E.W. Scripps Company (The)

Good morning, everyone. This is Carolyn Michelli, Head of Investor Relations at Scripps. We're going to start our call. Thanks so much for joining us. We apologize for this morning's delay. We had technical issues with our conference call provider, and we're not using an operator-assisted line, so please make sure you stay on mute. We appreciate your graciousness and your patience as we navigate this call. We'll have a Q&A at the end of the prepared remarks. Again, for now, please ensure you're on mute. I'll come back after Adam's remark and open up the call for questions. A transcript of the call will be available at scripps.com this afternoon, and you can visit scripps.com for more information. 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 and 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 first from Scripps Chief Financial Officer Jason Combs and then President and CEO Adam Simpson. Chief Operating Officer Lisa Knutson also is with us. Here's Jason.

Good morning, everyone, and thank you for joining us. As we wind down this year's election cycle, we're very pleased to be reporting another record year of political advertising revenue. Scripps' full-year total local media political ad revenue looks like it will come in at more than $340 million. That would be almost 30% above the 2020 presidential year, which was our last record. And it will provide more color on this year's political in just a moment. The record level of political ad spending drove record third-quarter company revenue as well. This revenue, combined with tight expense management, helped us to significantly exceed expectations for third quarter company EBITDA. And on this note, I have another very positive milestone to share. The political cash, the expense management, and a third quarter debt payment have driven down our leverage ratio by nearly a full turn this quarter from six times at the end of Q2 to 5.1 times at the end of Q3. And with the high level of political advertising revenue and a strong fourth quarter performance, We expect to continue to deleverage to the high four times range by year end. We are pleased with this progress, and as we've discussed previously, we remain focused on our refinancing opportunities, including with respect to our near-term debt maturities. We look forward to updating you on our ongoing refinancing activities when appropriate. In a few moments, I'll share an update on the execution of our debt reduction plan, as well as on the balance process. But first, I'd like to review the quarterly results highlights and fourth quarter guidance for local media and Scripps Networks divisions. For the third quarter of 2024, local media division revenue was up 26% from the year-ago period. That compares very favorably to our guide of up 20% and was driven by a record amount of third quarter political advertising revenue, 125 million. Local distribution revenue was down 6% year-over-year as we had no pay TV contract renewals in the quarter. Our total subscriber base declined mid-single digits in line with our modeling and expectations. Third quarter local core advertising revenue was down about 9% from the prior year period. We saw significant core advertising displacement in 15 markets across Arizona, Michigan, Montana, Nevada, Ohio, and Wisconsin. Those markets account for more than a third of our total footprint. Local media expenses were up only 2% from the prior year quarter in line with our guidance. Local media segment profit was $161 million, more than double the year ago period. For the fourth quarter, we expect local media division revenue to be up in the low to mid 30% range. We expect local core ad revenue to be down in the low double digit percent range. We expect Q4 local media expenses to be up in the mid single digit percent range. Now let's turn to the Scripps Networks division third quarter results and then fourth quarter guidance. In the third quarter, Scripps Networks revenue was 202 million, down 6% from the year ago quarter, which is in line with our guidance. We continue to cycle through the effects of last year's soft upfront advertising season. We did see a strong performance from WNBA games, doubling our revenue for the full 2024 season over 2023. Connected TV revenue was flat in the third quarter after backing out the programmatic advertising product we shut down. Again this quarter, we felt the industry impact of streaming services offering discounts on an abundance of inventory. We do expect the pricing pressure to moderate and CTV volume to grow. In Q3, Scripps Network's division expenses decreased by nearly 4%, mainly because of lower programming costs. Network segment profit was $42 million. For the fourth quarter, we expect Scripps Network's division revenue to be down in the mid-single-digit percent range. Our expectation is that Network's expenses will be down in the high single-digit percent range in Q4. We've been working diligently to keep down expenses in that division, including reducing operations at our national Network Scripps News. And looking ahead, we expect to see a meaningful 400 to 600 basis point improvement in Scripps Network's margins in 2025. Turning to the segment labeled Other, in the third quarter, we reported a loss of $7.7 million. Shared services and corporate expenses for Q3 was $21 million. For the fourth quarter, we expect expenses to be about $25 million. For the third quarter, the income attributable to shareholders of Scripps was $33 million, or 37 cents per share. 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. In addition, we took a $12.7 million restructuring charge that decreased the income attributable to shareholders by 11 cents per share. Now I'd like to share an update on our plans to divest through the Bounce Network. As we've discussed, the process is moving along well. Then last week, we realized that we would be unable to come to terms with our prospective buyer that reflected the high-quality nature of this asset. Interest and balance remain strong, and we plan to continue the process with the goal of a 2025 transaction. We are committed to ensuring we receive the highest value for our shareholders. In the meantime, as you can see, we're continuing to significantly reduce both our debt levels and our leverage ratio. We also have discussed the sale of real estate assets, and right now we have letters of intent for about $60 million in real estate transactions. At September 30th, cash and cash equivalents totaled $35 million. We paid down $115 million in debt in the third quarter. Our net debt at quarter end was $2.7 billion, including a revolver balance of $175 million. By the end of this year, due to the influx of cash from political ad revenue, we expect to have applied nearly $300 million to debt pay down. In August, we had said we'd reach a year-end leverage ratio in the low to mid five times range. And again, with a strong finish in political and fourth quarter performance, we now expect to continue to deleverage to the high four times range by year end per the terms in our credit agreement. We're executing an aggressive plan for both debt pay down and leverage reduction this year, and we are moving even better than expected through the execution of the plan. And now, here's Adam.

Thanks, Jason. Good morning, and thanks for being with us. Today, our nation is on the verge of a presidential election the polls show is much too close to call. We may know the results late tomorrow or it could take days or weeks. But regardless of the outcome, Scripps can be proud of the part we play in informing voters across the country of the news they need to make informed decisions and the trustworthy local programming platform we provide for candidates and campaigns to reach voters with their messaging. Local broadcasters serve a central role in our nation's election spending cycles. Ad Impact says we're receiving more than half of all TV ad spending in this election. At Scripps, superior sales execution, our centralized political sales office, and strong demand in many of our markets allowed us to outpace even our past record performance. We saw a nearly 30% increase this year over our 2020 performance. Back in May, maximizing our political revenue opportunity was just one of the components of the Scripps Transformation Plan that I outlined to improve our financial performance, reduce our debt, and better position us to grow. Every substantial decision we're making at this company is being made through that filter, so I'll use my time this morning as a check-in for you on the progress we've made. I think you'll see how committed we are to the outcomes. I've now told you a few times that our commitment to live sports is an important element of our plan to grow revenue and drive shareholder value. I'd like to share now where you're seeing this in both our national and local segments. During the third quarter, our Scripps Networks sales team worked tirelessly to wrap up the negotiations for the upfront. In the end, we surpassed both last year's performance and that of our peers. Our live sports programming was the big driver, supported by the popularity of ION's other programming and demand for connected TV inventory. As the broadcaster demonstrating the greatest commitment to professional women's sports, Scripps capitalized on demand to outpace the market through portfolio and cross-platform sales. We saw more than a dozen new clients transition from scatter to the upfront, concerned that our sports inventory would either sell out or command even more premium prices in the scatter market. We sold over 75% of our sports inventory in the upfront and are now strategically positioned to drive scatter premiums as the demand for women's sports remains robust heading into 2025. In fact, we saw such demand in the upfront driven by sports that we had to get creative to fully maximize the available inventory across linear, CTV, and branded content as well as virtual elements. This enthusiasm drove 164% growth in our connected TV upfront revenue over last year's upfront. Something that was new for us this year, our live sports strategy was also one of the ways we maximized our political revenue opportunity in local. And this strategy made a big difference in our yield. This was most evident in Montana, where our Big Sky Conference football games and adjacent programming opened up significant new premium inventory for our political team. We created similar opportunities for ourselves around live sports in other local markets. Through the year, we continued to come back to you, raising our guidance for political revenue as the competitive nature of the presidential campaign and down-ballot races and initiatives in our markets became more clear. Ultimately, we blew away even our last guide from just three months ago, and advertising is still being placed at this moment. Scripps benefited from spending for U.S. Senate races in Arizona, Michigan, Montana, Nevada, and Ohio, as well as issue races in Florida. As the election season heated up this fall, our Michigan stations saw a huge surge in both presidential and U.S. Senate spending. And after Kamala Harris entered the presidential race in July, fundraising accelerated up and down the Democratic ticket across our footprint. Donald Trump and his PAC also began spending more, and the two presidential candidates and their PACs together contributed tens of millions of dollars to Scripps' total election year revenue. With so much of this highly profitable political ad revenue, we've been able to direct more cash-to-debt paydowns. As Jason mentioned, we will put a total of about $300 million toward our debt this year and expect to continue to be leveraged to the high four times range by the end of the year. That's a remarkable move from six times in just two quarters. While we have been pleased to capture this top line opportunity, we also take seriously the headwinds we face, and that's why I've been framing up our operational improvement plan. You can see that we remain committed to holding down costs in the local media division. We are confident in our ability to actually better serve our local audiences and advertisers while leveraging innovative and more efficient approaches to news production. On the Scripps Network side, we told you in August that we would be examining our expense structure and resource allocation to improve the business. We now expect the strategy we are executing to bring a 400 to 600 basis point improvement in networks margins for 2025. You're already beginning to see this with expense levels from Q3 and in our guide for Q4. Some of the improvement comes from the changes at Scripps News that we announced several months ago. We created Scripps News by rebranding Newsy and setting up a new organizational structure two years ago. Since then, its news teams have won two National Emmy Awards and a dozen other National Journalism Awards. and served Americans with impartial, deeply reported news. Unfortunately, the hard reality is that the polarized nature of our country has made even quality objective journalism a hard sell to national advertisers in linear television. And so when it was clear that the network would not meet our revenue growth expectations, it was time to pivot. Scripps News will continue to produce the same level of outstanding and important journalism for its fast-growing connected TV audience and in service to our local stations with a much lower cost structure. I hope you can see we're doing what we said we would do in pursuit of improving the company's operating performance, managing doubt or debt, and positioning the company for the future. Obviously, we're not done yet, but bringing leverage down to 5.1 this quarter forecasting further deleveraging, and guiding to an improved networks margin by between 400 and 600 basis points in 2025 should demonstrate just how committed we are to our plan for improvement. Carolyn, let's take some questions.