Q4 2020 E. W. Scripps Co Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Scripps earnings call and.
At this time all lines are in a listen only mode. Later, we will conduct a question and answer session.
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If you need assistance on the call you May press Star Zero and someone will assist you offline and as a reminder, today's conference call is being recorded.
I would now like to turn the conference over to Carolyn Micheli. Please go ahead.
Thank you Cynthia and good morning, everyone and thank you for joining us for a discussion of the E. W. Scripps Company's financial results you can visit Scripps Dot com for more information and a link to the replay of this call.
Reminder, that our conference call and webcast include forward looking statements and actual results may differ factors that may cause them to differ are outlined in our SEC filings. The COVID-19, pandemic and enhances the uncertainty and forward looking statements, we make about our operations and financial condition.
And we do not intend to update any forward looking statements we make today.
If you have not yet signed up for Scripps Virtual Investor Day next Wednesday, you can email us at I R. At Scripps Dot Com to register.
We'll hear this morning from Scripps President and CEO, Adam Simpson, our new Chief Financial Officer, Jason Combes, the president of our newest Scripps Networks Division, Lisa Knudsen and our longtime local media President Brian Lawlor.
Also on the call as controller and Dan Persky, who was recently promoted from assistant controller and has been with Scripps for 13 years.
And our former controller and Treasurer and Doug Lyons is now overseeing financial strategy and special projects now.
Now here's Adam.
Good morning, everybody and thanks for joining US today, we present, you with an E. W. Scripps company that has significantly evolved over the last few months, we are exiting the digital audio business to fantastic returns and we have acquired ion and combined it with newsy and the capes networks to assemble a powerful new national.
<unk> networks business.
A day Scripps is a full scale television company and the largest holder of broadcast spectrum and the United States.
Our local station group reaches one and for U S television households across the nation to deliver local news and programming over the air on pay television and an internet based platforms.
Our new National networks business Scripps networks reaches nearly every American through free broadcast television on pay television and across a range of emerging television platforms.
As a company, we provide our advertising customers with unparalleled audience reach and it is both broad nationally and deep locally.
More about why I say unparalleled audience reach and a moment.
By now I think our track record supports me when I tell you we are dedicated as much to our near term operating performance as to our longer term value creation.
And the strategic moves we have made over the last few years will know they already are paying off for our shareholders.
The transformation of our company is about so much more than next quarters performance, because we will be exceptionally positioned for the future of television as.
As we often tell you Scripps has always been about anticipating and capitalizing on the evolving habits of media consumers and today, we're poised to do it again profiting from the disruption and television.
Practically every month, a new day to see subscription service launches and Theyre all battling each other out for a finite share of the American consumers wallet.
At this point many Americans are paying as much for broadband and multiple subscription services as they were when they complained about their pay television bills.
And it is and this S bot Malay that investors will come to see the power of the Scripps opportunity a significant leadership and free television.
Because television consumers, whether they subscribe to cable or not are picking and choosing for themselves and more and more often theyre combining subscription streaming services with free television delivered over the air.
As we also recognized by now television consumers have taken control of their own bundles.
And the future isn't a question of pay television or streaming television or over the air the future of television is a combination of all three.
Our local and national television brands reach consumers and all of these places with a quality entertainment and fact based news programming they're seeking.
And of course that means we're also delivering the eyeballs that advertisers are looking for.
While time spent watching cable for the key demos is way down the advertising impressions per free television are way up and we expect that growth to continue as the marketplace develops.
We bought a great business and ion and combining it with capes and Newsy gives all southern networks, new new growth levers, both immediately and over the longer term as we harness the scale of our networks together to grow audience and national advertising share.
To quantify the immediate growth I can tell you we have significantly raised our expectations for free cash flow per share accretion. We now believe we will exceed our previously provided 'twenty and 'twenty 'twenty 'twenty, one free cash flow per share accretion estimate of more than 60 per cent. Instead, we now expect.
This transaction to yield free cash flow per share accretion of about 75 per cent.
Our new Scripps networks, President Lisa Knutson will talk more about the networks growth levers in a moment.
While we are already creating value in 'twenty and 'twenty, one and focus on our growth opportunities beyond I have to take a few minutes to recognize our 'twenty and 'twenty financial performance, which exceeded even the expectations, we laid out to you and November.
Scripps ended the year by delivering free cash flow debt was about 30% higher than the estimates we put out for 'twenty and 'twenty before the pandemic began.
We rescinded that guidance last March when Covid hit the country. So I think you'll agree our performance was remarkable given the economy last year.
Exceeding revenue expectations across the board translated to higher profitability and cash flow much higher even than the $280 million estimate I gave you on November six when we had already accounted for our full political year.
I'm very pleased to share that we ended the year, having generated $310 million and free cash flow.
This performance will translate to about 17% of every net revenue dollar dropping to the free cash flow bottomline.
On an as reported basis that compares to 9% and 2018, a comparable political year and before we acquired the Cordillera and Tribune and Nexstar divestiture stations.
We were able to deliver higher free cash flow than anticipated even after accounting for the heavy political spending because of the additional strong revenue and profitability of the national businesses better than expected local core advertising and prudent expense management across the company.
You'll hear and much more from US next Wednesday morning at our Investor presentation about our near term strategies and the value we are already creating from our national networks business.
The success and perpetuation of this company would not have been possible without the longtime steady stewardship of rich Bailey, who announced last week he would not running for reelection to our board rich.
Rich has played an integral role and the milestones of our companies since we went public and 1988.
E partnered with former Scripps networks Interactive C E O Ken Lowe to develop the idea of putting home renovation on television with H D T V and.
And from their lifestyle networks became and entertainment phenomenon that has created tremendous value, including for many of you.
Rich led this company through the sale of its newspapers and the expansion of its local broadcast holdings the acquisition of Kate and the entry into digital audio among many other transactions Richard My mentor and my close friend and I am privileged to have learned from his wise counsel and his entrepreneurial spirit.
Finally, I'd like to welcome Jason Combes to his new role as Chief Financial Officer. Most of you know Jason because he has been a close partner to Lisa as head of financial planning and analysis for Scripps.
And I'm confident and Jason will take forward Scripps is conservative balance sheet approach as we look to pay down debt, we assumed to fund the company's recent transformation.
Now here is Jason to discuss our strong 'twenty and 'twenty results.
Thanks, very much for that Adam and good morning, everyone.
I'd like to start our discussion of Scripps fourth quarter and year end 2000, and 'twenty results with our local media Division. This morning, we released tables at the end of the earnings release, giving a look at local media for the full year of 2019 and quarterly periods of 'twenty and 'twenty as though we had not owned W. P. I X and New York for those periods the sale of W. P. I X <unk>.
On December 32020, so my comparisons will be on that adjusted basis using those results for both periods.
And just a reminder, that the third quarter was our last quarter of adjusted combined treatment for the quarterly REIT and Nexstar Tribune station acquisitions.
You can find our as reported results in today's press release.
Political advertising revenue ended the quarter at $137 million and we finished the full year at a record $265 million again without the W. P. I X results.
We're now looking ahead to a few off cycle elections, this year and another very big year for 'twenty and 'twenty two midterms.
Local media core advertising revenue was $170 million and the fourth quarter.
That represents only an 8% decline from the fourth quarter of 2019 and was much better than our expectations of down mid teens.
We did see significant core displacement from political ads from October one and November 3rd.
But after election day, we saw core climbing back and we've had and acceleration of momentum since the start of the year.
For the first quarter of the year, our best view right now is that core will be about flat from the first quarter of 2020 on an adjusted combined basis.
Turning to local media retransmission revenue, we were up 38% and Q4.
If you factor out subs for W. P I X and New York, we renewed 50% of our pay TV households during 2020.
Brian will give you more color on our new subscriber renewal schedule, excluding picks and a few minutes.
We did not have any renewals in the fourth quarter and ended the year as we had expected at $579 million up 31% excluding W. P I X.
And our latest reporting period Q3, we saw just about 1% subscriber churn from the prior quarter.
Looking ahead to 2021 retransmission revenue a reminder, only 4% of our of our households renew this year.
For the first half of the year, we expect retrans to be up about 10% then flattish in the back half of the year as we annualize the 2020 renewal schedule.
Local media expenses increased by only 1% over the year ago quarter, excluding contractual programming cost and higher incentive comp based on a greater financial performance.
And when the pandemic began the division and post cost savings initiatives, including Merit Precis Merit pay freezes and reductions in capital expenditures travel and marketing.
Local media segment profit was $202 million, which is the strongest fourth quarter profit number ever for this division.
And finished the year at another record $445 million of segment profit.
Now, let's discuss the results of our former National Media Division. These results include the Cage networks, Newsy, Triton and our other national businesses.
Stitcher was sold on October 16th and is classified as discontinued operations. So the fourth quarter and full year Division results do not include stitcher for any period.
National Media Division revenue once again exceeded all expectations for the fourth quarter.
As cage and Newsy capitalize on the resilience of the National AD marketplace, and especially strong direct response advertising.
Triton also outpaced our expectations and Q4 up 26%.
Fourth quarter revenue for the division was up an impressive 28% to $117 million as each business delivered double digit revenue growth.
National Media expenses for the fourth quarter were $95 million up 19% from the same quarter, a year ago, mostly tied to our revenue growth.
So national Media delivered Q4 segment profit of nearly $23 million and margin growth of six percentage points over Q4 of 2019. This is impressive margin expansion in any year and especially in 2020.
We announced the sale of Triton on February 17th to eye Heart media for $230 million, which wrapped and which reflects a 1.6 times cash on cash return.
We expect the sale to close early in the second quarter.
We were very pleased with the performance of Triton, which was always accretive to our divisions margins.
That would be the last time, we talk about the results in the former National Media Division.
In today's earnings release tables. In addition to the local media Division adjusted combined tables, you will find tables with illustrative result of the new Scripps networks Division for 2019, and 2020 as though the division had been formed on January one of 2019.
The new division results roll up our national networks business, which.
Which includes ion bounce grit laughs core television core television mystery and Newsy.
Advertising for these networks will be sold together and many of their support functions have been centralized to create efficiency.
And they will be operated as one business and so we will report them as such you.
You can expect our financial reporting on that division to largely reflects the format of the tables today.
Looking ahead to the Scripps networks revenue for the first quarter of 2021, we express and expect revenue to be flat to down low single digits from the adjusted combined results, we shared and Q1 of 'twenty or share for Q1 of 'twenty and 'twenty.
In addition to the local media Division and the Scripps Networks Division, We will continue to report and other segment, which includes the Scripps National spelling Bee, The Scripps, Washington Bureau, and several other small businesses.
Trade and will also be reported in that segment until a sale is complete.
Turning to shared services and corporate expenses, they were $17 million and the fourth quarter during the quarter, we had higher bonus accruals as a result of free cash flow coming in so far ahead of our projections at $310 million.
We achieved our previously announced $75 million and companywide expense controls and cash management measures for 2020.
The company's Q4 income from continuing operations was $1 35 per share the.
The quarter included $6 $5 million and gains from the sale of W. P. I X and also $2 6 million and acquisition and related integration cost.
Our full year 2020 interest expense was $93 million for 'twenty, one and for sorry for 2021, taking into account our debt to finance the eye and transaction, we estimate interest expense to be around $145 million.
And the cash interest outlay to be between $125 and $130 million.
Our full year capital expenditures for 2020 were $36 million, excluding repack costs and.
And we expect the acquisition of ion to increase those to between 55 and $65 million and 2021.
On December 31 hour.
Our net debt was $1 4 billion.
Which includes unrestricted cash on the balance sheet of $576 million.
Our net leverage at the end of the year was three seven times per day calculations and our credit agreements that's down from five three times at the end of the third quarter due to proceeds from the sales of Stitcher and W. P I X and political advertising revenue.
Our company's increased cash flow as we move forward paired with the proceeds from the Triton and sale will allow us to pay down more than $300 million when the Triton and sale closes.
And next Wednesday during our Investor Day presentation, we will talk more about the revenue growth drivers that are already underway and how were increased profitability will allow us to delever quickly.
And this often told you and I will firmly reiterate that our top capital allocation priorities and to achieve a strong flexible balance sheet and now here's Lisa to talk about the Scripps networks.
Thanks, so much Jason and good morning, everyone I'm thrilled to be joining you and my new capacity as president of the Scripps networks businesses.
We decided to call this newly formed division Scripps networks because.
We want it to be 100% clear that Scripps is operating at full scale National television networks business seven networks that reached nearly every American either over the air over the top or on satellite and cable.
Our networks have come together to form a fantastic business, which will provide double digit revenue growth for the next several years and efficient centralized expense structure and division margins of about 40%.
These networks deliver a collection of audience demographics that are attractive.
And that are attracting premium advertisers and driving strong AD rates, they are playing and the resilient and national AD marketplace and capitalizing on the health and growth of the direct response category as we demonstrated last year with the impressive performance of cake.
Since our close of ion and January 7th integration of these businesses has gone exceedingly well our leadership team is nearly and place with Jonathan Kate serving as Chief operating officer and head of the Entertainment network.
And at close to hiring ahead of the new used unit, which includes Newsy and court T D.
Our division and 750 employees have already and organized into new management reporting structures and launched into their new roles and we're on track to achieve the synergies for this year that we've previously identified.
The bottom line is we have now put into action and the strategies, we outlined and our acquisition announcement and you will see immediate value creation and fact the foundation of this value creation includes four key growth drivers that we are already beginning to capitalize on.
Number one is the growth and the size of the audience watching free television through digital antenna.
Recent Nielsen figures show that nearly 50 million Americans U S television households, or 40% owned and tenants and 'twenty and 'twenty that was a big jump from 29% and 2019.
And.
We here and we're here to serve them with the most popular premium programming.
Number two we will continue to expand on the platforms and which we're distributing these networks over the air over the top and on pay television.
And next we're finding ways to efficiently expand our portfolio of networks.
We have the incredible opportunity to expand our leadership share of this marketplace, because we own so much of the distribution ourself.
And number four we will continue to improve advertising yield through audience growth and better yield management, including maximizing direct response and I on this week the new Scripps networks makes its debut as a bundled business and our upfront presentations to advertisers.
We will share the story of this powerful new paths for reaching nearly every American with free quality programming for both niche and mainstream audience and.
You will hear much more about this next week next Wednesday at our Investor Day, and I think it will be clear if it's not already that bringing these networks together adds up to so much more value and they created apart I on capes and newsy are a powerful combination.
As I described a few moments ago. The Scripps networks includes two unit Entertainment and news or entertainment networks feature premium programming that audiences love with some original programming at down and familiar favorites and drama crime and comedy at the others. Our networks will continue their fact based contextual coverage.
Newsy focused.
And he is he focused on national new themes and court TV and I'm, bringing transparency to Americas criminal Justice and court system.
Finally, I hope you can see the focus and the dry this management team has and delivering on the promises.
<unk> made when we announced the I N acquisition to realize the identified the identified synergies and to drive outstanding operating results.
And now here's Brian.
Thanks, Lisa good morning, everybody and.
And 2020, the local media division generated nearly one and a half a billion dollars and revenue while closely managing our expenses leading to record segment profit.
A pretty noteworthy performance given the nation's economy last year political and.
And Retrans, both contributed to a record year and core advertising performed better than expected.
Let's dive into each of these revenue lines.
Core advertising revenue began to turnaround almost immediately after election day.
Services were up high single digits, and both November and December and home improvement was up high singles in November and nearly 20% and December.
Auto was down only low single digits in December.
And some subcategories like foreign factory showing year to year growth.
Core advertising momentum has continued as we moved through the first quarter services and home improvement remain up and auto is down only low single digits. Despite new production problems with computer chip supply.
In addition, sports betting has emerged as a material contributor within our travel and leisure category.
Category has been decimated by the pandemic impact on live sporting events concerts travel cruises and even casino attendance emergence of sports betting has helped rebound and the travel and leisure category pushing the first quarter positive compared to last year.
Sports betting and it's already legal and seven states, where Scripps home stations with more coming this year and.
States make sports betting available to their citizens. The industry is using local broadcast stations as a primary means for getting out their message.
Backing out sports betting and travel and leisure remains down about 45 per cent and we eagerly look forward to the return of live events with debt or traditionally robust top five category.
Clearly political advertising continues to be a tremendous value creator for local broadcasters and we really maximize our opportunity at Scripps with our specialized political sales office, and our strategies around maintaining and managing inventory and yield.
We also benefit from a geographic station footprint and many purple states and from the growing amount of money and the whole ecosystem.
And 2022, we expect the amount of political spending to grow beyond even the tremendous 2020 presidential election levels.
$9 billion as the new nationwide spending and Mark and Scripps expects to continue to capture more than our fair share.
Our stations will be home to 17 governors races, and 18 U S Senate races and 2022.
We also expect redistricting after the 2020 census to shakeup races, and a number of our states, including Arizona, Colorado, Florida, and Michigan, New York and Texas.
Finally, we're also coming off a great year for retransmission revenue, we renewed 42% of our pay TV households, it's 50%. If you back out W. P. I X households, and that scheduled translate into big jumps and revenue for the year.
As you know these contracts and moved through various renewal cycles, and again factoring out W. P. E X, let's say, 4% of our households, renew in 'twenty and 'twenty, one and 21% from 'twenty and 'twenty two and.
And we will have another big year, and 2023 with 75% of our households renewing.
And now operator, we're ready for questions.
Thank you and once again, if you have a question or comment you May press, one and then zero you only need to press the command once as precedent twice, where we're moving from the queue.
And our first question will go to the line of John <unk> with Wolfe and your line is open.
Oh, Thank you good morning.
And I I had a couple and maybe the first one for Adam or Lisa you talked about the advertising impressions I know, you're only a few weeks and but as you talk about the growth leverage with the networks are there any early anecdotes you can share from the sales team as they sell that larger offering.
Hey, John it's like Oh, Yeah, we were optimistic.
Optimistic and the year really continuing to build on the momentum that was in fourth quarter.
So we are both in the general market and sort of upfront and scatter market, but also and the D. R.
The Dr Space strong continued growth and really all categories, certainly and fourth quarter, we saw some and.
That was really bolstered by certainly the and health care large advertisers and health care and obviously, the Medicare spend that was happening and in fourth quarter, So where we're seeing our momentum and we're really optimistic, especially as the year belts.
Okay and John.
Let me, let me add something to that also I think important to let investors and analysts know that our early looks at island's yield and I and sales processes open up a lot of opportunity I think in many ways. We had indicated before given the GAAP between their audience size and their monetization that there would be some <unk>.
Opportunity for growth and we as we close that gap and early indications are we were right on I think bringing the networks together with our others and the bundled upfront is going to yield terrific opportunity for all of our networks and then clearly we think we can bring some of our expertise with yield.
Management, especially around direct response to improve the yield and rate at ion.
You know I think that's what I think that's what we've been saying from the beginning and our our our investigation of the business as we brought it and integrated it in I think there's definitely confirm that.
Okay, Great and then maybe Brian Thanks for the color on the categories as you start to lap the dislocation from the pandemic. What are you seeing was there anything notable that you saw call. It late February heading into March.
Hey, John its Brian just the continued momentum I think I spoke in my prepared remarks about you know the health of services the health of our home improvement that.
And that absolutely continues you know travel and leisure.
And just very.
Strong right now as a result of sports betting, but I think that's you know that and retail are the two categories that are probably the slowest to rebound although retail is having its best month in the last year and March so that one's coming back, but I think when the traditional travel and leisure accounts come back and when Rita.
When the states begin to allow more people into.
Shopping locations and so forth I think that's the one that we have a lot of optimism and as we look at you know a stimulus money getting into the hands and people. We think that advertisers are gonna be anxiously fighting for market share for those dollars and we'll be pretty aggressive in that space, but I think debt.
Yeah.
The Big story from March is continued improvement really every category fabs.
February was improvement over January and March is now an improvement over <unk>.
Both of those first two months.
And thanks a lot.
Thank you.
Our next question comes from the line of Dan <unk> with the benchmark and your line is open.
Thanks, Good morning, and nice results again guys.
So just to follow up on John's first question, Adam Lisa and at the.
The risk of you know opening myself up to the answer wait until Wednesday.
Just curious on as we get into 2021, and just how you're thinking about mix by channel and the national.
Obviously the story from case, originally was get more into and general market and obviously you've had tremendous success lately with direct response.
And just given some of the performance based Optionality. There I'm just curious if you could give us maybe some initial high level thoughts there.
And then Brian.
Brian did I hear you say, you thought political and 22 would be better than 2020.
Yeah, Dan and I did say that.
Okay, Hey, Dan.
I'll I'll I'll start with this and you're right and I know you love hearing that you will have to wait to some extent till Wednesday at which time I think we will provide them.
I think some information that will allow you to better scope the contribution of each of the difference.
Advertising categories to the networks performance, so recognizing that the networks themselves are made up of really general market.
And direct response, and OTT and each have I think growth opportunities ahead, but it's different per network and Lisa will spend.
Fair bit of time on that on Wednesday.
But certainly beats here and Youre wrong, Adam so.
Yes.
The other the other one just maybe just on Newsy just some updates on your thoughts heading into this year, obviously, there's been a huge DTC television price.
And you know Newsy has been chugging along nicely you've got strong distribution agreements in place now just kind of maybe your thoughts on scaling and sort of how profitability continues to improve from here.
Yeah, Dan and if you're you're right and again and news he had tremendous growth and 2020.
And growing about 20% really a majority of that growth came really most of the growth came from tobacco and expanded OTT advertising and so we will just continue to maximize that and I think we talked maybe and the last call about the fact that and you know we we are really the leaders and from that.
Programmatic advertising perspective, and Newsy is really capitalizing on that and say, we will continue to pull back growth driver, because we see that and definitely a big opportunity for newsy going forward and.
And we'll bring that same and platform to the other networks as we look at expanding and on the programmatic side with our other networks.
Alright awesome, Thanks, guys really appreciate it.
Thanks Peter.
Our next question comes from the line of Stephen Cahill with Wells Fargo. Your line is open.
Thanks.
Adam Thanks for that increase and free cash flow accretion related to ion and maybe first off what's driving what you know what's what's changed now that you've owned the business for a couple of months.
And does that include the Berkshire warrants and that calculation.
Hey, Steve and as Jayson So first of all to answer on the virtual yes that includes a.
The payment that will need to make.
For the Berkshire warrants the the main thing that's improving and accretion at this point is really lower interest expense and our outlook first of all we received more favorable more favorable financing rates than we had originally modeled at the outset of the deal and also the trade and sale proceeds will allow us to pay down debt and 2021 and and then also.
And the Stitcher and W. P. I X divestitures resulted us and us having more cash available at the time and the financing and thereby and financing last so all of those are kind of driving into a lower interest and stuff.
Yeah, Great and then you mentioned that you'll be the biggest zone or a broadcast spectrum you all have been on our asset monetization and care is the spectrum that you have is there any excess that you might monetize and the future or do you require all that spectrum given all the Ot E content and you have now.
Actually I think that today and not only are we the largest holder of broadcast spectrum, but I would say, we're the most efficient monetize wrote that spectrum given the operating businesses that we have leveraging that spectrum and I think Lisa described the opportunity we have.
With respect to the growth drivers among them the efficient expansion of our networks business to continue and take advantage of our leadership share position and the free television marketplace. So I would say that we are actively working on strategies to identify the best and highest use of that spectrum.
With respect to the transition to a T. A C. Three dato new day to casting possibilities, but the hurdle rate is high because we expect to continue and expand the profitability of our production over that spectrum through our operating businesses right now.
Yeah and then.
And then last one from me just the Monday and local media on any outlook for net retrans for the year.
And mundane question for local media.
And Stephen it's Brian.
Look as you know eroded and renewals last year for about half of our pay TV households, and we were pleased with the outcome of those.
As a reminder, and Comcast rates renewed at December.
December 31, a year ago, and so all of that drove 30% gross retrans revenue and 2020 over 2019 and on a same station basis.
Because we had no network renewals this year and.
And don't have any new ones until the end of next year, the cadence of rate step ups and expenses was in our favor this year.
We've not given a 'twenty 'twenty, one guidance, but I can say that the timing of margin growth is it entirely tied to the timing of our contract renewal so.
And we've got about 4% households, renewing this year, a little bit more than 20 next year.
And then the big year again, two years from now 75%. So I guess I would just say the successful renewals of these and you know our revenue growth our margin expansion, they've all kind of validated our thesis about buying 28 television stations last year and I think all of that rolled together has made us a much stronger division and company.
Yeah.
Great. Thank you.
Thank you.
Our next question comes from the line of.
Kyle Evans from Stephens.
And your line is open.
Thanks, it's clear that Scripps networks as the dominant player.
But maybe it's just some brief commentary on the competitive landscape, especially and so we saw.
Orange twist and I guess I'm wondering are we going to see a new station rollout race between you guys and then I've got some follow ups.
Yeah look I mean, I think we encourage and were pleased to see more premium content being put into the live television ecosystem.
For a long time, our networks stood alone as you know networks that we're focused on creating brands and developing programming that was you know.
More than just stuff that was on the shelf and you know I think that we're pleased to see that the marketplace will develop because that will make free television a more compelling consumer proposition overall I do think our leadership share is significant and I think the economics behind the ion acquisition and our ability to continue.
And to expand that share and to profitably operate our unparalleled and so while I certainly expect they will continue to be more development and the free television ecosystem I don't think anybody will be able to do it with the economics that we have and to start with the distribution that we're able to bring to the country right away. So I do think.
I do of course expect the marketplace are developed and I expect us to continue our leadership by a far by a far stretch at.
Lisa.
Yeah and.
Just one other thing I would mention remember in the and then our networks and the former case networks.
And the landscape in which they're competing in and you know there are only 13 of those networks that are Nielsen rated five of those networks are our network and.
And I think that's a proxy for actually people watching it and networks and us being able to monetize those networks through the eyeballs that we're selling so I think we are the dominant player and we will continue to be and you know as we move forward.
Great.
Wow.
As of January release from you guys about exceeding the 500 million and synergies maybe some detail on that please.
Yeah, I think there was a release early on and Jason can say more about the and the synergies that we did you know we hit the ground running and Kyle with and you know certainly are beginning to lock in the synergies and that we promised at the time of the acquisition thesis I think there was and.
AH released early January Jason and debt that outlines some of those.
Correct, Yeah, we had a release, which is focused on how quickly we went and being able to operationalize the head count corporate synergies.
And on and distribution side were actually you know diligently working through those synergies right now in fact, the migration of the first of our cage channels over to high and dish distribution and signal begins this weekend.
Great.
That's it and that will be and that really the first consumer facing death and delivering on our plan and that's happening over the weekend sales.
More to come.
Right.
Adam.
It was a different.
A different world.
Smaller business, but I recall that at one point and there was a lot of discussion about kind of in market and swaps and we're waiting for them.
And June maybe just your high level thoughts on.
And what that could mean for free and market activity going forward on the local side.
Sure I mean, we remain committed to continue to improve the performance of our local media portfolio I think one of the ways. We could do that is by picking up second stations by continuing to get deeper and the markets, where we already operate you know we don't break it out of course, but.
A local state to local stations and a market is much more productive than just one we just recently sort of quietly picked up a second station and Denver, and we expect that that will enhance the margin of our operation and Denver and enhance the cash flow generation there as well we've already launched news.
And on that second station and our or optimizing the programming and that's been very very efficient that was a really efficient acquisition of a second station I think we paid $9 million.
For the station and I I would expect that if the Supreme Court opens up the opportunity for broadcasters to.
To get deeper and the markets, where they already operate something that we would welcome I think you would definitely see us participate and that swapping opportunity.
Great. Thank you.
Thank you.
Our next question comes from the line of Michael Kaplinsky with Noble capital markets. Your line is open and thank.
Thank you first I want to wish rich well on his retirement and I remember when he was a report or you used to call me for quotes regarding media. So I wish him all the best.
So first Friday and can you talk about rate integrity throughout 2020, I, obviously, the pandemic had a big hit on that and I was just wondering as you kind of look yeah, I'm, just trying to give a little bit of flavor or color as we kind of cycled through the second quarter.
What what a great start and how how how have you maintained right.
Yeah I think.
Through 'twenty and 'twenty, Mike we had a.
Obviously stay fluid with how we're running the business.
And we knew that we had a big political business that was gonna back.
You know run through the back half of the year, obviously, we had to manage our lowest unit rates and.
I'll make sure that we accommodated inventory for the politicians so to some degree that gave us rate protection you know.
Early in April May June of last year.
We were scrap and for every dollar we could when we're outside of the political windows.
I think that served us well.
I think all that's behind US, we you know and following the election, good core momentum and November build on that and December now we're having.
Very strong first quarter.
Very exciting excited about the health of the quarter and as we build towards second quarter. We have a lot more optimism that the categories are going to continue and improve I think as you know and the net.
Couple of days is Washington boats on a stimulus that's going to put a lot of money into the economy and I think that has the potential to drive a lot of advertisers fighting for a share of those dollars. So I think our rates.
Currently are not impacted by what happened at the beginning of last year, we were really back to full recovery there.
Okay. So that basically rates are at 2019 levels.
I think that's probably a good way to say it.
Okay and.
How much of your network comp is variable versus fixed.
It really depends network to network and we have different arrangements with all four networks.
Collectively what would you say.
Yeah.
Yeah, I don't think we'll comment on that Okay. And then you obviously bought I E. In the midst of the pandemic and you mentioned the sales gap and can you talk about.
And and it's the operations were in line with what you bought in 'twenty and 'twenty and if not are there additional changes you're planning to make outside of the sales changes that you were talking about.
Hey, Mike, Yes, so and.
We're really creating and.
And scaled business, bringing together I M Katz and newsy, so each of them independently ran as businesses and 2020 and and starting really immediately we're operating them as one business combining sales combining everything from marketing to the back office and so to speak function around.
Creative services and research and cell, whereas each of those businesses and the paths would have had.
Had things like that you know are each individually so we really and within the first I think week announced our organizational structure and hit the ground running in terms of bringing together those businesses and you you heard in my prepared comments, what we think the the drivers of value are one of them and re.
And the yield management that Adam talked about and I talked about I think and.
Having and being ready to do a combined upfront with all of our businesses and that upfront and was a herculean task. We think it will pay dividends. This year as we're selling these businesses and you know our cross platform.
Our across our brands and so we really think that and you know where we're at.
Yeah, not losing any time to really maximize the opportunity that we see here.
Great and and going back to Bryan you indicated that off year election day advertising, you're expecting to be pretty good. This year can you give us some color on those comments and how that would compare to what you were you know would have and then you know like say 2019, I mean I.
And just trying to get some color on what that comment means.
Yeah, well I think what were are.
Our comments today indicate that we see a Q1 flat to last year I think that speaks to very strong recovery marches up.
Per the last March so and it has a lot of momentum and we think that's going to continue into.
Yeah.
Political advertising Oh, yeah, the political advertising, yeah, specifically yeah.
And that's all elections.
Or how do we feel about this fall's elections, I'm, sorry, Mike Yeah, I'm, sorry, I forget.
Yeah.
Yeah.
We are only have a governor race and Virginia. This year. So we have very little and at the statewide but we do think that there'll be some pretty good issue money that starts you know and the back half of the year. I think you know with 18 Senate races up next year, and a 50 50 and it I think youre going to see.
And.
And some early spending and the races that are considered to be tight or toss up and so we think it's going to get an early start and the back half of the year Gotcha. Okay. Thank you that's all I have thanks.
Thank you.
Our next question comes from the line of Craig Huber with Huber Research partners and your line is open.
Thank you my first question sort of a nitpick, but you guys mentioned retrans subs down 1% quarter over quarter shy and for that means down about five 6% and a year over year basis on a like for like basis.
Yeah.
Hey, Craig its Brian we're down about mid single digits over the last 12 months ending in Q3.
Do you think that was similar for the latest quarter as well.
Well no from the last quarter, we were down about 1% from Q2 to Q3.
And I'm, sorry, but just year over year for the third quarter, you're talking about.
Rather than just four quarters.
Trailing basis.
Yeah, I need to go back and look.
Okay, and Craig it's Jason Yeah. So.
And the down mid single digits comment is referring to you know the last reported four reported quarter. We have is Q3 data. So that is a from Q3 of 'twenty to Q3, and 19 and sit down mid single digits. Okay that was helpful.
Jason maybe you could just update us on this.
Your long term goal for your debt ratio what is that on a sustained basis, where you guys trying to get it down to them and maybe just to level set everybody here was where does your debt ratio right now adjusting for all the acquisitions, the acquisition and stuff and the divestitures as well please on a tutor.
Blended average basis. Please yeah. So at year end and priority I and acquisition, we were at three seven times net leverage.
At the eye and deal close were at five <unk> times, which is better than we had initially indicated when we announced the deal. We had originally thought we'd be at five three times, and obviously strong fourth quarter and the W. P I X.
Proceeds helped us to come in a little bit lower there and ultimately our you know our target leverages and the mid threes.
He is managing the company towards a clean and and flexible balance sheet has always been a top priority and certainly with you know something that's and Scripps DNA.
And the attractiveness of the iron and transaction really compelled us to put our balance sheet to work to create a higher performing and and more durable company and you know and so you know.
As I said, we're five times on a lagging a quarter basis, now and and we believe that our new cash flow outlook will allow us to move swiftly towards delevering.
Couple of quick things on an island is Io and have any significant amount of political advertising and.
My other question is I recall, you guys talking about when you maybe now and stuff that it had a 12% 10 year revenue CAGR through 2019, obviously very impressive do you expect to be able to get revenue growth back up anywhere near that level. Once we get through this pandemic and maybe even if we know if we annualize it I mean.
What's your thoughts there please.
Craig Ireland had and tiny.
Tiny amount of political revenue last year. So it was pretty insignificant remember they ion and the way that we will run and this really is that and national networks. So it doesn't necessarily play and the same.
And you know the local the local spots and Brian.
Division.
Sales and and as for revenue CAGR I think I indicated in my remarks.
Remarks that you know.
Over the next several years, we think that ions Oh.
By and networks revenue will grow around 10%, so we think that and.
And that's probably our best in class and.
And we think that that revenue growth is and you know certainly and projected.
Projected to be.
And double digit low double digit growth over the next two years.
And so you're talking about with the case and with island combined everything combined Yep, that's the entire network business Scripps networks business.
And my last question on the island and I just want to ask them are you contemplating any programming changes there going forward I know it's early.
Yeah, and you know certainly we are and are always looking at tweaking some of the programming that I am done they they've been hugely successful in fact ion and retained its fifth and that's rating and sort of a ranking in terms of the largest broadcast network last year and really and from a K a.
Perspective, viewing and would be and number three behind a couple of the news networks from last year and so we think there are tweaks that we will need to make that but essentially and the formula that I E on has been pretty successful.
My last question.
And maybe if you could just update US. Please on E. T. S C three point O.
The business model, there and how long do you think it might take to become significant to you on the revenue contribution so how many years out and you're thinking thank you.
Hey, Craig it's Adam I'll take this I think it's still fairly far out.
Given the.
The need for consumers to adopt new devices that will bring in our signals. So while today, we are aggressively continuing to efficient and efficiently transition to a $3 signal along with the rest of the industry. We are working with the C E manufacturers to take the three Dot O chip.
And move them not just from the highest and television sets, but down to television sets that you could buy at Walmart and Costco.
And and frankly also I think a big part of that equation is gonna be also new set top boxes, and dongles that consumers will be able to plug in and that will transform their television sets into <unk>. So there's some time for that to happen I think you'll see us continue to play a leadership role and that transition, but when I speak to investors.
And I'm pretty clear I think right now.
This is reid.
Three to five years out and the first effect is likely going to be on yield management and the opportunity for us to use <unk> multi variable advertising capabilities to enhance rate and to enhance yield but again. That's you know that's a little bit farther out and and I think we will continue to communicate.
And with transparency to the street as the as the transition occurs.
Great. Thank you.
Thank you.
Our next question comes from the line of Matt.
And with Baird and your line is open.
Yes, good morning, guys, Jason can I just follow up on your debt comments, you talked about paying down more than 300 million when the Triton and sale closes a what would you think about paying down your callable bonds with that at that point or would that be for bank debt.
How how do you think about that.
Yeah, Hey, Matt and so I mean, we can prepay any portion of our term loans and anytime but to your point Yeah. We would certainly also focus on our cost of capital.
And I are the highest cost of capital, which would be our 2025 and 2027 bonds and our 2025 bonds are outside and they're called premium. So it would certainly be something something that we would look at.
Would you take it far enough and then you mentioned you mentioned and the lower interest rates than you expected and and obviously your new bonds have traded quite well would.
Would you even consider coming back to market and and doing a little more to to take to take those all the way out and maybe pay down some bank debt.
So I mean, I think it's something certainly we would look at but I think we're also in the early stages from an integration standpoint of really getting a good feel for our cash flows for the year and so I think there are a lot of other factors that will.
Go into it and I also do think right now from a debt structure perspective, we are we're happy with kind of the mix we have.
Got it and I really appreciate it thank you.
Thank you we'll go to the line of Eric Green with Penn Capital. Your line is open.
Thank you Hi, Anna gene.
Can you speak about the potential for the large tech companies to pay for news content has receded and Australia, the EU and Canada, what kind of opportunity could that ultimately be for for your for your company as well as the industry.
Hi, Eric Good to talk to you and I do expect that this will eventually move to the U S where things end up paying their fair share to news creators I I do expect that local broadcast stations like ours will be at the table developing those relationships and I think you'll see us at Scripps play an active role and those.
Invitations.
Great. Thank you.
Thank you and at this time, we have no further questions speakers. Please continue with any closing remarks.
Thank you Cynthia and thanks to everyone for joining us today and again, if you'd like to join US for Investor Day, you can email I are at Scripps Dot com and a good day.
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