E.W. Scripps Company (The)

Ladies and gentlemen, thank you for standing by and welcome to the Scripps second quarter 2023 earnings call. At this time, all parties are in a listen-only mode. Later, we will conduct a question and answer session. The instructions will be given at that time. If you should require assistance during the call, you can press star and then zero. And as a reminder, this call is being recorded. I'd now like to turn the conference over to our host, Investor Relations Officer, Ms. Carolyn Michelli. Please go ahead.

Thanks, Brad. 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, and Scripps Chief Operating Officer Lisa Knutson. Here's Adam.

Good morning everybody. Today I'd like to provide you with a big picture perspective on this moment in the television landscape and how Scripps is executing on its plan to capitalize on our industry's evolution. The television industry is experiencing an era of volatility where the growth of streaming is upending a long successful business model. But as a wise and very successful investor recently reminded me, just because everything is moving towards streaming doesn't mean it in and of itself is a good business. For most in the industry, the math on streaming alone doesn't work. And as media investors are well aware, the path to value creation is far from certain. Content creators are rebelling against the new model, sparking the most significant strikes in Hollywood's history. Experts have said the strikes are fueled by existential worries over the industry's future, and it's no doubt that the end result will make the economics for streamers worse. In this chaotic climate, Scripps has carved out its own valuable niche, linear television viewing driven by entertainment, live sports, news, and the consumer proposition of free TV. And despite a temporary hurdle driven by inflation and a soft ad market, we see a return to growth ahead fueled by our aggressive all of the above distribution strategy as we attack our opportunity to increase yield from pay TV, expand upon our leadership in free over the air television, and create new incremental value through a profitable approach to connect to TV. To be sure, linear TV audiences are declining. consumers are spending less time watching traditional television and turning increasingly to subscription services. Under pressure from sub-declines, the cable programmers are eroding the quality of their product and shifting attention to still questionable ambitions in D2C. That's probably because they simply don't have what we have, that all of the above distribution strategy. Scripps' linear business makes use of both pay TV and the growing over-the-air ecosystem, so it's no wonder that in the midst of this carnage from consumer preferences, our portfolio of networks is growing share reviewing. We expect free OTA TV to play an even more significant role in the new bundle ahead. One factor we forecasted many quarters ago is now coming to fruition, the shift of sports rights to broadcast television. By our count, at least six major professional rights deals announced over the last six months went to broadcasters, from NASCAR to college football to our own WNBA on ION. And, of course, regional deals like the one we announced that is bringing the Stanley Cup-winning Vegas Golden Knights to Scripps' local broadcast stations in Nevada, Utah, and Montana. The teams and owners understand well that D to C will be a lucrative opportunity for the future, but that the reach from broadcast distribution in parallel will be the price of admission to get there. While we expect more live sports to be a catalyst for growth, we will continue to educate consumers on the benefits of free over-the-air television as a way to grow our viewership and audience reach. Our scale and linear distribution underpinned by our network of 109 television stations across this nation, is a core asset for us. At the same time, we understand that American television viewers will continue to consume and demand more from connected TV. So to tackle that opportunity, we have aggressively claimed territory in that space as well. As of this year, our national network's brands are widely distributed across streaming, smart TV, virtual MVPV, and other connected TV platforms, and particularly on the rapidly fast-growing fast channels. We acted quickly to establish a first-mover advantage and now are building audience and seeing significant growth in ad revenue. That's high-margin revenue because our fast networks open up a new opportunity for us to monetize some cost, relying mostly on our linear programming streams or original content we already own, as with our two latest fast channel launches, Core TV Legendary Trials, and last more. In the meantime, linear advertising remains a very large and lucrative marketplace, projected by Magna to be $54 billion this year, enormous even in the midst of an anemic macroeconomic conditions. In that linear marketplace, Scripps has continued to garner profit margins that far surpass those of D2C streaming businesses, at least the ones that have profit. Like all industries, we're subject to economic fluctuations. So the current ad industry recession is affecting our growth rates. And as a result of that climate, we recognized an impairment in our Scripps Networks business. Our Networks business remains strong. And as I said, we expect its revenue growth and profitability to rebound along with the national ad marketplace. The networks come together with our local stations to form the foundation of the linear viewing, connected TV, and free TV strategies I've been discussing. The WNBA deal with Scripps Sports could not have been executed without our acquisition of ION. And at the local level, we were able to redeploy Ion Spectrum in two markets to launch independent stations that will become the home of the Vegas Golden Knights. We have preserved Ion's reach in those markets through other channels, and at the same time, we created two new local station duopolies. It's another good example of how the Ion acquisition has enhanced our economics. As we pursue the best and highest use of our spectrum, for enhanced shareholder value through television, I'm enthusiastic that we'll be able to add data casting through ATSC 3.0 to the list of strategies that make use of our massive distribution platform. We continue to make progress on the work we are doing with Nexstar, HPE, and Sony with a core network live in four markets, a necessary first step as we bring this business to the mobile wireless data marketplace. Our latest company reorganization was designed to position us for future growth in all of these distribution areas. Rather than being exclusively focused on the local station group or the Scripps Networks portfolio, our leaders are now charged with executing on opportunities that encompass all of our assets. This repositioning has already proven effective in sports and in news and created efficiencies in distribution, marketing, and operations. and we are on track to realize at least the $40 million in annual savings we had projected. The media business is changing dramatically, as it has done many times over our company's 145-year history. Our aggressive but steady approach to navigating the convulsions has proven to create value time and again for our shareholders, just as I'm confident it will this time around. Over the last five years, the company's moves to dramatically enhance our scale in television have more than doubled revenue, more than tripled segment profit, and expanded margins, leaving us well-positioned to benefit from the inevitable return of the ad market. I'm sure shareholders along for the ride will benefit too. Now here's Jason.