E.W. Scripps Company (The)

Thank you for standing by. Welcome to the Scripps fourth quarter 2023 earnings call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session. Instructions will be given 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 our host, Executive Vice President of Investor Relations, Carolyn Michelli. Please go ahead.

Thanks, Rich. 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 first this morning from Scripps Chief Financial Officer Jason Combs, then from Scripps Chief Operating Officer Lisa Knutson, and finally from President and CEO Adam Simpson. Here's Jason.

Thanks, Carolyn. Good morning, everyone, and thank you for joining us. Let's start today with a look at our strong finish to 2023. I want to review a few fourth quarter and year-end highlights, then I'll give guidance for the first quarter and several full-year items, and I'll conclude with capital allocation and our debt picture. We were very pleased to end 2023 by significantly exceeding our free cash flow expectations. On our last earnings call in November, we set a range of $50 million to $60 million in full-year free cash flow. and we ended at about $77 million. The overperformance was driven by our highest political advertising revenue for an off-cycle election year, as well as stronger-than-expected ad revenue results in Scripps Networks. Also, in 2023, we achieved $752 million in distribution revenue as we renewed 75% of our paid TV households. That was up 15% over 2022, and those results drove net distribution dollars up more than 40%. We are pleased we were able to successfully avoid any blackouts with the cable and satellite providers throughout all of those negotiations. For the fourth quarter of 2023, we reported financial results that nearly all met or exceeded the expectations we set in November. We executed tight expense management, and our Scripps Networks revenue came in better than expected at down only 7%, driving Networks Segment Profit performance. Scripps Network's revenue for the fourth quarter was $230 million, exceeding our guidance because of better-than-expected revenue from all three key areas, general market, connected TV, and direct response. Scripps Network's Q4 segment expenses were $166 million, down 1.2% from the prior year quarter. Segment profit in networks was $64 million. In our local media division, total revenue was down 12% from the prior year quarter, due to the absence of election year political advertising revenue. Political ad revenue in Q4 of 2023 did exceed our expectations at $16 million, driven by spending in Montana and Ohio. Total political ad revenue for 2023 was $33 million, as I mentioned before, the highest for an off-cycle election. Fourth quarter, local core advertising revenue was up 1% from the prior year period, and local distribution revenue was up 22%, fueled by renewals of our cable and satellite agreements. Local media expenses were up less than 5% from the prior year quarter. This increase reflects higher programming fees and the cost of sports rights agreements with two National Hockey League teams. Local media segment profit was nearly $86 million. In the segment labeled Other, we reported a fourth quarter loss of $12 million. The segment includes spend on promoting our tableau over-the-air viewing device. Shared services and corporate expenses were $24 million, up a bit from our November guidance as better-than-expected quarterly results drove our variable compensation higher. The loss attributable to shareholders of Scripps was $268 million, or $3.17 per share. Pre-tax costs for the quarter included a non-cash goodwill impairment charge for Scripps Networks of $266 million. In addition, we reported $9.4 million in restructuring charges. These charges increase the loss attributable to shareholders by $3.15 per share. The restructuring costs are related to our company-wide reorganization. We are on track to realize annualized savings of more than $40 million by the middle of this year. As of quarter end, cash and cash equivalents totaled $35 million. Our net debt at quarter end was $2.9 billion. We ended the year with net leverage of 5.7 times per the calculations in our credit agreements. And now I'd like to discuss a few key guidance items for the first quarter and full year 2024. For the first quarter in the Scripps Networks Division, we expect revenue to be flat to down low single digits. We expect first quarter network segment expenses to be down low single digits. We expect total local media revenue to be up in the low teens percent range. We expect local core ad revenue to be flat to up low single digits. Lisa will give more color in a moment about our strong start to the quarter with key categories, including auto. We expect Q1 local media expenses to be up about 10%. If you back out the costs associated with our new sports deals, network fee step-ups, and one-time facility work, local media expenses would be up in the low to mid single digits. First quarter shared services costs are expected to be about $24 million. We expect the segment labeled Other to generate a loss of about $7 million in Q1 as we continue to educate consumers about free over-the-air viewing and to promote our Tableau device. Now I'd like to touch on several four-year items. We expect our local political advertising revenue to come in between $210 and $250 million in this presidential election year. We expect connected TV revenue for the networks to increase by more than 40%, excluding the impact of our low-margin programmatic product that we're sunsetting. We expect our distribution revenue growth to be modest this year because we're renewing only 5% of our pay TV households. We expect capital expenditures of $70 to $80 million. That includes one-time costs to build out a new station facility and to reconfigure office spaces where we're consolidating our footprint to lower operating expenses. We expect cash interest this year of between $200 to $210 million, cash taxes of $50 to $60 million and depreciation and amortization of $150 to $160 million. We do not have any required pension contributions this year. I'd like to end by discussing capital allocation and debt paydown. As you know, Scripps took on significant debt in early 2021 to acquire ION Media. The strategic purchase of ION formed the foundation of our Scripps Network segment, which has helped Scripps to diversify its revenue base and to build strong nationwide over-the-air audience reach. The new segment has increased the durability and profitability of our enterprise. The eye on television stations and the spectrum have opened up significant growth opportunity for the company in local and national media through Scripps Sports. Remarkably, in the three years since acquiring that debt, Scripps has already paid down 22%, significantly outpacing our peer group. We've brought our total debt down by nearly $1 billion from about $4 billion to about $3 billion today. That represents 98% of our discretionary capital applied toward debt reduction. Focusing on debt paydown, we have elected to defer the payment of our preferred equity dividend to Berkshire Hathaway this quarter. This deferral is permitted under the terms of our agreement with Berkshire. A deferral will allow us to maximize the paydown of our traditional bank debt and provide us with more flexibility in refinancing our upcoming maturities. This will change our rate on the preferred dividend from 8% to 9%. This year, it is our intention to see leverated by cash from our political advertising revenue incremental cash flow that may come from other top line revenue, operating expense levers, and financing levers. So when you hear us say every quarter that our top capital allocation priority is paying down debt, we are backing that up with our actions. Now, here's Lisa to share highlights from both the local media and Scripps Network's operations.