Q3 2020 E. W. Scripps Co Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Scripps third quarter earnings call. At this time all participants are in a listen only mode. And later you will have an opportunity to ask questions. If you wish to ask a question.
On today's call you May press, one and then Jeremy once again, if youd like to ask a question on today's call you May press, one and done zero. If you should require assistance during the call you May Press Star and then zero as a reminder, this conference is being recorded I.
I would now like to turn the conference over to our host head of Investor Relations Carolyn Micheli. Please go ahead.
Thank you Carolyn good morning, everyone and thank you for joining us for a discussion of the E.W. Scripps Company's financial results you can visit script dot com for more information and a link to the replay of the call.
A reminder, that our conference call and webcast include forward looking statements actual results may differ factors that may cause them to differ are outlined in our SBC filings. The COVID-19 pandemic enhances the uncertainty of forward looking statements, we make about our operations and financial condition.
I do not intend to update any forward looking statements we make today.
Well here this morning from Scripps President and CEO, Adam Sun CFO, Lisa can you then and local media President Brian Lawlor also on the call our National Media Executive Vice President, Laura Tomlin, and controller and Treasurer, Doug Lyons.
Sure that.
Good morning, everybody and thanks for joining us today scripts is delivering a third quarter financial performance that would have been nearly inconceivable six months ago.
Although our nation continues to battle significant business and economic disruption, we saw political AD revenue blow past our high expectations.
Retransmission revenue growth nearly of nearly 40%.
Core advertising rebound and national media revenue grow by double digits across.
Across our revenue lines.
We did not just need but in most cases, well exceeded expectations for third quarter setting this up to end the year with record post spin off company revenue and.
And of course, all of this revenue growth translates to much higher profit and free cash flow generation.
In fact, the dramatic turnaround in our results puts us on track to deliver 2020 free cash flow well beyond even our pre pandemic expectations. It.
It was more than a year ago after announcing a series of acquisitions to double the size of our local media portfolio that we said, we expected full year free cash flow in 2020 of between 225 and $250 million.
We expected that mark to be a significant waypoint in the path, we are traveling to make scripts, a more productive and more efficient company.
We responded that guidance last spring in the shadow of the pandemic.
So I'm very pleased to share that right now we expect to end the year, having generated more than $280 million in free cash flow.
That generates an impressive $3.42 a free cash flow per share.
Again quite an accomplishment in this economic climate.
While some of this performance is due to rebounds in the advertising marketplace. A lot of this growth is due to scripts his foresight and planning over the past few years to become stronger and more durable.
We have executed a strategy to improve the operating performance of our local media portfolio through to work streams.
First by acquiring high quality stations with significant attention to improve and expand our footprint. We set out to methodically acquired television stations in markets that helped us grow our political advertising revenue and capture our full retransmission revenue potential.
We acquired 27 stations in 2019 and have realized their value in both political advertising and our retrans rate negotiations this year.
And that second work stream powering this forward our focus on execution execution execution Super serving both our audiences and our advertisers.
That's why we have met or exceeded expectations prior to the pandemic and why we believe we're better positioned after it.
Our national media strategy to acquire and grow businesses at scale is clearly bearing fruit as well.
Today in spite of the economic recession, our National Media Division is back to expanding its margins and in fact, we'll hit a nearly 20% margin in fourth quarter approaching its margin target even faster than we had told you it would.
Against the headwinds of the pandemic economy, our performance in Twentytwenty validates these investment strategies.
To quantify that I can tell you that our 280 million or so in expected free cash flow for this year will allow us to bring about 15% of every net revenue dollar into free cash flow bottom line.
On an as reported basis that compares to 9% in 2018, a comparable political year and before we acquired the Cordillera and Tribune Nexstar divestiture stations.
Our acquisition of Ion media is another step in our systematic plan to improve the financial portfolio of the company and increase free cash flow.
Acquiring eye on creates a highly accretive transaction that also will boost scripts as revenue to more than $2.5 billion annually and more than double company EBITDA in our first full year of ownership.
As we have said, we expect to realize over $500 million in synergies mainly contractual in the next six years.
And I can now confirm that we expect free cash flow per share accretion of about 60% on a two year blended pro forma basis as.
As you can see this deal has incredible industrial logic.
Our performance is not by chance, but by design the execution of our plan comes thanks to the hard work and dedication of scripts and journalists sales teams and all of our employees, who through very difficult circumstances support our mission across the country.
To all of these employees I want to say thank you.
To sum it up record high margin political dollars grew.
Great Retrans growth and a solid core performance.
Outstanding National media revenue growth and margin expansion.
An acquisition that will give us free cash flow per share accretion of about 60%.
And cash flow that provides a clear path to paying down debt.
All in all a very good way to move into 2021.
When we said that our company would look to emerge from the chaos of 2020, a stronger business we monitor.
Now Here's Lee said to give more details on our results.
Thank you Adam and good morning, everyone, let's start by discussing third quarter local media performance. All comparison other division financial results on an adjusted combined April.
As of May 1st we have owned the Cordillera stations for a full year.
And as of September night tool, we have on the former Nexstar to build stations for a year. So the third quarter is our last quarter of adjusted combined treatment with them yes.
You can find our as reported results in today's press release.
Third quarter political advertising revenue of $96.4 million came in higher than expected, helping us to reach a record $265 million in full year 2020 political ad revenue.
It's an impressive 35% over our last record year 28 pool.
34 days of the fourth quarter election season brought in about $137 million or a bit more than half of that total as early voting took hold this year, we saw growth in third quarter political AD dollars, but certainly not at the expense of fourth quarter.
Brian will give more color in a moment on our political advertising performance.
Local media core advertising revenue was down 18% driven by the pandemic related advertising slowdown that number is 15% as we had indicated excluding the results of W.P.I.S., which luck Yankees and Mets baseball in the quarter we.
We have continued to see significant sequential improvement in core advertising and we have moved throughout the year and while we expect the fourth quarter to be down 15% from for fourth quarter at 29 pool, we expect it to be up 10% from the third quarter of this year.
Our growth in retransmission revenue came after the resolution of our six week blackout with the dish network in the third quarter, we were not paid for dish sub during that time, but we did recognize a one time catch up payment from them for the five months during which we were receiving the old contractual rate because of that one time.
Q3 payment, you'll see our Retrans revenue decline just a bit in Q4, we expect to end the year at $581 million of Retrans revenue.
In our latest reporting period Q2, we saw no real change in the radio subscriber churn from the prior quarter.
Local media expenses decreased by 1% over the year ago quarter, when you exclude the fixed programming expense there.
The division had imposed various cost savings initiatives that included merit pay freezes reductions in capital expenditures travel and marketing local media segment profit was $145 million, which is the strongest third quarter profit number ever for the division.
Now lets discuss national media with all.
That's that's your was reported as discontinued operation. The Division results no longer include picture for any period, let's get your sale closed on October 16th.
National Media Division revenue came back exceedingly well in the third quarter and $89 million up 14% year over year.
All three national business, It Kate Newsy and Triton contributed to this growth.
At Kate we felt strong spending indirect response and the scatter market. The grit network in core TV were big contributors to the 8% revenue growth that we thought Kate.
Newsy revenue grew 30% driven by ongoing strong demand for AD inventory on connected TV and LTT and.
Newsy took in $1.9 million the political in the third quarter and more than $4 million through election day at political campaigns have fallen consumers to streamone platform.
Triton revenue grew 14% in the quarter the growth with due to the growing digital audio audiences, which are reflecting the same trends, we see in television viewing as well as the shift toward automated ad buying and the digital audio marketplace.
We had expected modest national media revenue growth in the third quarter and the division exceeded our expectation looking to the fourth quarter, we expect low double digit revenue growth on higher comps for Q4 of 2019.
National Media expenses came in at $77 million up about 13% from a year ago and National Media segment profit was $12 million at the segment return to margin expansion mode.
Looking ahead, we expect to see that margin expand.
Expansion to continue and to end the fourth quarter approaching 20% margins, we've been telling you for a while that we expect national media margin to reach 20% and we are very pleased to have made so much progress during an economic recession.
This performance is an affirmation that our national media strategy is creating value and the execution and the national media marketplace recovery also bodes well for our plans as we integrate ion median next year.
Our shared services and corporate expenses were $12 million in the third quarter. We we do expect that to be closer to $16 million in Q4, that's due to the need to reflect higher blood bonus accruals as a result of free cash flow coming in at more than $280 million.
We are also on track with the previously announced $75 million in expense control and cash management measures about $54 million of the savings have been realized year to date and the other $21 million will come by year end.
We made about $4 million in dividend payments in the third quarter.
The company's Q3 income from continuing operations was 76 cents per share pretax cost for the quarter included $11 million of acquisition and related integration cost that decreased income by 10 cents per share.
Our current forecast for full year 2020 cash interest is about $82 million, a little better than we thought on our August call, mostly because of the decline in LIBOR.
Our full year capital expenditures are estimated to come in at $32 million.
On September Thirtyth, our total debt was $1.9 billion in cash totaled $129 million, we now have about $200 million available on our revolving credit facility.
Our net leverage at the end of the third quarter with five dot three time per the calculation in our credit agreement that's down from five to eight times at the end of second quarter. We expect to end. This year at four <unk> two times the lower leverage reflects proceeds from the sale of pitcher and political advertising revenue.
For the full year, we expect our company free cash flow to exceed $280 million. We are very pleased to be delivering well above the range. We set back in 2019 of $225 million to $250 million.
Finally, we are well on our way in the process of acquiring eye on we have made our FCC filing and have already received Hart Scott Rodino clearance. We also have begun communication with leadership and employees and they are enthusiastic about joining the company with such a well respected media brand.
We still expect the transaction to close in the first quarter of next year.
Significantly higher free cash flow, we will generate when combined with an eye on will allow us to move swiftly toward paying down debt. As we have told you our top capital allocation priority is to work towards having a flexible balance sheet and now here is Brian.
Thanks, Lisa good morning, everybody.
This week, we completed an unprecedented presidential election season.
At the beginning of this year, we told you we expected our political AD revenue to come in at less than $200 million.
Today, we are over delivering on that by about $65 million. This.
This year, the competitiveness of our races aligned well for the Scripps footprint and our political sales and traffic operations teams maximized the opportunity for an incredible political advertising year.
You are a few of the things that went our way in the election landscape.
Number one Joe Biden secured the Democratic nomination in May the two presidential candidates were decided a full two months earlier than 2016 kicking off the general election spending that much sooner.
Guidance candidacy also broaden the swing state Matt.
Number two the pandemic significantly reduce the ground gave for candidates, forcing them to spend more on television to reach local voters.
Number three Scripps footprint consent of races became even more competitive than we originally anticipated.
In states, like Arizona, and Colorado, Michigan, Kansas, Iowa, and especially Montana, well one of the sounded candidates didnt even come into the race until April.
And number four the nation saw unparallel level unparalleled political action committee spending, which at Scripps accounted for a full half of our political dollars.
In addition to these external factors scripts was well positioned to capture more than its fair share of dollars over a decade ago, we broke from the industry and created our own political sales office, which remains a unique competitive advantage. We have built a reputation as experts on placing political ad buys.
Also on our station acquisition strategy that.
That included finding markets with strong political opportunity nowhere is that better demonstrated than in Montana, where our highly ranked stations captured the vast majority of the many dollars spent on competitive Senate and governor races. There.
The amount of political advertising revenue a station group received is all about how its nation footprint alliance with the most contested races that year.
This year, we had many hotly contested races on our political sales strategy has helped us make the most of them.
At the same time, the pull of political dollars nationwide is growing tremendously and local broadcast is taking an even larger share.
In 2016 3 billion a political dollars was raised and spent in 2018. It was $5 billion. This year it was more than $8 billion.
In 2016 estimates were that local broadcast television took 45% of that total.
This year it looks like we took more than 50% of the larger than that.
Thats completely to the contrary of the pundits views that 2016 had reshape political spending away from local broadcast.
And we have some good news for you Scripps is well positioned to have another fantastic footprint and political for the 2022 election cycle.
Turning to core advertising revenue, we were pleased to fully meet our third quarter expectations, we didn't see significant displacement in some markets, but very well when others big.
Because the pandemic economy had driven down advertising, we had more inventory.
And the new inventory on our over the top programs also helped us mitigate displacement.
Two significant contract contributors to meeting our expectations encore, where our ongoing efforts to developing new businesses as television advertisers and demand for our over the top capex and we're seeing strong growth with our odisi products as local advertisers look for ways to reach streaming audiences in their market.
Yes.
I'd like to end by acknowledging the work of our local journalists their work makes our strong sales performance possible.
During the third quarter Scripps stations received the number of prestigious Journalism Awards Capex via our NBC station in Phoenix was once again the winner by National Emmy Award for its outstanding investigative work.
Capex. We also was one of six stations in scripts to earn a national Edward R. Murrow Award.
Kmgh or ABC station in Denver, one overall excellence and the large market category and Wtvr enrichment, one that same award in the small market category and for other stations were recognized for specific projects.
These awards are a testament to scripts commitment to journalism minutes communities and so the quality of our people.
And it's been a contentious and sometimes scary year for reporters and photographers in the field.
They have covered social justice protest so.
Total unrest and election events, which anger occasionally turned toward them.
Our news teams have worked hard to provide objective reports and help voters stay informed.
Weve expanded news programming dedicated chose to political coverage and fact check political ads display.
Despite the challenges we remain focused on forming our audiences.
And now operator, we are ready for questions.
Thank you, ladies and gentlemen, if you wish to ask a question on today's call you May press, one and then zero on your phone.
We are using a speakerphone, please pick up the handset before pressing the numbers.
Once again, if you do have a question on today's call you May press, one and then zero at this time.
Our first question comes from Kyle Evans from Stephens.
His line is open. Please go ahead.
Hi.
Right.
Spectacular.
What kind of visibility do you have into.
Third quarter results and our fourth quarter outlook.
Today.
Hey, Kyle it's Lisa.
We have a little bit of visibility and we're seeing the same trends that we're seeing in the national and our national defense.
Division in terms of strong demand in third and fourth quarter.
By strong.
Should I take your can I take the capex number and use that as a proxy for.
Yes.
I didn't necessarily say that.
[laughter] so.
Yes, exactly we did as I said strong D.R.
It's the national market takes places.
Robustness and durability is definitely flowing through the item.
Great.
And maybe some.
Intra quarter granularity on.
Across the core.
You saw in October and November spacing.
Yes, Hey, Kyle Abhi.
Obviously massive displacement in October.
No 101.
$37 million and five.
Five weeks is a heck of a lot of money so kind of throw October out the window, we had some markets where displacement as high as 50%.
So you know.
Peeling that back you start looking at November I can tell you autos, having its best month since February sorry.
Service, which is our number.
Number one category represents more than 30% of our total is up mid single digits in November.
Private versus prior year home improvement a little bit smaller, but another growing category is also up mid single.
So I think the categories that we can control, especially with our new business our.
Our strong I think as we see it it's still early there's a lot of points to be written and fourth quarter bar, our expectation as the core will and Q4 down probably somewhere in the mid teens.
Could you bracket novembers that is that right.
Yes, I think its brave wrongly, but three days from the election.
Election, we displaced a lot over the last five weeks in order to maximize that so.
We're working hard to get.
Business back as I foreshadowed there we've got a couple of categories that are really strong obviously november's rolling up to a better number than we've seen in.
The last couple of months.
Yes, I'll, just I'll take that into.
Q3 core.
Like others have reported we saw improvement through the quarter from the beginning of the quarter to the D. and we saw that in.
July started about down 19 September finished minus 14, but when you consider that we did $52 million on political in September for it to have actually continue that growth.
I think it really speaks to the health that we're seeing in core as we.
Continuing to build from.
April.
Well I have you.
We checked through the Retrans.
Renewal cycles for subs and networks and then maybe some high level commentary on.
Long term outlook for returns.
Yes, let me let me take the networks, it's a little more complicated with the Retrans subs because were waiting to see picks closes and so I, probably rather wait until February because with that intertwined it gets a little bit messy.
Relative to our networks, we have to maybe see station small ones Tallahassee and.
[music].
Lafayette, that's up at the end of this year, but beyond that.
Our mbcs are up at the end the 21 and then our CBS.
Fox and NBC are all up in the middle or the end of 22.
Hey, Kyle it's Adam I can give you just maybe a little bit of a commentary on your question around net retrans growth. We this year, we completed 42% of our pay TV households that that's after Comcast renewed on December 31st and that is driving us to more than 30% gross.
Retrans revenue growth over 2019 on a same station basis. So of course that growth is certainly driving net retrans margin expansion.
And I would I guess I would I would sort of point out that the successful renewal of these contracts and that revenue growth and margin expansion is really affirmation or validation of our acquisition thesis last year. When we picked up 27 television stations to expand our footprint, making us a stronger company and I expect we'll be able to share more on on.
Timing of things next year.
I hate to belabor the point, but there's there's one of your peers mentioned kind of down net retrans next year in it.
A lot of Investor concern can you can you.
Can you say, whether or not you think net retrans will grow and 21.
I think I think as a result of as a result of some timing things weve, we'd rather actually hold off until we are able to share with you some of the timing related as Brian risk.
Responded on on picks.
And then we will be able to share some of that information. Okay. I will now although I will tell you given the given the.
Given the.
The timing of our network contracts I don't know that whatever they shared is a indas.
Industry wide phenomenon.
Fair enough Ive got questions from orbit I'll get back in queue.
If everybody else.
You started to mention political 22, I cringe I'm not ready for ready to talk about any political right now.
I'm ready for GAAP I know you [laughter], we've got a we've got a great footprint. So I'm excited again.
Congrats thanks for taking my questions.
Our next question comes from Michael Kupinski from Nuvo capital markets. Your line is open. Please go ahead.
Thank you and congratulations on your quarter.
I just have a couple of quick questions. Brian I don't know that you in your commentary could you talk a little bit about December and what the core it looks like given the fact that we don't have.
The noise of the political in the in that Mark I was wondering if you could just give us some thoughts about how how that's shaping up.
Hey, Mike did you ask about December.
December yes, yeah.
You heard my comments about November it's just really early on December.
Typically from this point through the end of the month.
We will add a lot of dollars on a lot of points.
Yes look decembers pacing much better than third quarter.
Right now, it's a little bit behind November, but thats, not atypical I think especially into share people are booking week to week and month to month. So I'm expecting that you know the sequential growth that we've been talking about all year continues for the quarter, but quite.
Quite frankly at this point, it's still early there's a lot of business to right.
Okay, and then how much was the one time cash payment in the quarter.
And is that in the Retrans number.
Yes, so Mike it's Lisa we're not we really can't.
Say, what that onetime payment is that.
You know obviously.
Related to rate. So we hope we'll have to remain silent on it.
Okay, but that but but thats reflected in the third quarter Retrans number right.
Correct.
Okay and then.
Just looking at Newsy I mean, obviously, it's great that they had political it was that the first time that that newsy really started to see political revenue in.
I I was surprised to see how strong that was.
Hey, Mike, It's Laura and.
No, we really kind of blown away our EPS expectations on political revenue as it relates to New Jersey. This year, we saw very little previously I think Lisa mentioned.
Our year to date about 4 million, but if you think about where consumers are spending their time in growth then connected TV viewing has just been exploding and we've been there for a long time and I think what happened. This year is political campaigns really saw the opportunity to get their messaging in front in front of some of these TARP.
Targeted voters in we're targeting capability I think thats going to bring more and more dollars into that space and how we're positioned well, especially as we move forward.
Great and are you looking at expanding more distribution for newsy at this point with that looking like.
Add distribution, both on cable and LTT, we continue to expand on over the top where sort of near 40 million pay TV subscribers. That's been a stable this year.
So I think as we move forward, we will continue to look at expanding in the market places, where we're seeing a lot of growth in right now that MTT.
And in terms of our political you Didnt really see anything and then your other national businesses right I mean items in terms of cash very very.
Very minimal at the case networks really political revenue for the division came mostly.
From New Jersey.
Okay, Great all right. That's all I have thank you.
Our next question comes from the line of John Janedis from Wolfe Research. Your line is open. Please go ahead.
Thanks, Good morning, I had one for Adam one for Brian Adam can you talk a little more about national media awareness cage in its growth cycle, you're run rating about 250 million in revenue and I was wondering.
That's still a multiyear opportunity given how much it's grown since the acquisition and I guess, that's the same about Newsy and then Brian in the market share again commentary was helpful. Given the narrative in the market. So can you give some more detail on where you are taking share from thanks.
Good morning, John Yeah, I mean, I absolutely think.
It's still early days and the growth cycle at the National networks, Capex and then when we combine it with ion certainly.
And lot of that has to do with marketplace growth and sales execution.
When we when we acquired the Capex networks, I think nobody sort of understood that these networks were poised to begin to take real ratings points out of the audience Mark out of the audience marketplace and share and then of course following that we'll share out of the national advertising marketplace and that's exactly what we're seeing now.
Especially as consumers spend more of their time in Ascs volleyed environments.
Brand managers marketers plan or is recognize that for them with their brands to reach large mass audiences. They will need to actually reach them through linear broadcast over the air television.
And this company will be poised to own you know said.
Seven networks at the end of a at the end of that that the acquisition with respect to the audience shares. So we're very bullish on the opportunity.
And John I'll take your second when I was talking about.
Local broadcast capturing share I was referring to the political.
I assume that's where your question is that and I think there were a couple of things. This year I think the fact that there was a limited ground game further candidates meant that they.
Used more money on advertising than they would have maybe on signs and.
Campaign.
Headquarters in cities and things like that but then I think from radio and Billboard also I think the pandemic has had an effect on.
People's Lifestyles people you know the two biggest dayparts and radio or morning drive an afternoon drive yet there is a whole lot of people who are working from home and are missed by that opportunity same thing for Billboard those less people out commuting on highways and so I think dollars that.
Would have been allocated there.
We were able to come to local the other thing is I think its just important in my comments that it started earlier for us and so we were able to mold move dollars earlier in the cycle.
And so typically last five or six weeks, there's only so much you can take but the earlier you can bring dollars, that's where we have more inventory and more opportunity and that with the early voting this year and the fact that we knew who some of the candidates were earlier allowed us to pull dollars forward in the cycle.
Thanks, and maybe one last related question you spoke to APAC being about half of the total money what would that have been in 16 or 18, just as a reminder.
Probably around the same share about 45% to 50% of the numbers just obviously on a smaller base.
Got it alright, great. Thank you.
Our next question comes from the line of Craig Huber from Huber Research Partners. Your line is open. Please go ahead.
Thank you just some housekeeping questions here.
The Retrans subs brought in a pro forma basis down say, 5% or so year over year.
Craig the rate of our Q twos.
And again Thats.
Our catch up.
It was basically unchanged from Q1, so in about the mid 2% and really.
Right on track with our seasonal estimates for Q2.
I thought.
Three months ago in your Guys' conference call you were talking about.
Down about 6% year over year net okay, yes that would have been that can I just shared with you kind of a quarter.
Craig on a year over year basis, I think were in line with our peers little bit less than 7%.
Over the 12 month rolling a.
A little bit better than seven you said.
Yes, less than 7%, okay, so six or seven okay. Okay appreciate that Brian.
Brian Your TV stations on a pro forma basis. The AD revenue should I assume that the local piece of AD revenue pro forma was.
Materially worse, the national how would you sort of bracket that.
In the quarter, we just finished.
No I don't think you should.
Make that assumption actually local performed slightly better than national on a pro forma basis.
Okay.
It's good to hear.
And then and again I think you know we've spoken on prior conference calls, but our commitment to new business I made I talked about this in the prepared remarks to our commitment to new business and I think were really a leader in the OTSG space right now is bringing new dollars and creating new revenue streams in local space and I think that's one of the reasons.
Why our local performance is outpacing our national performance.
And then on the National media side, the 20% more friction goal should I assume that you're thinking like that's like three years out for all your thinking.
Hey, Chris.
We we think will approach 20% for this year. So I think you're not we're not thinking three years out and I.
I think its.
If things go well for the quarter as they've been going I think you could see it approaching 20% by year end of fourth quarter by this year for the margin you're talking about us from Claire.
Yes margin.
And then.
As you think out beyond that obviously I assume you think this meaningful margin upside beyond that put aside the on acquisition stuff, which is a three legacy properties. They have in their right. Now do you think will be driving margins longer term.
Yeah, I mean, I think all are contributing certainly tightening has hired high margin.
When we bought Triton, we were attracted to their high high margins, Kate and continuous margin expansion, especially as core TV just launched last year. It seems like forever ago, but it was really just last year and so we're continuing to see and Weve got some really great high profile Court cases coming up and then finally you saw.
The impressive growth that movie had in the third quarter, 30% growth in the year of the pandemic in a global global pandemic in a recession. So I think we're going to continue to see us hitting on all cylinders that certainly.
Those are the main drivers of margin expansion.
And then my final question on the financial side of things, what sort of long term net debt to EBITDA.
Target ratio you guys.
Looking to get down to.
Well, Craig Yeah long term it would be in the mid threes and I think we have and we have been consistent.
The thing that we're committed to having a strong flexible balance sheet and we would see somewhere in the mid threes.
As a good place to be.
Great. Thank you.
And ladies and gentlemen, if you wish to ask a question on today's call you May press, one and then zero at this time.
Again to ask a question on the call you May press, one and then zero.
At this time, we have no further questions in queue.
So my apologies, we do have the line of Dan.
Lindsay from benchmark come Funny. Your line is open. Please go ahead.
Hi, Thanks, Good morning, Hi, Dan, Yes, it's okay, and we were I think I was Kronos and we still have janedis today as well so [laughter], we're on a roll so far.
We know yet.
I don't know if that's a good or a bad thing.
So so just one quick question going back either Brian or Adam.
Just on the Retrans, just I know highlights a bunch of questions around this I just want to get a sense in just terms of expectations on a go forward we've heard some more positive commentary.
I think just around the potential for maybe charter to post another quarter of positive subs in Q4. So just any any view you have on.
On that and then Adam I want to ask you maybe Laura at pretty high level connected TV question that I think is important.
Yeah, I mean on the sub counts I would just look to what the NVS and the operators are reporting now remember that we report.
A month or a quarter in arrears and so we've been pretty pleased with their the stability that there that they're showing I mean, I think it's I think it's a it's certainly an expression of stability in the in the sub marketplace. It appears like its returning to about what it was pre pandemic, which I think is good to see.
Okay. That's helpful. And then really good color on on margin guidance, obviously way ahead of expectations on national.
As much as I'd love to talk about the fact that kind of the legacy core broadcast business is just continued to file the gloom and Doom expectations. There is an inordinate amount of focus on connected TV and I think you guys are uniquely positioned to kind of answer. This question I think Laura started to touch on this a little bit and we have been having some conversation.
Runs around this the converts the concept of more targeted marketing the ability to effectively do dynamic AD insertion split.
Split you know within a debt DNA kind of the ads and Thats, obviously, a lot easier to do on connected TV, so with that backdrop to the extent that you.
You can share you know how much of the business now is from connected TV, how much is it that growing and how much.
Are you guys seeing in terms of at least sort of an economic and delta between maybe a legacy solvent and what we would consider a connected TV. So thats, who you to or any of the other methods I think would be really helpful to outline the growth trajectory going forward.
Hey, Dan I'll take.
The first part and then I'll turn to Adam, but you know when you think about just the growth in connected TV viewers across all of our platforms that includes local you now can.
Connected TV is about scale and we are well positioned to grow our scale across the enterprise really all of new the.
Significant growth and re growth is coming from that space.
We're seeing more of that in local on I think as we move forward from an enterprise perspective.
We'll be able to add.
Capitalize on the fact that we've been in these marketplaces for a while we understand that we understand them. We know how the technology works and I expect that we'll see a lot of upside moving forward, but.
Talk a little bit about.
Sort of legacy Samson and.
Connected TV sets.
Yeah, I mean, I guess I would I would also just add there is incredible opportunity with connected TV as we move forward frankly, even in the linear space.
Whether you think about the transition in the industry and our company is making with FC Threed auto and the move.
Towards the earliest stages of advanced advertising, which is the dynamic AD insertion that you referenced we're very bullish on the opportunity ahead, it's still early but work we're doing with things like project or are beginning to validate the thesis that there will be a time when we will be able to use the AD tech stack that we.
Developed to improve yields both in our local and national media portfolios through both connected TV and OTI as well as through HCFC Threed, our though enabled linear television now that's a little farther off but I think thats, where the business is going in the future and I.
And that will portend to a significant economic opportunity.
To to maintain and improve yields yield and cpms a little bit further down the road does that make sense.
Yes, I mean, that's kind of what I'm getting at and then I don't want to belabor. The point here on something that I know is still relatively small but.
Everyone is making the assumption and I was referring to linear as well that we're moving towards kind of a streaming ecosystem right and everybody starts moving towards the NBP ease over the next 10 years and we all know HSC is still a ways out but you guys. Given your portfolio in the tech stack I think have an interesting opportunity.
Whether it's partnerships with leading you to and working through our trade desk or other third party I know you've got your own tech stack, but to.
The kind of migrate or carve out inventory on connected to already improved yield and sort of positioning ourselves well for future growth and I don't think people are thinking into their numbers I was just curious how you're thinking about that understanding that its really early days.
Yes, I mean, that's exactly how we're thinking about it actually well, while we focus a lot on news you journalism mission. It should be said that newsy is regarded in the otcs space as a leader in the dynamic AD insertion and technology that that's that's really what I think help you know.
Bring about.
Political revenue that you saw it's about the ability to target down to demographics psychographics and certainly geographies, we always said that all politics and political AD spending as local and so how do you how do you develop $4 million $5 million of political in one quarter for a national brand.
You do so through dynamic AD insertion and we expect that we'll be able to take the the technology that we've developed and that has proven to power newsy is tremendous growth in the OTI few space and bring it to linear television for sure I mean, that's the way the business is going I think that will differentiate us. So when you sort of think about.
Some of the opportunity with Scripps around both local and national a little further out we expect our national television networks business to be able to yield benefits as a result of laying this technology on AD sales and we certainly expect it to come to the local side our local me.
Media Division hasn't made a huge deal out of OTSG publicly, but we have really advanced the ball on generating new audiences and new impressions monetizing those impressions in the local media space and when Brian talks about OTI, providing opportunity both for our advertisers during political to.
To go to and for our political dollars that's exactly what he's talking about every single one of our brands has strong audiences in the OTSG space right. Now we also have a multitude of advertising solutions that we bring to the marketplace. Newsy is an example of that every one of our local local salespeople has.
The ability to sell not only the local inventory, but also newsy inventory along with partner inventory to create what we what we believe to be a significant opportunity at the end of the day, our advertisers know television is television and what they want is to make sure. Their ads are reaching the right audiences and we're now able to deliver.
Those ad to the right audiences through over the year linear television through our partnerships with virtual Mpvs and some dynamic AD insertion, we do there through connected television and through our own OTI apps and that's the direction. This business is moving on.
Okay. That's super helpful. Adam I think you just really helps frame up maybe as much better core store in people are thinking on a go forward I appreciate all the color there.
Hi, good morning.
Our next question comes from the line of Steven Cahall from Wells Fargo. Your line is open. Please go ahead.
Thanks.
At least I was hoping I could pin you down a little bit on the pro forma free cash flow accretion of 60%. So you're doing around 280. This year I think a lot of us had you're doing around 100 for next year. So call. It a 140 blend is that a good basis for us to use to think about that 60% accretion, which would get to maybe something like two.
25 million on a pro forma basis, and that's a that's a pretty attractive free cash flow yield.
Hey, Steven Thanks for the question, yes, so the.
The 280 this year.
Obviously on.
I think.
Did you say, it's somewhere near a 100 next year did I hear yeah, that's kind of where consensus is yeah around 100.
Yeah, I would say that in the ballpark.
Okay, Yeah, Great and then I was also wondering if we could just get an update on how keeps an eye on viewership is performing lately I think there's a lot of focus on the AD revenue, but most of US think that you know revenue maybe isn't the best judge of viewership and that the market is going to recover here. So as we think about just the viewership trends on those two network.
And the ability to put those two networks together from an AD sales perspective.
How should we think about the combined viewership trends there. Thanks.
Okay.
Hey, Stephen it's Brian I can just speak to the cage networks a little bit.
Obviously court he had some challenges in the third quarter and that there were no live trials, but we did develop a new live primetime show each night and that viewership was up 120% year to year and so we.
We saw it now that its further deployed we saw a lot of engagement there just bounces up 5% and households, compared to Q3 of 19.
We had a bunch of original programming John Lewis Special the documentary with Michael Jackson that was multiple parts. Some original movies there.
It was up 6% in prime time, 5% and households over prior year.
A big shift in laugh when we launched how I met your mother, which premiered labor day weekend big audience growth there, but we saw the median age dropped six years to 49 years old. So you're seeing continued growth on each of our our networks and Adam maybe I'll turn it over to you were for.
A comment on long island.
You are on mute.
You would think we would know by now.
We expect ions audience to really perform in the same way we've seen in the national marketplace.
Yeah on continues to be a leader as we have said before it's the fifth ranked television network.
By audience I think that's surprised a lot of people and it delivers with with incredible consistency.
Ratings that.
That come from its programming strategy and the really popular.
Crime and injustice genre.
On a on a go forward basis I would tell you with respect to the comments about how these things will will perform coming together, we've described $500 million in synergies those synergies are contractual synergies, mostly in the expense side, having to do with distribution I do believe there will be.
Upside when we bring these businesses together and begin to bundle AD sales. So the the case networks have long moved into the national advertising market as a bundled approach, but one of the things that I on hasn't been able to do because it's essentially a single network has been able to take advantage of participation in bundling you.
And see what happens in the cable and the National broadcast network marketplace. When they go to the marketplace with solutions that allow them to take greater share.
All in all and I expect us to be able to benefit from that the other thing I would say is we placed a huge emphasis advocates networks on managing yield and pricing relative to both our use of direct response and the careful use of.
Both the upfront and the scatter markets in order to maximize.
Advertising Guild, and maximize Cpms and so when we think about bringing some of that to eye on.
That's an incredible business thats done very very well, but we expect there is still opportunity and growth ahead. When we bring these businesses together in the national advertising marketplace for sure.
Thanks, Vincent yet you asked about audience I just wanted to mention that.
Something pretty material yesterday for core TV the judge in May George Floyd.
Case in Minneapolis wrote the order, allowing cameras in the court room for that trial, so that will be a big events, obviously for quarter to date.
Great. Thank you for that update.
And at this time there are no further questions in queue.
Thank you Carol and thanks to everyone for joining us today have a good day.
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