E.W. Scripps Company (The)

Ladies and gentlemen, thank you for standing by, and welcome to the Scripps Second Quarter Earnings Call. For the conference, all the participant lines are in a listen-only mode. However, there will be an opportunity for your questions. If you'd like to ask a question at any point during the call, please press 1, then 0. If you should require any assistance, please press star 0, and an operator will assist you offline. As a reminder, today's call is being recorded. I'll turn the call now over to Ms. Carolyn Michele. Please go ahead.

Thanks, John. Good morning, everyone, and thank you for joining us for a discussion of the E.W. Scripps Company's financial results and business strategies. 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. Actual results may differ. Factors that may cause them to differ are outlined in our SEC filings. We do not intend to update any forward-looking statements we make today. Included on this call will be a discussion of certain non-GAAP financial measures that are provided as supplements to assist management and the public in their analysis and valuation of the company. These metrics are not formulated in accordance with GAAP and are not meant to replace GAAP financial measures and may differ from other companies' uses or formulations. Included in our earnings release are the reconciliations of non-GAAP financial measures to the GAAP measures reported in our financial statements. We'll hear this morning from Scripps President and CEO Adam Simpson, Chief Financial Officer Jason Combs, Local Media President Ryan Lawler, and Scripps Networks President Lisa Knutson. Also on this call is Controller Dan Persky. Here's Adam.

Good morning, everybody. Thanks for joining us. We're very pleased to be delivering second quarter financial results that almost fully met and in some cases exceeded expectations we set back in May, despite the ongoing economic uncertainty. demonstrating once again that the company we've been transforming is resilient in its performance, even in the face of macroeconomic challenges. In our local media division, Q2 political advertising reached a record level on a same-station basis, foreshadowing our expectations for the full-year political cycle. We are now moving into the heart of the political spending season when we expect to meet or exceed our 2020 presidential year level. With well over $8 billion in the nationwide political spending arena this season, it should be clear that political revenue defies economic trends. Both Scripps' political and retransmission revenue offset a bit of cyclical softness in core advertising. Driven largely by political, we expect local media to deliver impressive second-half results for total revenue and profitability. Our networks group fell a bit short of our revenue expectations due to the national ad market climate. And yet, we were pleased to see the division achieve the same level it reached in Q2 of last year and perform better, not just than other national networks groups, but also better than the ad revenue performance of some major digital and CTV companies. The profit margin for the Scripps Networks Division also reflects the fundamental productivity and durability of that business. Our Q2 performance illustrates that we have positioned the company well to move through this period because of the work we have done in recent years to strengthen our local media portfolio and improve its financial performance and to create the new high margin networks operating unit. Both divisions are already capitalizing on growth in various TV viewing platforms. And once we move past this economic cycle, we expect a rebound in key local core ad categories and a return to networks division margins in the 35% to 40% range. Like every other company, we'll navigate through the macroeconomic environment. And in the near term, we'll benefit from what we expect will be really robust political revenue this year. However, we also see clearly how this same environment of economic uncertainty will, in fact, play to our advantage. We'd all be smart to remember that the majority of Americans still turn to pay TV for their entertainment, and we expect we'll continue to benefit from growth in retrans revenue near and long term. But our company employs an all-of-the-above approach to reaching audiences, including a unique focus on free over-the-air television. In this inflationary environment, when consumers are already struggling with plus fatigue, we're targeting cord cutters and cord nevers with the benefits they would gain by adding on the free premium programming available from over-the-air television, the best live sports network programming and local and national journalism, informing and entertaining them for free alongside their increasingly expensive subscription bundles. The cost of subscribing to streaming services is going up along with everything else. Moffett Nathanson recently reported that the price of most major streaming subscriptions has nearly doubled in the last four years. According to a May study by Recurly, TV households have an average of five subscriptions, But 31% of respondents also said they plan to cancel some this year. We think Wall Street is already acknowledging this trend. Maybe what investors haven't caught on to yet is how consumers are watching instead. A recent study by Parks Associates found that 31% of people who don't have cable use their digital TV antenna for free over-the-air viewing. a population we expect to grow even faster during a period of inflation and negative consumer sentiment. As we have previously discussed, Scripps is capitalizing on this free TV movement with a consumer marketing campaign touting the benefits of over-the-air television. Last month, we rolled out paid traditional and digital campaigns in 13 test markets, promoting our educational website, thefreetvproject.org, and explaining the quantity and quality of options available for free. We remind consumers that they can get live sports, local news, and Big Four network programming, and our premium networks, without having to subscribe to half a dozen subscription streaming services. And we're working with retailers and installers to make it easy. Pocketbook concerns and rising subscription prices also are benefiting Scripps' free ad-supported connected TV products. All of our local station brands and most of our national networks are now available across a wide range of CTV platforms. And as you can tell from the revenue growth we've shared, gaining traction with audiences. Because we believe consumers will continue to demand a variety of TV viewing options, We see the increasing cost and complexity of streaming platforms as an opportunity to win audiences over to OTA and the shift from traditional platforms as an opportunity to advance our brands on CTV. That's the all-of-the-above approach I mentioned earlier, and it's designed not just to serve audiences but also to meet the needs of the nation's advertisers. While we are clearly big believers in the opportunity in connected TV, we are exceptionally well positioned to benefit from the ongoing attraction advertisers have to the still very dominant and incumbent media marketplace, linear television. Linear TV has maintained its durability because consumer products companies, retail, big pharma, insurance, and other big advertising spenders continue to gravitate to the consistent brand safe and premium programming that delivers their messages effectively and efficiently to the largest audiences. A more than 70-year track record leads CMOs to recognize that there is nothing experimental about their spend in television. Two years ago, as the pandemic was shutting down the nation, Scripps was quietly making plans that led to the creation of a new free cash flow engine, our highly profitable Scripps Networks business. At the same time, we have continued to steadily grow our legacy local television revenue through core advertising, political advertising, and distribution fees. I hope it's clear that, as we did when the pandemic shut down the nation, Scripps will use this blip in the economy to our advantage. and we will again emerge stronger than before. Now here's Jason.