Q4 2020 E. W. Scripps Co Earnings Call
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Yeah.
Ladies and gentlemen, thank you for standing by and welcome to the Scripps earnings call.
At this time all lines are in a listen only mode. Later, we will conduct a question and answer session.
You have a question during that time, you make you up by pressing one and then zero on you touched on phones.
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If you need assistance on the call you May press star and 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 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 on.
A 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 enhances the uncertainty on forward looking statements, we make about our operations and financial condition.
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 New Scripps Networks Division Lisa Knutson.
And our long time local media President Brian Lawlor.
Also on the call as controller, Dan per ski who was recently promoted from assistant controller and has been with Scripps for 13 years, our former controller and Treasurer, Doug Lyons is now overseeing financial strategy on special projects now.
Now here's Adam.
Good morning, everybody on 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 in the capes networks to assemble a powerful new national.
Broadcast networks business.
A day Scripps is a full scale TV company and the largest holder of broadcast spectrum in the United States.
Our local station group reaches one in for U S television households across the nation to deliver local news and programming over the air on pay TV and on Internet based platforms.
Our new National networks business Scripps networks reaches nearly every American through free broadcast TV on pay TV and across a range of emerging TV platforms.
As a company, we provide our advertising customers with unparalleled audience reach that is both broad nationally and deep locally.
More about why I say unparalleled audience reach in 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 the.
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 TV.
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.
<unk> from the disruption in 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 wallets.
At this point many Americans are paying as much for broadband and multiple subscription services as they were when they complained about their pay TV bills.
And it is in this S aboard Malay that investors will come to see the power of the Scripps opportunity our significant leadership in free TV.
Cause TV 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 TV delivered over the air.
As we all should recognize by now TV consumers have taken control of their own bundles.
The future isn't a question of pay television or streaming TV or over the air the future of TV is a combination of all three.
Our local and national TV brands reach consumers in 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 for free TV are way up and we expect that growth to continue as the marketplace develops.
We bought a great business and I on and combining it with Cape for 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 2000 22021 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 2021 and focus on our growth opportunities beyond I have to take a few minutes to recognize our 2020 financial performance, which exceeded even the expectations. We laid out for you in November.
Scripps ended the year by delivering free cash flow that was about 30% higher than the estimates we put out for 2020 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 translate into 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 in free cash flow.
This performance will translate to about 17% of every net revenue dollar dropping to the 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.
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 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 in perpetuation of this company would not have been possible without the longtime steady stewardship of rich Bailey, who announced last week he would not run for reelection to our board rich.
Rich has played an integral role in the milestones of our companies since we went public in 1988.
E partnered with former Scripps networks interactive CEO, Ken low to develop the idea of putting home renovation on TV with H D. T V and from their lifestyle networks became an entertainment phenomenon that has created tremendous value including for many of you.
Rich led this company through the sale of its newspapers the expansion of its local broadcast holdings the acquisition of cakes and the entry into digital audio among many other transactions riches 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.
I am confident 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 2020 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 2020 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 2020, as though we had not owned W. P. <unk> in 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 corollary 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 <unk> results.
We're now looking ahead to a few off cycle election, this year and another very big year for the 2022 midterms.
Local media core advertising revenue was $170 million in 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 to November 3rd.
But after election day, we saw core climbing back and we've had an 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% in Q4.
If you factor out subs for W. P. <unk> in 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 kicks in 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 WP IX.
In our latest reported 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 for 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.
When the pandemic began the division and post cost savings initiatives, including Merrick 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 case 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 K to newsy capitalize on the resilience of the National AD marketplace, and especially strong direct response advertising.
Triton also outpaced our expectations in 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 IHOP media for $230 million.
<unk>, which reflects a one six times cash on cash return.
We expect the sale to close early in the second quarter we.
We were very pleased with the performance of Triton, which was always accretive to our divisions margins.
That will 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 last court TV core TV Ministry and Newsy.
Advertising for these networks will be sold together and many of their support functions have been centralized to create efficiency.
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 Scripps networks revenue for the first quarter of 2021, we expect expect revenue to be flat to down low single digits from the adjusted combined results. We shared in Q1 of 'twenty share for Q1 of 2020.
In addition to the local media Division and the Scripps Networks Division, We will continue to report on and other segment, which includes the Scripps National spelling Bee, The Scripps, Washington Bureau, and several other small businesses.
Triton, we will also be reported in that segment until a sale is complete.
Turning to shared services and corporate expenses, they were $17 million on 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 in companywide expense controls and cash management measures for 2020.
The company's Q for income from continuing operations was $1 35 per share the.
For the quarter included $6 $5 million and gains from the sale of <unk> and also $2 6 million in acquisition and related integration cost.
Our full year 2020 interest expense was $93 million for 'twenty, one for sorry for 2021, taking into account our debt to finance the eye on transaction, we estimate interest expense to be around $145 million.
And the cash interest outlay to be between $125 on $130 million.
Our full year capital expenditures for 2020 were $36 million, excluding repack costs.
We expect the acquisition of ion to increase those to between 55% and $65 million in 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 in 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 WPS and political advertising revenue.
Our company's increased cash flow as we move forward paired with the proceeds from the Triton sale will allow us to pay down more than $300 million when the Triton sale closes.
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.
Lisa often told you and I will firmly reiterate that our top capital allocation priority is 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 in my new capacity as president of <unk>.
Great 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 TV networks business seven networks that reached nearly every American either over the air over the top for 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.
That are attracting premium advertisers on driving strong AD rates. They are playing in the resilient 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 on January 7th integration of these businesses has gone exceedingly well our leadership team is nearly in place with Jonathan case, serving as Chief operating officer and head of the Entertainment network.
Close to hiring ahead of the new used unit, which includes annuity in court TV.
Our division 750 employees have already and organized into new management reporting structures and launched into their new roles and we are on track to achieve the synergies for this year that we've previously identified.
The bottom line is we have now put into action the strategies, we outlined in our acquisition announcement and you will see immediate value creation. In 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 in the size of the audience watching free television for digital antenna.
Recent Nielsen figures show that nearly 50 million Americans U S television households, or 40% owned and tenants in 2020 that was a big jump from 29% in 2019.
And.
We here, we're here to serve them with the most popular premium programming.
Number two we will continue to expand on the platforms on which we're distributing these networks over the air over the top and on pay TV.
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 ourselves.
And number four we will continue to improve advertising yield through audience growth and better yield management, including maximizing direct response on eye on this week the new Scripps networks makes its debut as a bundled business in our upfront presentations to advertisers.
We will share the story of this powerful new path for reaching nearly every American with free quality programming for both niche and mainstream audience if.
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 than they created apart I.
On Cape the Newsy are a powerful combination.
As I described a few moments ago that Scripps networks include 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.
News day focused on national New themes in court TV on bringing transparency to Americas criminal Justice and court system.
Finally, I hope you can see the focus and the drive this management team has on delivering on the promises Scripps made when we announced the eye on 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.
In 2020, the local media division generated nearly $1 $5 billion in revenue while closely managing our expenses leading to record segment profit.
A pretty noteworthy performance given the nation's economy last year political and.
On Retrans, both contributed to our record year in 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 in both November and December and home improvement was up high singles in November and nearly 20% in December.
Auto was down only low single digits in December.
Some subcategories like foreign factory showing year to year growth.
Core advertising momentum has continued as we move through the first quarter services and home improvement remain up in 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 on 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 the travel on leisure category, pushing the first quarter positive compared to last year.
Sports betting is already illegal in seven states, where Scripps home stations with more coming this year.
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 can travel on leisure remains down about 45% and we eagerly look forward to the return of live events with dinner 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.
Also benefit from a geographic station footprint and many purple states and from the growing amount of money and the whole ecosystem.
In 2022, we expect the amount of political spending to grow beyond even the tremendous 2020 presidential election levels now.
$9 billion as the new nationwide spending mark and Scripps expects to continue to capture more than our fair share on.
Our stations will be home to 17 governors races, and 18 U S Senate races in 2022.
We also expect redistricting after the 2020 census to shakeup races in a number of our states, including Arizona, Colorado, Florida, 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 for.
50%, if you back out WP IX households, and Thats scheduled translated to big jumps on revenue for the year.
As you know these contracts move through various renewal cycles, and again factoring out W. P IX will see for percent of our households, renew in 2021 and 21% from 2022.
We will have another big year in 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 will remove you from the queue.
And our first question will go to the line of John <unk> with Wolfe and your line is open.
Thank you good morning.
I had a couple on maybe the first one for Adam on Lisa you talked about the advertising impressions. I know you are only a few weeks in but as you talk about the growth levers within networks are there any early anecdotes you can share from the sales team as they saw that larger offering.
Hey, John it's will yes.
Yes.
Optimistic the year really continuing to build on the momentum that was in fourth quarter. So we both in the general market and sort of upfront and scatter market, but also in the Dr.
On the Dr space strong continued growth in really all categories certainly in fourth quarter, we thoughts on on.
That was really bolstered by certainly the on.
Health care large advertisers in healthcare and obviously on the Medicare spend that was happening in the fourth quarter. So we're seeing a momentum and we're really optimistic especially on.
The year Bill.
Okay John.
Let me add something to that also I think important to let investors and analysts know that our early looks at eye on yield and I on 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 opportunity.
For growth as we close that gap and early indications are we were right on I think bringing the networks together with our others in 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.
I think thats, what I think that's what we've been saying from the beginning in 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 the.
Health services, the health of home improvement.
That absolutely continues travel on leisure.
Barry.
Strong right now as a result of sports betting, but I think that's that in retail on the two categories that are probably the slowest to rebound although retail is having its best month in the last year in March so that one is coming back but I think.
When the traditional travel on leisure accounts come back and when retail 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.
Stimulus money getting into the hands of people, we think that advertisers are going to be anxiously fighting for market share for those dollars and we'll be pretty aggressive in that space, but I think that you know the.
Big story for March is continued improvement really every category.
February was improvement over January and March is now an improvement over both of those first two months.
Alright, Thanks, a lot.
Thank you.
Our next question comes from the line of Dan current it with the benchmark and your line is open.
Thanks, Good morning, Nice results again guys.
So just to follow up on John's first question Adam Lisa.
At the risk of <unk>.
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 the national on.
Obviously the story from case originally was get more into.
General market and obviously, you've had tremendous success lately with direct response.
Just given some of the performance based Optionality. There just curious if you could give us maybe some initial high level thoughts there.
And then.
Brian did I hear you say you thought political in 'twenty, two would be better than 2020.
Yeah, Dan I did say that.
Okay.
Sure.
I'll start with this youre right and I know you love hearing that you will have to wait for some extent till Wednesday at which time I think we will provide.
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 for themselves are made up of really general market.
Direct response, and OTT and each have I think growth opportunities ahead, but it's different per network and Lisa we will spend a fair bit of time on that on Wednesday.
Certainly beats here and Youre wrong, Adam so.
Yes.
The other the other one just maybe just on on Newsy, just some updates on your thoughts heading into this year, obviously, there's been a huge.
<unk> price.
Newsy has been chugging along nicely you've got it.
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.
Youre right on again news he had tremendous growth in 2020.
On growing about 20% really on majority of that growth came really most of the growth came from on the back of on expanded OTT advertising and so we will just continue to maximize that on I think we talked maybe in the last call about the fact that you know.
We are really the leaders from our 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 as a big opportunity for newsy going forward and we will bring that same on platform.
Platform to the other networks as we look at expanding on 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 in free cash flow accretion related to ion maybe first off what's driving what what's changed now that you've on the business for a couple of months.
Does that include the Berkshire warrants in that calculation.
Hey, Stephen it's Jason So first of all to answer on the virtual yes that includes.
On the payment that will need to make.
For the Berkshire warrants the main thing Thats, improving the 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 also the Triton sale proceeds will allow us to pay down debt in 2021, and then also.
Stitcher and WP IX divestitures resulted us in us having more cash available at the time on the financing and thereby financing less so all of those are kind of driving into a lower interest expense.
Great and then you mentioned that youll be the biggest on or a broadcast spectrum you all have been on our asset monetization terror.
Is the spectrum that you have is there any excess that you might monetize in the future or do you require all that spectrum given all the content you have now.
Actually I think that today 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 TV marketplace. So I would say that we are actively working on.
On strategies to identify the best and highest use of that spectrum with respect to the transition to <unk>, new data 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.
Then last one for me just the mundane local media on any outlook for net retrans for the year.
A mundane question for low convenient.
Steven It's Brian.
Look as you know evaporated renewals last year for about half of our pay TV households, and we were pleased from the outcome of those.
As a reminder, Comcast rates renewed at December.
December 31, a year ago, and so all of that drove 30% gross retrans revenue in 2020 over 2019 on a same station basis.
Because we had no network renewals this year.
And don't have any new ones until the end of next year, the cadence of rate step ups in expenses was in our favor this year.
We have not given that 2021 guidance, but I can say that the timing of margin growth is it entirely tied to the timing of our contract renewals. So.
We've got about 4% households for knowing 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 in our revenue growth our margin expansion. They are 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 of the 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 as 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.
Yes look I mean, I think we encourage and were pleased to see more premium content being put into the live TV ecosystem.
For a long time, our networks stood alone as networks that we're focused on creating brands and developing programming that was.
More than just stuff that was on the shelf and I think that we're pleased to see that the marketplace will develop because that will make free TV a more compelling consumer proposition overall I do think our leadership share is significant.
On the economics behind the ion acquisition, and our ability to continue to expand that share and to profitably operate our unparalleled and so while I certainly expect they will continue to be more development in the free TV ecosystem I don't think anybody will be able to do it with the economics that we have and to start with the.
<unk> 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 <unk> by a far stretch.
Lisa.
Yes.
Just one other thing I would mention remember in the <unk>.
Then our network the former Cape networks.
The landscape in which they're competing in.
There are only 13 of those networks that are Nielsen rated five of those networks are our network.
And I think that's a proxy for actually people watching 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 on.
As we move forward.
Great.
While I have you I think there was a January release from you guys about exceeding the $500 million synergies, maybe some detail on that please.
Yeah, I think there was a release early on Jason can say more about the dis synergies, but we did you know.
We hit the ground running Kyle width on certain.
<unk>.
Beginning to lock in the synergies that we promised at the time of the acquisition thesis I think there was.
AH released early January Jason and that that outlines some of those.
Correct, Yeah, we had a release, which is focused on how quickly we've been able to operationalize the head count corporate synergies.
And on the distribution side, we're actually diligently working through those synergies right now in fact, the migration of the first of our cage channels over to <unk> distribution a signal begins this weekend.
Great.
That will be the really the first consumer facing step in delivering on our plan.
What's happening over the weekend sales.
More to come on.
I'm Adam.
It was a.
Different world.
Smaller business, but I recall that at one point there was a lot of discussion about kind of in market and swaps and we're waiting for them.
For them for ruling in June maybe just your high level thoughts on that.
What that could mean for for end 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 in the markets, where we already operate.
We don't break it out of course, but.
A local to local stations in our market is much more productive than just one we just recently sort of quietly picked up a second station in Denver, and we expect that that will enhance the margin of our operation in Denver and enhance the cash flow generation there as well we've already launched.
News on that second station in our are optimizing the programming and that's been very very efficient that was a really efficient on acquisition of a second station I think we paid $9 million.
For the station and I would expect that if the Supreme Court opens up the opportunity for broadcasters too.
To get deeper in the markets, where they already operate something that we would welcome I think you would definitely see on us participate in 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 thank.
Thank you first I want to wish rich well on his retirement I remember when he was a reporter used to call me for quotes regarding media. So I wish him all the best on.
So first Brian 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.
I'm, just trying to give a little bit of a flavor or color as we kind of cycle through the second quarter.
What a great start and how do you maintain rate.
Yeah I think.
Through 2020, Mike we had on.
Obviously stay fluid with how we're running the business we knew that we had a big political business that was going to back.
Run through the back half for the year.
Obviously, we had to manage our lowest unit rates.
Make sure that we accommodated inventory for the politicians so to some degree that gave us rate protection.
Early in April May June of last year, we were scrapping for every dollar we could when we're outside the political windows.
I think that served us well.
I think all that's behind US we are following the election good core momentum in November build on that in December now, we're having a.
Very strong first quarter.
Very exciting.
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 to improve I think as you know.
In the next 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 thats, probably a good way to say.
Okay, and how much of your network comp is variable versus fixed.
It really depends network to network.
Arrangements with all four networks for.
Collectively what would you say.
Okay.
Yeah, I don't think we'll comment on that Okay, and then you obviously bought.
In the midst of the pandemic and you mentioned the sales GAAP, but can you talk about ion and it's the operations were in line with what you saw in 2020 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.
We are really creating.
Our scaled business, bringing together I on Kate for Newsy, So each of them independently ran as businesses in 2020, and starting really immediately we're operating them as one business combining sales combining everything from marketing to the back office.
To speak function around on creative.
Creative services and research and so whereas each of those businesses in the past would have had.
Had things like that you know each.
Individually so we really within the first I think week announced our organizational structure and hit the ground running in terms of bringing together those businesses.
You heard in my prepared comments, what we think the the.
Drivers of value are one of the.
Really is the yield management that Adam talked about and I talked about I think I.
Having being ready to do a combined upfront with all of our businesses in that upfront on.
A herculean task, we think it will pay dividends this year as we're selling these businesses.
Our cross platform.
Our cross brand and we really think that.
Sure.
You know not losing any time to really maximize the opportunity that we see here.
Great and going back to Brian.
You indicated that off year election 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 would have liked.
Like say 2019, I mean I E.
I'm just trying to get some color on that.
On that means.
Yeah, well I think what we're are on.
Our comments today indicate that we see Q1 flat to last year I think that speaks to very strong recovery marches up compared to last March so and it has a lot of momentum and we think that's going to continue into <unk>.
Yeah.
Political advertising.
On the political advertising specifically.
Specifically yeah.
This fall elections.
Or how do we feel about this fall's elections, I'm, sorry, Mike Yeah, I'm, sorry, I forget.
Yeah.
We only have a governor race in Virginia. This year. So we have very little at this day.
But we do think that there'll be some pretty good.
Issue money that starts on the back half for the year I think.
18th Senate races up next year, and a 50 50 Senate.
I think youre going to see.
Some early spending in the races that are considered to be tight or toss up and so we think it's going to get an early start in the back half for the year Gotcha. Okay. Thank you that's all I have thanks.
Thank you on that.
Question comes from the line of Craig Huber with Huber Research partners and your line is open.
Great. Thank you my first question sort of a nitpick, but you guys mentioned retrans subs down 1% quarter over quarter showing for that means down about five 6% on a year over year basis on a like for like basis.
Yes.
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 now for the last quarter, we were down about 1% from Q2 to Q3 non answer.
But just year over year for the third quarter Youre talking about.
Yes.
Rather than just for quarters trailing.
Trailing basis.
Yes, I need to go back in line.
Okay, great. Thank Craig it's Jason Yeah. So.
On the down mid single digits comment is referring to the last reported for fourth quarter. We have is Q3 data. So that is a from Q3 of $20 for Q3 of 19, its the down mid single digits.
That's helpful.
Jason maybe you could just update us on this.
Your long term goal for your for your debt ratio what is that on a sustained basis, where are you guys trying to get it down to I mean, maybe just to level set everything here was where does your debt ratio right now adjusting for all the acquisitions, the acquisitions and divestitures as well please on a tutor.
Blended average basis please.
At year end priority on an acquisition we were at three seven times net leverage at.
At the eye on deal close were at five <unk> times, which is better than we had initially indicated when we announced the deal. We originally thought we'd be at five three times, and obviously strong fourth quarter and the WP IX.
Proceeds helped us to come in a little bit lower there I think ultimately our target leverages in the mid threes.
He is managing the company towards a clean and flexible balance sheet has always been a top priority and certainly with something thats in Scripps DNA.
And the attractiveness of the iron transaction really compelled us to put our balance sheet to work to create a higher performing and more durable company and so.
As I said, we're five times on a lagging a quarter basis now and we believe that our new cash flow outlook will allow us to move swiftly towards delevering.
Couple of quick things on eye on does island to have any significant amount of political advertising.
My other question is I recall, you guys talking about when you may be announced 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 if we annualize it.
What's your thoughts there please.
Craig Ireland had on tiny.
Tiny amount of.
Political revenue last year. So it was pretty insignificant remember they are eye on and the way that we will run. This really is a national networks. So it doesn't necessarily play on the same.
On the local.
Local thoughts Brian.
Division.
Sales in on.
As for revenue CAGR, I think I indicated in my.
Remarks that.
Over the next several years, we think that ions or.
Networks' revenue will grow around 10%, so we think that on.
That's probably our best in class.
Think that that revenue growth is yeah certainly.
On a projected to be.
Double digit low double digit growth over the next two years.
So you're talking about with the case and with ion cardboard everything combined yes, that's still the entire network business Scripps networks business.
And my last question on the eye on I, just want to ask them.
Complaining any programming changes there going forward I know it's early.
Yeah, and you know certainly we are always looking at on tweaking some of the programming that I am done they've been hugely successful in fact I on on retained its fifth that's rating and from a ranking in terms of the largest broadcast network last year and really from a <unk>.
Cable perspective.
<unk> would be 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 the formula that I on has been pretty successful.
My last question.
Brian maybe for you just update US please on <unk> three point O b.
The business model, there and how long do you think it might take to become significant for you on the revenue contribution side, how many years out you're thinking thank you.
Hey, Craig it's Adam I'll take this I think it's still fairly far out given.
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 CE manufacturers to take the $3.
Chips and move them not just from the highest end TV sets, but down to PV, such that you could buy at Walmart and Costco.
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 TV sets into <unk>. So there's some time for that to happen I think you'll see us continue to play a leadership role on that transition, but when I speak to investors on.
Pretty clear I think right now.
This is <unk>.
Three to five years out in the first effect is likely going to be on yield management the opportunity for us to use <unk> multi variable advertising capabilities to enhance rate into enhanced yield but again. That's you know that's a little bit farther out and and I think we will.
To communicate with transparency to the street as the as the transition occurs.
Great. Thank you.
Thank you our.
Our next question comes from the line flow.
With Baird. Your line is open.
Yes, good morning, guys, Jason So can I just follow up on your debt comments, you talked about paying down more than 300 million when the Triton sale closes.
Think about paying down your callable bonds with that at that point or would that be for bank debt.
How do you think about that.
Okay.
Yeah, Hey, Matt So I mean, we can prepay any portion of our term loans at anytime but to your point, we would certainly also focus on our cost of capital.
The highest cost of capital, which would be our 2025 and 2027 bonds and our 2025 bonds are outside of no call premium. So it would certainly be something something that we would look at.
Would you take it far enough for them and you mentioned, you mentioned and the lower interest rates than you expected and obviously your new bonds have traded quite well would you even consider coming back to market and doing a little more to to take to take those all the way out and so maybe paid on 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 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 I really appreciate it thank you.
Thank you.
Go to the line of Eric Green with Penn Capital. Your line is open.
Thank you Hi, Adam I team.
Can you speak about the potential for the large tech companies to pay for news content is receding, 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 I do expect that this will eventually move to the U S where the things end up paying their fair share to news creators.
I do expect that local broadcast stations like ours will be at the table developing those relationships and I think youll see us at Scripps play an active role in those conversations.
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 IR at Scripps Dot com have a good day.
Thank you and ladies and gentlemen that does conclude your conference call for today. Thank you for your participation and for using AT&T Executive Teleconference Service you may now disconnect.
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