blackouts. Again, we are five months beyond the deal. We have done extension after extension. And we just couldn’t make a lot of progress and so it seemed like the right thing for our business to do was to step back and try to approach it a different way.

Kyle Evans, Analyst

I understand.

Adam Symson, President and CEO

Hey, Kyle, it’s Adam. I would also just remind the call that we were able to get done cooperatively two deals this year already, including an additional one during the depth of the pandemic, in which we felt very, very good about the rates that we achieved. So I think this is a unique circumstance. And unfortunately, it’s just, sort of, probably par for the course with Dish, given their history.

Kyle Evans, Analyst

Yes, clear pattern. One last one for Laura, maybe just an update on Newsy, which channels you are getting your best consumer engagement? And then related to that, kind of what you saw on the CPM or unit pricing rate there, as we troughed in April and kind of how it’s bounced back? Thanks.

Laura Tomlin, National Media Executive Vice President

Yes. Yes. So really, most of our viewing and revenue continued to be driven by OTT. I was reading an article, I think, yesterday in CTV viewing, during the pandemic, has been up like 80%. So we have been just growing our viewers tremendously on OTT. The demand has been picking back up month-over-month in Q2. Rates have been strong. It did take a dip in April, but we continue to see it improve sequentially each month. So we are pretty optimistic about the growth levels that we hope to see in Q3 and Q4.

Kyle Evans, Analyst

Would you mind diving down into OTT and talking about maybe engagement channels within...

Laura Tomlin, National Media Executive Vice President

Sure. Thanks. So a lot of our viewing today – I mean, we are present on almost every OTT platform out there. A significant portion of our viewers today come to us from Roku. Obviously, Amazon is making a big entrance as well, so we are growing there. We have a lot of viewers on Pluto TV as well. So I would say the majority of those viewers come from Roku, but we have done a great job of making sure that we are distributed on every CTV platform out there.

Kyle Evans, Analyst

Great. Thank you. Appreciate it.

Operator, Operator

Our next question is from the line of Michael Kupinski with Noble Capital Markets. Please go ahead.

Michael Kupinski, Analyst

Thank you. Thanks for taking the questions. I was wondering if you can give us the sequential, I guess, declines in core advertising by month for the quarter and what you saw in July possible?

Brian Lawlor, Local Media President

Mike, it’s Brian. In April, we were down 48%. May, we were down 43%. In June, we were down 27%. And for July, when you back out the baseball from PIX, again, Mets and Yankees, so it’s a big revenue line, we were down 15%.

Michael Kupinski, Analyst

Got it. In the past, broadcasters that lost their presence on MVPDs tended to have leverage during negotiations because of upcoming sports events that brought them back to the table. First, is that still the case? Secondly, with a relatively weak sports schedule, do you think these negotiations might take longer to resolve? I'm trying to understand your thoughts on how quickly a resolution might be reached.

Brian Lawlor, Local Media President

Yes. We certainly hope that these discussions don’t drag out long, and we are continuing to actively exchange discussions with them. Look, sports is on now, right? I mean, this weekend, we got the PGA Championship. You have got the NHL playoffs. You got the NBA playoffs. That’s all happening right now. And so I think sports is an important part of the lives of our viewers, and we hope this will continue to understand that. And by the way, the news is pretty darn important right now with everything going on. And so we don’t love the fact that we are not there for our viewers, but we are expecting college football and NFL to start in a month. And we are a little bit over a month, and we are certainly hopeful that by the time that happens, we are back serving all of our audiences.

Michael Kupinski, Analyst

I know that there were a lot of skeptics with the Katz acquisition. And obviously, this has proven to be a good acquisition for you as well. In terms of the performance in Q2, and you indicated that Court TV – and of course, Court TV was, I believe, launched in the third quarter of last year. If you can...

Brian Lawlor, Local Media President

Yes, it was launched in May.

Michael Kupinski, Analyst

Got it. Okay. And so you would kind of expect that it would be pretty strong. How did the other networks on a relative basis? Were they pretty much lumped together in terms of their performance or outside of the growth that you said that you had with Grit and Court TV? I was just kind of curious in terms of how the other networks performed, some of your more mature networks versus some of your younger ones?

Brian Lawlor, Local Media President

Yes. As I said on the call, Grit had a terrific quarter. Laff performed very well, Bounce also was off just about 10% and the Mystery a little bit over that. But for the quarter, for the Katz networks, they will be about flat with where they were a year ago, considering that pandemic we thought was an outstanding performance on their part.

Michael Kupinski, Analyst

Got it. Well, congratulations on that. That’s all I have. Thank you.

Operator, Operator

Our next question is from the line of Dan Kurnos with The Benchmark Company. Please go ahead.

Dan Kurnos, Analyst

Thanks. Good morning. Just housekeeping on Dish, I guess, Brian or Lisa. So you ran – your 2Q is at prior rate. When you get the deal done, you will get what a true-up for the prior four months, I guess, or five months that you were on extension when the deal gets done?

Brian Lawlor, Local Media President

That’s correct, Dan. So we won’t get paid for the days that were dark, but we will get a true-up to whatever our final deal is for the four months that we were on extension.

Dan Kurnos, Analyst

Got it. And I know we have talked about this ad dollars. It’s just strange. They do the deal with Gray. They are still on extension with Hearst. They are dark on Cox. It seems kind of no rhyme, no reason there, especially ahead of the political season, but I guess we will see how that kind of resolves itself. And kind of just – you brought it up, Brian, a second ago, just in terms of expectations around college and NFL – I think you might have mentioned it in the last call, but just remind us kind of what the impact is to revenue for sports and also, if there is any meaningful back-to-school impact or not?

Brian Lawlor, Local Media President

Yes. I was just looking at this, Dan, yesterday. Football is somewhere in the range of about 5% of our ad revenue. So there is a little bit of risk, but it’s not overly significant. In terms of back-to-school, every state is open. And most states have kids going back to school in one capacity or another. So we have not seen any impact yet on the back-to-school business.

Dan Kurnos, Analyst

Got it. That’s helpful. And then just obviously, July pacings are not guidance, but just curious if you could give us color on categories, how they are performing? And then kind of your expectations of balance given what you are seeing on political with where pacings are and how crowd out might play a factor in the upcoming quarter?

Brian Lawlor, Local Media President

I think I mentioned that July was down 15%, significantly better than the 27% decline in June. So every month continues to get sequentially better. We do believe, based on everything we are seeing now that August will be better than July and September will be better than August in terms of year-to-year improvement and just pure dollar growth. In terms of categories for July, basically, every category improved off of June, which improved off of May, which improved off of April. And so I talked about services being flat in July – in June, and we saw that continue into July improvement in services. And about every other category saw some degree of improvement. Most are still down year-to-year, but they continue to get closer to flat to up.

Dan Kurnos, Analyst

Got it. Super helpful. And if I could just sneak one more in, just around kind of – there’s been an issue in the marketplace around messaging. And I don’t know, Brian, maybe I’m reaching here, but it feels like, and also really even Laura, just with sort of Katz and Newsy, you guys can kind of – even within Direct Response you can kind of shape almost targeted marketing/messaging in a way that maybe others are facing challenges with around content. So I don’t know if you’re actually seeing some influx into some of those channels or not, could be a bit of a stretch, but just figured I would ask?

Adam Symson, President and CEO

Yes. Actually, hey Dan, it’s Adam. I think the very nature, for example, of our networks business gives us access to different demographic niches. And I think that gives brands and agencies an opportunity to inherently shape their messages differently. Obviously, we’ve got different demographics with Laff and with Bounce, certainly with our focus on younger audiences at Newsy and even Grit. And I think that does benefit us with Direct Response and Direct Response placement, as well as even the way general market agencies and brands place their business.

Dan Kurnos, Analyst

Got it. That’s really helpful. Sorry, Lisa, what’s the do you know what the WPIX baseball impact is in Q3?

Lisa Knutson, CFO

Hey Dan, it’s about $18 million.

Brian Lawlor, Local Media President

Sorry, Lisa, that was Q2. The $18 million was Q2. I don’t have Q3 broken out. We can get back to you on that.

Lisa Knutson, CFO

Yes. Sorry about that.

Dan Kurnos, Analyst

Okay, no worries. We will take it offline but that’s helpful color anyway thanks for all the responses guys. I appreciate it.

Operator, Operator

Our next question is from the line of Steven Cahall with Wells Fargo. Please go ahead.

Steven Cahall, Analyst

Thanks. Maybe first this morning, could you talk about what net retrans has been trending and maybe what kind of reverse compensation expense growth you expect from big four for this year?

Lisa Knutson, CFO

Steven, it’s Lisa. Obviously, we’re in the midst of the Dish blackout. So really until we resolve that, we are not really commenting on – or giving guidance on net retrans.

Steven Cahall, Analyst

Okay. Maybe then, Lisa, another one, I think the cash balance dropped sequentially by about $100 million, but it also looks like the debt was maybe down by a similar amount. So just wondering if I had that right, that you took some debt out? And could you quantify the divestiture cash that you’ll realize net of tax from the two divestitures?

Lisa Knutson, CFO

Yes. So you are correct in terms of the pay-down of the revolver, so you saw that. In terms of the net proceeds, so on the $265 million cash proceeds that we expect to get from Stitcher sale, we have about $55 million of tax on that. That doesn’t include whether or not we make the earn-out. And then on PIX, as you know, I mentioned $75 million, plus about $5 million in interest, which will have about $4 million in tax on that.

Steven Cahall, Analyst

Great. And then maybe just switching gears to National Media. So it looks like that with the removal of Stitcher it might have pushed the margin up maybe a couple of percentage points like from Q1 to Q2 and so with that guidance for modest growth in the back half of the year. Should we expect margins to continue to expand at National Media?

Lisa Knutson, CFO

Yes, it’s oh, go ahead, Laura.

Laura Tomlin, National Media Executive Vice President

Yes. I was just going to say, we certainly expect modest growth on the revenue line. And I would say from a margin perspective, we’ll continue to see improvement there over the back half of the year, probably looking more at the year-to-date margin increase year-over-year from an improvement standpoint.

Steven Cahall, Analyst

And then just – okay, great. And then just the last one on political, so it seems like an upgrade of the political guide. I think you and your peers are all very bullish for great reason. When do you feel like you will have the visibility on that revenue to really know that you’re going to meet or exceed that guidance? Is it by August because of September sales? Or is it really kind of on November 10?

Brian Lawlor, Local Media President

Steven, I got to tell you, I mean, I feel really good about the guidance we’re putting out now. We’ve got a lot of it already on the books. There’s been a much higher percentage of prebook dollars for the fall than we have ever seen in the past, as I mentioned in my prepared remarks, President Trump already has laid in millions and millions of dollars, there’s some press reports this week that Biden is about to do the same. We think that’s coming in the next week potentially. In many of our contested races and states, we’re already seeing prebook dollars. We are well on our way to the number we have estimated. So I think that something is going to have to dramatically change for us to feel like that guidance we put out, we’re not going to be able to achieve.

Operator, Operator

Thank you. There are no further questions in queue. I will turn it back to the company for any closing comments.

Carolyn Micheli, Senior Vice President, Corporate Communications and Investor Relations

Thank you, John. Thanks to everyone for joining us today. Have a good day.

Operator, Operator

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.