E.W. Scripps Company (The)

Ladies and gentlemen, thank you for standing by. Welcome to the Scripps Quarter 3 Earnings Conference Call. At this time, your telephone lines are in a listen-only mode. Later, there will be an opportunity for questions and answers. Instructions will be provided at that time. If you should require assistance during the conference call, please press star, then zero, and an AT&T specialist will assist you offline. As a reminder, your call today is being recorded. I'll now turn the conference call over to your host, Head of Investor Relations, Carolyn Michelli. Please go ahead.

Thank you, Alan. 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 and 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 Brian Lawler, and Scripps Networks President Lisa Knutson. Also on the call is Controller Dan Persky. Here's Adam.

Thanks, Carolyn. Good morning, everybody. Thanks for joining us on this midterm election day. If you haven't already, please make sure to take the time to vote. I want to start with the obvious. political revenue did not meet our very high expectations this year. Early on, things were lining up in a way that led us to believe our portfolio for the midterm would attract spending that would beat our record revenue in 2020's presidential election. But despite a very strong start to the year, with record spending for the first half, dynamics suddenly changed. Brian will be along shortly with the detail you're looking for, but let me make one thing clear. Scripps' performance this year breaks our last record-level midterm election revenue in local media, raising the bar for midterm election spending. It wasn't as much as we expected, but in no way should investors have existential questions about political on broadcast. The Scripps Networks division delivered a solid beat to our revenue expectations at 4% above last year. This comes from a stronger performance in general market advertising and directly as a result of our execution on connected TV. Lisa will share details on the quarter. Given the comparative results of our peers in the national advertising marketplace, and despite the very obvious macroeconomic factors, our performance is a testament to our profit-building growth strategies and the strength of our portfolio with both audiences and advertisers. Let me say more. Much is being written and said about linear television, but I'm afraid that the term linear is being thrown about without enough definition. It's certainly true that consumers are taking full advantage of on-demand platforms for media and entertainment, spending less time on the traditional platforms. But all linear is not created equal. Programmers, like most of our peers in the national networks marketplace, depend on cable and satellite distribution, and as subs decline, so does their reach. Not true for the Scripps networks, which now engage with 70 million viewers a month and rising. Our networks reach Americans through the same pay TV and virtual MVPD platforms as other networks, but we also have the benefit of the expanding platforms of over-the-air and connected TV fast networks. This has led us to growing distribution and reach in growing marketplaces, growing audience shares, growing CPMs, and growing revenue. Earlier this year, I told you we had obtained the rights to deliver our network streams into connected TV. Since then, we've secured distribution for nearly all of our Scripps networks on more fast platforms. creating new distribution points for our premium programming on the most popular CTV destinations, Samsung TV+, Vizio's Watch Free, the Roku channel, and Amazon's Freebie, just to name a few. Our premium networks stand out in the fast marketplace and are performing very well, benefiting Scripps and our platform partners. That's driven nearly 60% growth in the network's CTV revenue, and helped drive our industry-leading Q3 ad revenue growth. We're now on track for a CTV revenue run rate of more than $100 million next year, and we're just getting started. While the CTV marketplace is growing, so is free over the air. Last year, 32% of American TV households were watching free TV over the air. That was up from 26%. and Nielsen says the percentage will grow to 45% or 53 million U.S. households by 2025. Scripps' advantage here is that we capture about 30% of that viewing with our local and national brands. Our outsized share is a differentiator that positions us well for future growth in that marketplace, and it's for that reason, as we've told you, that we're giving OTA's growth a push through our Free TV project consumer education and awareness campaigns. The Free TV project is gaining measurable traction. During the early stages of our marketing campaign, launched in July in 13 Scripps markets, antenna manufacturers we're working with reported a 30% increase in sales. I'm not surprised Free TV is resonating with Americans right now. Consumers are bearing the burden of broader inflation and interest rate hikes while streamers continue to increase prices. This has created a period of even greater opportunity for free TV, both over the air and on connected TV, right in our sweet spot. So while we carefully navigate the current negative economic impact on the ad marketplace, and we'll keep a tight rein on operating expenses, we will also take advantage of this moment in a way that will benefit Scripps and our shareholders. And yes, you can have your cake and eat it too, because while investors in Scripps will profit from the disruption, we will continue to maximize the significant opportunity we have in pay TV, especially given that we will renew 75% of our local broadcast subscriber households next year. Looking out a bit further, I'm growing even more enthusiastic about the business opportunities we're developing as a result of ATSC 3.0, both for next-gen TV and the new ways for us to monetize our spectrum. As you know, Scripps is the largest holder of broadcast spectrum in the country, and we are actively developing near-term opportunities with real dollars attached. BIA Kelsey Consulting Service says the technology could add more than $10 billion in broadcast industry data casting revenue by 2030. While we're not ready to affirm any numbers yet, we do believe the amount will be significantly meaningful to us and to our industry. I'd like to close by discussing an important announcement we made during the third quarter, the creation of a new national news organization called Scripps News. Scripps News combines the team at Newsy with our venerable Scripps Washington Bureau and our local division's national news resources to form one powerful national news outlet, operating more efficiently and more effectively across every platform we own. Beginning in January, the name Newsy will be replaced by Scripps News. The head of the division, veteran broadcast journalism executive Kate O'Brien, joined the Scripps Networks division in April 2021 to oversee Newsy & Court TV. She will now report to me. Scripps News is the first consumer-facing news organization to carry the Scripps name, well-respected in American journalism and by generations of Americans. We made that decision as a sign of our commitment to serve our audiences with objective, fact-based, and nonpartisan news and information that they can trust. just as our company has done for 144 years, a commitment that's sorely needed in this country now more than ever.