E.W. Scripps Company (The)

Good day and thank you for standing by. Welcome to the second quarter 2025 EWScripts Company earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Carolyn Michelli, Head of Investor Relations. Please go ahead.

Thank you, DeeDee. 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 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 made 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. Reconciliations of these measures are included in our earnings relief. We'll hear this morning from Chief Financial Officer Jason Combs and then Scripps President and CEO Adam Simpson. Here's Jason.

Good morning, everyone, and thank you for joining us. This Wednesday, we closed on the placement of $750 million of new senior secured second lien notes. We've now used the proceeds of this offering to pay off the company's outstanding senior notes that were set to mature in 2027, prepay a portion of our term loan B2 that is due in 2028, and pay off a portion of our revolving credit facilities, leaving $36 million remaining. We plan to pay off all or most of that by the end of Q3. The new notes, which mature in 2030, carry an interest rate of 9.78. We expect to pay off the remaining reduced 2028 term loan balance through cash flow, leaving us no other bond or term loan financings to address until our 2029 senior notes. We are pleased with the positive reception to our improved financial condition by the credit markets, which allowed us to move quickly on this transaction at an upsized amount in a new money deal and at favorable rates. This refinancing follows the completion of our other refinancing transactions in April. At that time, we extended our 2026 and 2028 term loans to 2028 and 2029 and extended a portion of our credit facility to July of 2027. We also introduced an accounts receivable securitization facility into our capital structure. It has a capacity of $450 million. Between these two transactions, we have now retired or extended the maturity of up to $1.7 billion. That's more than 60% of our current total debt. And despite the elevated rate environment, these transactions have only increased our cost of capital by just over 1%. We remain focused on using cash flow to reduce the amount of our debt, with debt and leverage reduction as our highest capital allocation priority. Now I'd like to turn to a discussion of our second quarter financial results and third quarter guidance. During the second quarter, our local media division was impacted by the lack of political advertising revenue in this off-election year. Revenue declined 8% from the prior year quarter. Nevertheless, we did deliver core advertising revenue that outperformed our peer results, and we attribute our better performance to both our local sports rights deals and the NBA finals. The finals aired across our ABC footprint, including our Indianapolis station, which benefited from the Pacers' strong run. In addition, two of the NHL teams with whom we have full season rights deals made the playoffs, the Vegas Golden Knights and the Florida Panthers. The NBA and NHL playoffs brought in more than $7 million, helping to offset challenges in a soft advertising, core advertising marketplace, and reinforcing the value of our script sports strategy. Outside of sports, retail was up 5%. Our largest category services, as well as home improvement, were flat, and automotive remains weak. Local media distribution revenue was down 1% from the year-ago quarter. We renewed 25% of our legacy pay TV households at the end of the first quarter. In this difficult economic climate, we continue to closely control expenses in the local media division and had less than a 1% increase from the prior year quarter. And if you back out the cost of our local sports rights, local media expenses were flat year over year. Local media segment profit was nearly $56 million, compared to $88 million in Q2 of 2024 in election year. Also, at the end of the second quarter, we renewed our affiliation agreement for our four Fox stations. For the third quarter, we expect local media division revenue to be down in the mid to high 20% range, including core revenue of about flat. We expect local media expenses to be down in the low to mid single digit percent range. Now let's review the highlights for the Scripps Networks Division second quarter results and third quarter guidance. In second quarter, Scripps Networks revenue was $206 million, down 1.4% from the year-ago quarter. Along with other companies in the national network's business, we dealt with economic uncertainty, and yet we looked to have delivered significantly better results than others. We saw robust spending on our connected TV and streaming networks. CTV revenue for the quarter was up 57%. As I mentioned last quarter, the ION network is the largest contributor to our streaming revenue, and the WNBA and NWSL are certainly helping to drive this growth. Game inventory for both leagues has been commanding premium advertising revenue rates. We closely managed the division's expenses in the quarter, bringing them down more than 12% to $150 million to offset the revenue performance. Scripps Network segment profit was 56 million and segment margin was 27%, a nine point lift from 18% in Q2 of 2024. For the first half of 2025, the division has delivered a 30% margin. In the middle of last year, we began significant expense reductions in the network's division in order to deliver higher margins, and we'll begin to cycle past those savings in the third quarter. So we expect a bit more moderate year-over-year decreases in expense in the back half of this year. For the third quarter, we expect Scripps Network's division revenue to be down low single digits, and for network's expenses to be down in the mid single-digit range. Turning to the segment labeled Other, in the second quarter, we reported a loss of $7 million compared to a loss of $9.2 million in the year-ago period. Shared services and corporate expenses were $21.8 million. For the third quarter, we expect that line to be about $22 million. I have a few updates to some full-year guidance numbers that all show improvement over our previous guidance. We now expect our cash interest paid to be between $170 and $175 million. We expect CapEx to be $45 to $50 million and we expect cash taxes paid to be $5 to $10 million. All of these adjustments will drive incremental cash flow this year. Second quarter earnings per share will wear a loss of 59 cents. The quarter included $38 million of financing transaction costs, a $31 million gain on the sale of our West Palm Beach Florida Station building, a $5.6 million write-off of deferred financing costs, and a $3 million loss on extinguishment of debt. Those items increase the loss by 13 cents per share. In addition, the preferred stock dividend has a negative impact on earnings per share, even when we don't pay it. This quarter, it reduced EPS by 18 cents. At June 30th, cash and cash equivalents totaled $31.7 million. Net leverage at the end of Q2 was 4.4 times, a half turn below the end of Q1. And now, here's Adam.