E.W. Scripps Company (The)

Thank you for standing by and welcome to the EW Scripps Company's fourth quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker 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. To remove yourself from the queue, you may press star 1 1 again. I would now like to hand the call over to Carolyn Michelli, Head of Investor Relations. Please, go ahead.

Thank you, Lateef. 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 filing. 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. Reconciliations of these measures are included in our earnings release. 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 marks our fourth consecutive quarter of reporting financial results that met or exceeded expectation on nearly every reporting line. Our growth strategies around networks, streaming distribution, and Scripps Sports are helping us outpace local and national peer companies, supported by strong sales execution and disciplined expense management. I'll recap our fourth quarter 2025 results in a moment, but first I wanted to touch on a few important activities we've undertaken since our last reporting period. On February 11th, we announced a transformation plan to grow enterprise EBITDA by 125 to $150 million by 2028. Our plan balances right-sizing our current expense structure with implementing new ways to grow revenue and profitability. The EBITDA improvement is one aspect of our larger company transformation plan, which Adam will discuss in a few minutes. You'll start to see the financial benefits of our plan in the second half of this year. We expect total in-year EBITDA impact of $20 to $30 million and to go into 2027 with an annualized run rate of $60 to $75 million. We expect the benefits to contribute to a significantly improved leverage ratio by year end. This plan builds on the work we've already done to improve our division margins in recent years. In fact, for 2025, we exceeded our guidance for margin performance in the Scripps Networks Division. We guided to 400 to 600 basis points of expansion over 2024 and delivered nearly 700 basis points. In the local media division, we kept expenses down despite new partnerships in valuable and growth-driving sports rights. In another strategic move to improve margins, we are exercising our option to reacquire 23 TV stations affiliated with ION that we had to divest when we bought the network five years ago. We anticipate the aggregate purchase price to be about $54 million. The transaction allows us to expand our already sizable spectrum holdings. After close, we will no longer be paying the owner of those stations affiliate fees, so acquiring these station assets will be immediately accretive to the Scripps Network's division segment profit and margins. We will seek waivers for the transaction under the FCC's current television station ownership rules. On February 9th, we announced the sale of Core TV, which did not require regulatory approval and closed on that date. This transaction reflects our disciplined approach to capital allocation. We've monetized an asset while also securing a multi-year spectrum lease that instantly improves our operating performance. The transaction is immediately accretive to the Scripps Network's segment profit and division margin. The divestiture reflects Scripps' practice of growing businesses and in making strategic decisions about how we unlock the greatest value. We also were pleased to find a fitting owner in law and crime, founded and run by ABC News Chief Legal Analyst Dan Abrams. On the local media M&A front, we're progressing towards closing on our station swaps with Gray and the sales of WFTX in Fort Myers, Florida, and WRTV in Indianapolis. Gross proceeds from the Fort Myers and Indianapolis sales will be $123 million. We expect Fort Myers to close in the coming weeks and Indianapolis to follow soon after, pending FCC approval. We're also optimistic about closing in the coming months for the gray stations transaction. All of this acquisition and investor activity with the stations, the ION affiliates, and the sale of Core TV support our strategy of evaluating and maximizing the value of our assets, improving margins while reducing our debt and leverage ratios. Now let's review fourth quarter financial results, and then I'll share some guidance for the first quarter and the full year. During the fourth quarter, our local media division revenue was $360 million. down 30% due to the absence of political advertising revenue compared to the prior year. Core advertising, however, was up 12% for the quarter. Let me repeat that. Core was up 12% in the quarter. All five of our top categories grew year over year, including our largest, services, at 19%. Gambling was up 32%. Our local sports strategy is a key contributor to our core advertising growth. And it's not just the addition of the Tampa Bay Lightning this year. We also saw continued strong revenue growth during Q4 in our existing local sports markets, Las Vegas, Salt Lake City, and South Florida. Local media distribution revenue was down 1.6%. Expenses for the division were down about 1% year over year. Local media segment profit was $50 million, compared to $199 million in Q4 of last year's political cycle. For the first quarter, we expect local media division revenue to be up low to mid-single digits, The big story here again is growth in core advertising revenue, which we expect to be up in the mid single digit range. In addition to the live sports strategy that also helped drive fourth quarter growth, we have the benefit in Q1 of the Winter Olympics and the Super Bowl on our 11 NBC stations. In the back half of 2026, we expect local media division revenue to grow through record midterm election spending. In the 2022 midterm election, we took in about $200 million. This year, we're expecting strong spending in our markets due to U.S. Senate and gubernatorial races in Arizona, Colorado, Michigan, Nevada, Ohio, and Wisconsin. We also are encouraged by ad impact reports showing local broadcasters and related media will retain about half of the projected record spending. We expect local media distribution to benefit from about 70% of our pay TV subscriber households renewing this year. For the year, we expect low single digit growth in gross revenue and low teens percent growth in net distribution revenue as a result of both the top line growth and declining affiliate fees. Turning back to the first quarter guidance, we expect local media expenses to be up low single digits. Backing out the new expense to the Lightning, local media expenses are down. Now let's review highlights for the Scripps Network's division fourth quarter results and first quarter guidance. In the fourth quarter, Scripps Network's revenue was $199 million, down less than 8% compared to Q4 2024 and well ahead of guidance and the marketplace. Connect2TV revenue was up nearly 10% for the same quarter last year and 30% for the full year. The division's expenses for the quarter were down 13% due to lower employee-related costs and operational expense reductions. Scripps Network's segment profit was $64 million, and the segment margin was 32%. For the first quarter, we expect Scripps Network's division revenue to be down in the high single digit range. We expect Scripps Network's expenses to be down in the low single digits for Q1. Turning to the segment labeled Other, in the fourth quarter, we reported a loss of $8 million. Shared services and corporate expenses were $22 million. For the first quarter, we expect that line to be about $27 million. The expected increase is due to higher medical claims and increased insurance premiums. For the fourth quarter, we reported a loss of $0.51 per share. The quarter included a $19.5 million non-cash charge for our held-for-sale Court TV assets, $2.4 million in restructuring costs, and a $2.4 million loss on extinguishment of debt. These items increased the loss attributable to shareholders by $0.20 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. Now I'd like to share our four-year guidance for a few below-the-line items. For 2026, we expect to pay cash interest of between $180 and $190 million, cash taxes of $15 to $20 million, capital expenditures of $60 to $70 million, and depreciation and amortization of $140 to $150 million. We also are required to make a minimum contribution of $4.5 million to our pension plan this year. On December 31st, we had no borrowings outstanding on our revolving credit facilities. Cash and cash equivalents totaled $28 million, and net debt was $2.3 billion. Also during the quarter, we paid down $55 million on our B-2 term loan. Net leverage at year end was 4.8 times per the calculations in our credit agreement. Looking ahead to the end of 2026, I expect a meaningful reduction in our in-net leverage ratio as we execute our plan to improve EBITDA and reap the benefits of a robust midterm election cycle, our Scripps Fourth Strategy and Decree of M&A, and pay down debt. Improving the balance sheet and reducing both our debt and leverage ratio remain our highest capital allocation priorities. And now, here's Adam.