E.W. Scripps Company (The)

Good day, everyone, and thank you for standing by for the Scripps Q2 earnings call. At this time, all participants are on a listen-only mode. Later, we will conduct a question-and-answer session. If you wish to place yourself in queue for questions, please press 1 then 0 on your telephone keypad. To remove yourself from questions, repeat the 1 then 0 command. As a reminder, today's call has been recorded. I will now turn the call over to your host, Carolyn Michele. Please go ahead.

Thanks, Kevin. Good morning, everyone. Thanks for joining us for a discussion of the EW 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 based on management's current outlook, and actual results may differ materially. 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 statement. We will hear first this morning from Scripps Chief Financial Officer Jason Combs, who will share financial results as well as color on the Scripps ad marketplaces. Then we'll hear from President and CEO Adam Simpson. Chief Operating Officer Lisa Knutson also is in the room. Here's Jason.

Good morning, everyone, and thank you for joining us. I'd like to start this morning with the best news of the quarter, probably the whole year, political advertising revenue. Once again, we're raising our guidance for political after a record first half of the year, up 40% over the same period for 2020. Our full year guidance is also at a record level, Again this year, we will see broadcast television continuing to capture the lion's share of political advertising dollars. Also exceeding our expectations and the performance of our peer companies are our national advertising upfront commitments. Adam will talk in more detail about political and the upfront in a moment. But first, let's cover the highlights from our local media second quarter results and some Q3 and four-year guidance, and then Scripps Network's division results and guidance. I will end by addressing our debt reduction plans. For the second quarter of 2024, local media division revenue was up nearly 4% from the year-ago period, in line with guidance, as we brought in a record amount of second quarter political advertising revenue. The political revenue, which was $28 million, gained strength from early U.S. Senate spending in Montana and Ohio. Local distribution revenue was about flat over Q2 of 2023, as we had minimal pay TV contract renewals this year. Our virtual pay TV subscriber count rose by low double digits from a year ago quarter, and the overall pay TV subscribers were down mid-single digits in line with our modeling and expectations. Second quarter, local core advertising revenue was down about 7% from the prior year period. Core was impacted by some displacement due to our strong political advertising revenue, a tough comp to last year's NBA finals, and a transition period as we moved away from a national rep firm. Local media expenses were up only 2% from the prior year quarter, right in line with our guidance, even factoring in our new sports rights agreements with the NHL's Vegas Golden Knights and the former Arizona Coyotes franchise. Local media segment profit was $88 million, a 9% increase from Q2 of 2023. For the third quarter, we expect local media division revenue to be up about 20%. We expect local core ad revenue to be down mid-single digits due to the influx of political advertising revenue. This displacement of core is expected to be partially offset by Summer Olympics advertising revenue that is coming in 13% higher than our Tokyo Olympics revenue. We expect Q3 local media expenses to be up in the low single-digit percent range. Turning to the full year, we now expect our local media division political advertising revenue to come in between $270 and $290 million. That is our second raise to guidance and would be a record level even at the lowest end. We already had a record-setting second quarter and first half for political revenue. Now the entry of Kamala Harris into the presidential race and the high level of fundraising for both Harris and Donald Trump is resulting in new dollars spent with us. In Montana and Ohio, U.S. Senate races also continue with heavy spending, and we have at least four states with reproductive rights issues on their ballots. Now I'd like to discuss Scripps Network's division second quarter results and third quarter results. In the second quarter, Scripps Network's revenue was $209 million, down 9.7% from the year-ago quarter. During Q2, we continued to feel the effects of last year's soft upfront advertising season. However, we were pleased to deliver ad revenue for both scatter and direct response that was about flat relative to the prior year. Connected TV revenue was up 11% in the second quarter after backing out the programmatic advertising product we shut down. During the quarter, we were impacted by the same dynamics as many others on streaming, as Amazon and Netflix unloaded a large amount of inventory into the advertising marketplace at steeply discounted rates. We expect the market to absorb all of this inventory and ultimately for rates to rise. But until we move past that, we have lowered our expectations for connected TV revenue. We had guided in May to see TV revenue in networks being up about 30% for 2024 minus the impact of our programmatic product. Our new guidance is up about 10% from 2023 on that basis. Second quarter, Scripps Network's expenses were flat the prior year at $171 million, despite incremental sports spend, reflecting ongoing prudent expense management. Segment profit was $38 million. For the third quarter, we expect Scripps Network's division revenue to be down in the mid-single-digit range from last Q3, as we cycle past the impact of the 2023 upfront, who do not yet see the benefit of the 2024 upfront. Our expectation is that Network's expenses will be down in the low single-digit range in the third quarter, and that we will realize an even greater decline in Q4. We've been working diligently to keep down company expenses, as you can see from our second quarter results and third quarter outlook. Turning to the segment labeled Other, in the second quarter, we reported a loss of $9 million. Shared services and corporate expenses for Q2 were $21.7 million. For the third quarter, we expect the expense to again fall in the $21 million range. We're planning for CapEx to fall somewhat below our guidance of $70 to $80 million due to our broader expense management efforts. Our new expectation is $65 to $70 million. For the second quarter, the loss attributable to shareholders of Scripps was $13 million or 15 cents per share. Just a reminder that the preferred stock dividend still has a negative impact on earnings per share even when we don't pay it. This quarter, it reduced EPS by 17 cents. At June 30th, cash and cash equivalents totaled $27 million. Our net debt at quarter end was $2.9 billion. As we've discussed, we have laid out an aggressive plan for debt pay down and leverage reduction this year, and we're moving well through the execution of this plan. Our plan has three key components, asset sales, use of incremental cash flow, and evaluating the best possible timing for the refinancing of our upcoming maturities. We continue to move through our process to sell the Bounce TV network, as well as to the best of some real estate holdings. We remain on track to share more details on the divestiture process within the next several months. In terms of cash use, we plan to apply proceeds from our robust political ad revenue and other incremental cash flow to debt pay down. As I hope is clear by now, paying down debt is our highest capital allocation priority, and we're putting our energy around significant pay down by year end to reach a leverage ratio in the low to mid five times range. And now, here's Adam.