E.W. Scripps Company (The)

Ladies and gentlemen, thank you for standing by, and welcome to the third quarter 2023 earnings call. At this time, our participants are in a listen-only mode. Later, there will be time for questions. If you wish to ask a question, please press star, then zero. Instructions will be given again at that time. If you should require assistance during the call, please press star, then zero. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Carolyn Michelli. Please go ahead.

Thanks, Don. Good morning, everyone, and thanks 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' use 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 Chief Operating Officer Lisa Knutson. Here's Adam.

Good morning, everyone. We're pleased today to be reporting third quarter financial results across the company that met or exceeded expectations. Our local ad sales teams executed at a high level despite a soft advertising marketplace. On the network side, connected TV revenue growth continues to be a bright spot, while the direct response and general market sales teams held their own. In addition, careful expense management supported by the continued pursuit of a more efficient cost structure led to a stronger than expected segment profit number. Alongside the rest of the advertising industry, we do face further macroeconomic headwinds as we wind down this year. As you know, the national advertising upfront season was weak across the industry. But as we head into the fourth quarter, we have seen some green shoots in the scatter markets. Local media core advertising is coming into the quarter strong, with our four top categories up year over year. Jason and Lisa will give more color on the full advertising environment in just a moment. Despite the macroeconomic conditions that we are all contending with, I really like the Scripps setup for free cash flow growth over the year ahead, and here's why. Number one, we have a robust new run rate for local media distribution dollars. Number two, our local core and distribution revenue and national advertising revenue will benefit from continued, disciplined expansion into sports rights, fueling organic growth. Three, we're educating audiences about the appeal of free TV and making it easier than ever for people to watch it and for us to profit from it. Four, we project double-digit growth in our network's connected TV advertising revenue. And fifth, We will benefit from the high-margin political ad revenue that broadcasters get as the primary beneficiaries of political ad spending, projected now at $10 billion for the coming presidential election year. I'll start with our outlook in the retransmission ecosystem. As we reported to the street in October, we have now successfully completed distribution agreements covering about 75% of our local media paid TV households, without any blackouts. The net effect of these negotiations for 2023 is as we promised, growth of 15% in revenue and more than 40% in net distribution dollars. Annualizing that growth next year gives us a strong tailwind. A lot has been said about the future of the MVPD and broadcaster relationship, especially after the Disney charter dispute. But our experience leads me to believe that investors' fears are off base. The concessions charter negotiated, including SVOD services in the bundle and thinning out the lower view channels, will benefit the pay TV consumer, benefit the ecosystem, and therefore benefit broadcasters, especially since our programming represents the very best of the channel lineup. Our negotiations and new deals are a testament to the strength of the MVPD broadcaster proposition. Our renewals come as a result of both good negotiating and the strategic moves the company has been making over the last several years. Because now, in addition to capturing full market value on rates, we're creating new value by expanding the number of our stations that receive retrans. For example, in Las Vegas, we flipped an ION station to an independent carrying the Vegas Golden Knights as its anchor programming. The new stations Vegas 34 joined our ABC affiliate there, expanding our advertising opportunity and distribution fees significantly. So despite erosion in the nation's pay TV landscape, Scripps is now getting higher rates and getting paid on more stations than before, a key growth driver for us that comes as a direct result of the flexibility of our broadcast platform in service to our sports strategy. Second, We're creating material new value by tapping into the passion Americans feel for their favorite teams and athletes and their love of the game. This passion has an unparalleled ability to unify us as a community, to bring us in front of the television, and to do it in real time. Linear television, specifically broadcast TV, is made for this. The leagues know it, the teams know it, the fans know it, and so do the distributors and advertisers. And that's the reason Scripps is leading the broadcast renaissance in live sports. On the local side, we now have broadcast partnerships with two National Hockey League teams, the recent Stanley Cup champion Vegas Golden Knights and the Arizona Coyotes in Phoenix. We're broadcasting their games across a multi-state region to both teams' large regional fan bases. And we're seeing tremendous growth in viewership, now that every TV household in the markets can receive their games. In Las Vegas, the Golden Knights have more than doubled their local ratings so far this season compared to last. And in Phoenix, the Arizona Coyotes' ratings have increased a whopping 900% from their RSN distribution last year. The equation is simple. More audience reach generates higher ratings to deliver Scripps' significant new revenue right now, primarily through incremental and meaningful core advertising revenue growth and higher distribution revenue for the independent stations on which they air. On the core advertising side, I'm pleased to be able to quantify the value we have just begun to create through our sports rights deals. Baked into our guide for the fourth quarter is an incremental lift to local media core of four percentage points driven by our two local sports deals. And for full year 2024, we're projecting at least a three percentage point lift in core advertising from just those two local NHL deals. And on the distribution side, adding retrans to these new independent stations with live sports is both growing our top line revenue and expanding the portfolio's distribution margins because traditional and virtual MVPDs Know how important this programming is for their customers. With each new local rights agreement we sign, core advertising and distribution fees will grow, adding profit and generating free cash flow. Sports is a significant opportunity for us on the national level as well. We're pleased to have completed a very successful first season with the WNBA on ION. We harnessed the power of our over-the-air signal, pay TV carriage, and connected TV distribution to help the league increase its TV reach by nearly 30%. A third of our viewers this season watched the WNBA Friday Night Spotlight on ION over the air, while 10% watched on Fast. All new reach for the league. Here, too, live sports rights drove new value for Scripps. with 65% of the revenue we generated from sponsorships and advertising coming from new to script accounts. And as you know, advertising around live sports commands a hefty premium above our average unit rates. We're already well into the sales cycle for our second season with the WNBA and off to a very good start. In the near future, we expect to tap into ION's powerful reach for similar national rights agreements, with leagues that recognize the power of partnership with Scripps Sports, setting us up well for growth in 2024 and beyond. As you can see, Scripps is enthusiastic, for good reason, about the ongoing value of the advertising-supported TV marketplace. And our third lever for 2024 will create new opportunity for growth in the over-the-air television market. Given our company's outside share of over-the-air viewings, we've told you that we'd be working to accelerate OTA's growth. Last year, our marketing campaigns drove up to a 30% increase in digital antenna sales, as reported by the antenna makers we work with. But we still recognize the need to solve some of the challenges consumers faced with digital antennas. And we saw an opportunity to revolutionize the free TV experience, especially at this time of rapidly rising streaming costs and relative indifference to the pay TV bundle. That's why in August, we relaunched Tableau, an over-the-air TV device that aggregates OTA and connected TV fast channels with a DVR in a modern user experience that appeals to Gen Z as much as baby boomers. It allows you to stream and watch OTA on any TV, phone, or tablet in your house through an app. For the new Tableau consumer, it's a one-time cost, can be purchased bundled with or without a digital antenna, and today has no subscription fees. Tableau owners get free premium network and fast channel programming, every local NFL game, and all of the live professional and college sports on broadcast. In the two months since the soft launch, we're seeing very enthusiastic consumer and media reviews. People have a real passion for this product. Sales have been brisk through our retail partners Amazon, Best Buy, and directly at TableauTV.com. Just this week, Tableau was live on the Home Shopping Network and sold out in minutes. Soon, we'll be sold on Walmart.com. We're launching the marketing campaign in earnest this quarter and expect to share more metrics on future calls. For now, what's important to know is that Tableau will grow TV viewing over the year, especially for live sports, so we can turn more eyeballs into ad dollars. Turning to connected TV, our fourth free cash flow driver, our efforts to distribute and monetize our linear networks in the fast marketplace have quickly created a new $100 million business. We expect double-digit growth on that $100 million next year. And of course, the fifth cash flow driver is the influx of high margin political advertising in the presidential election year, when we and our broadcast peers are best positioned to capitalize on the $10 billion in projected annual election spending. Beyond these five growth drivers for 2024 is the ongoing benefit of our reorganization work, which Lisa will discuss in a moment. We remain focused on both aggressively tackling the near-term challenges in the media marketplace and creating a more efficient, cost-effective, and high-performing business. Scripps is carving out a valuable, durable niche in this chaotic media ecosystem. And because of that, I encourage investors not to paint us with the same broad brush as companies that are irrationally expanding into streaming, grappling with constant subscriber churn, and all the while bleeding off their valuable businesses with no clear path to profitability. At Scripps, our path to real near and long-term value is clear. I'd like to end by recognizing an accomplishment about which I'm very proud, the first National Emmy Award for Scripps News. As you know, we bought Newsy 10 years ago and rebranded it Scripps News in January. It's now distributed not just on national platforms, but on our local stations and garnering strong ratings with our local audiences. This Emmy for Outstanding Science, Technology, and Environmental Coverage is a testament to the impactful news organization we've built and America's need for its objective, fact-based reporting.