Q1 2021 E. W. Scripps Co Earnings Call
Yes.
Yeah.
Ladies and gentlemen, thank you for standing by and welcome to the Scripps first quarter 2021 earnings call. At this point all of the participant lines are in a listen only mode of wherever the will be an opportunity for your questions. You may queue up at any time by pressing one then zero on your telephone keypad as a reminder to.
Today's call is being recorded I will turn the call now over the MS. Carolyn Micheli head of Investor Relations. Please go ahead.
Thank you John Good morning, everyone and thank you for joining us for a discussion of the E. W. Scripps company's financial results and business strategies, you can visit Scripps Dot com for more information and a link to the replay of this call.
A reminder, that our conference call and webcast includes forward looking statements and actual results may differ factors that may cause them to differ are outlined in our SEC filings the co.
The 19 pandemic enhances the uncertainty of forward looking statements, we make about our operations and financial condition, we do not intend to update any forward looking statements we make today.
Included on this call of the discussion of certain non-GAAP financial measures that are provided of supplements to assist management and the public in their analysis and valuation of the company.
These metrics are not formulated in accordance with GAAP and are not meant to replace GAAP financial measures and may differ from other companies uses or formulations.
<unk> in our earnings release are the reconciliations of non-GAAP financial measures to the GAAP measures reported in our financial statements.
We'll hear this morning from Scripps President and CEO, Adam Simpson, Chief Financial Officer, Jason Combes, local media, President, Brian Lawlor, and Scripps networks, President Lisa Knutson.
Also on the call as controller Dan per SKU.
Now here's Adam.
Thanks, Carolyn and good morning, everybody on thank you for joining us we're very pleased today to be presenting the first quarter results that met or exceeded expectations by every measure.
The year after the COVID-19 pandemic began to ravage the world economies and the U S advertising market. We are clearly on the rebound and moving into the second quarter with significant and sustained the momentum.
During this call last year, we suspended our financial guidance due to the great uncertainty about what the global pandemic would bring but we also promised that we would do our best to use that uncertainty and the pandemics chaos to our advantage to play offense and to continue our quest to remake this company today.
Today, we are reinstating our guidance out of the confidence that the recovery is here and we are doing so is a very different E. W. Scripps company stronger more durable, even more focused and very well positioned for the future of television.
Since the election day, we have benefited from a resurgence in the local and national television advertising marketplaces businesses have reopened masked mandates are loosening and vaccine rates are rising.
Americans are coming out of their homes their wallets, a little fatter with federal stimulus dollars and advertisers are competing to capture them.
Scripps is ready.
Over a year when the nation was hunkered down Scripps was positioning ourselves to lead and thrive in local media, we focused on core AD sales execution, the development of new to television AD dollars, the political spending climate and our retransmission revenue opportunity.
The results we are reporting today illustrate our success on the execution of our plan and then capturing the benefits of our portfolio's scale and reach a benefit we expect to continue to pay off handsomely for Scripps in the form of Retrans step ups for years to come.
On the National front, we completed acquisitions and divestitures that were designed to maximize shareholder value and set up even greater profitability.
We capitalized on our podcast and digital audio investments with high returns sales of Stitcher and Triton.
We acquired the eye on network significantly improving our cash flow profile and we combined eye on with our five asked growing kids networks and newsy to create a new powerhouse portfolio of National television networks, the Scripps networks.
What we are today is a fully scaled television company debt reaches audiences broadly across the United States and deeply in the nation the best local regions.
The Scripps as media businesses reached nearly every American through cable and satellite over the top platforms and free television over the air.
Let's talk for a moment about why free television is so important.
Free over the air television solves a few big problems in the television ecosystem, both for audiences and for advertisers.
There's a there's growing evidence that consumers are beginning to feel the pressure from the fragmentation of the streaming services.
A recent analysis by Bloomberg news found that putting together the most popular streaming services now costs of about $92 a month.
About the same as an average cable package of the $93 a month and that's before factoring in that of household still has to pay for intranet.
A recent Deloitte survey found that the average American subscribes to 12, the paid media and entertainment services Millennials average 17 paid subscriptions.
And not surprisingly the survey finds they're overwhelmed by the by managing all of those services and buy all of their entertainment options. What's the binge watch next where to watch it how to keep up with all of those monthly fees.
In contrast, the streaming and over the air digital antenna. These days is cheap of onetime purchase and from there for you to use.
The Scripps networks are providing popular crime and justice dramas and documentaries classic movies hit syndicated sitcoms and dramas and objective national journalism and compelling courtroom coverage and our local stations carry news and the big for US live sports and programming all over the air.
While the subscription services themselves are investing in high priced original to attract new subs. The fact remains that the top screen shows are the same premium off network programs, the consumers lean back and watch for free on our networks easier.
The easy to find easy to watch easy to enjoy.
For advertisers our delivery of this desirable audience solves the problem of viewers disappearing into streaming services that don't take advertising.
The O T E audiences continued to get bigger to according to Nielsen over the air viewing grew 10% from 2019 to 2020.
Borowitz research forecast 65 million households will be watching O T E in 'twenty twenty-five either by itself or coupled with the streaming cable or satellite service.
As the leader in over the Air Network television and one of the nations the largest and strongest portfolios of local stations, we will benefit from this growth growth that we think we can even accelerate to our advantage because of a significant percentage of streamers aren't yet using a digital antenna work.
Talking about our segment of the 40 million Americans, who don't subscribe to cable or satellite we see this group of cord Nevers and cord cutters as a big opportunity.
Switching them and bringing them into the O T E marketplace is our first priority.
This over the ear marketplace serves as the underpinning of our company's growth strategy, it's not a bet on the future it's of play to consumer behavior today we.
With excellent execution in local media and marketplace leadership at Scripps networks, Scripps is creating new shareholder value.
In fact, we project the recent strategic moves of this company to result, this year and $210 million to $240 million of free cash flow on.
Level, we would have only reached in the past during the big election here.
That's meaningful transformation of our cash flow profile and were immediately putting that higher cash flow to work as we begin to pay down debt.
This month, we will redeem $400 million in bonds are first step on the path towards Scripps as customary levels of leverage.
And continuing our track record of delivering on our promises now.
Now here's Jason.
Thanks, Adam and good morning, before we start our discussion of Scripps first quarter 2021 results I want to point out that our earnings tables from February 26 provide an illustrative look at both the local media and the new Scripps networks divisions for the full year of 2019 and quarterly periods of 2020, those tables provide a view of results and so we had not.
<unk> W. P. I X New York. They also present illustrative Scripps networks results and those of the vision had been formed on January one of 2019.
Just a reminder of the sale of W. P. I X closed on December 30th any acquisition of eye on closed on January 7th semi comparisons today will be on that adjusted combined basis.
You can find our as reported results in today's press release.
Let's begin with the local media results for the first quarter.
Total division revenue was up two 2% from the first quarter of 2020, we were pleased to deliver results above the prior year first quarter, which included $18 million of political advertising.
The strong performance was driven by core advertising revenue, which was up two 3% as we saw momentum in advertising continued from the fourth quarter.
We have guided to core advertising being about flat in the first quarter. So we were very pleased by these results.
I'd also like to point out debt in the first quarter of 2020, we had $8 million of loss of local media revenue from cancellations due to the start of the pandemic in mid March. So we were largely working with pre pandemic comps.
Political AD revenue for Q1 was $1 $3 million.
Local media retransmission revenue was up 15% in Q1, as we annualize the reset of about half of our pay TV households during 2020.
We also saw stabilization in our fourth quarter subscriber counts they were about flat from Q3 to queue for our latest reporting period.
Local media expenses increased by just 3% over the year ago quarter and expenses were actually down 2%. If you exclude our fixed programming cost.
The local media segment profit was $56 million.
Now, let's turn to our first quarterly report for the New Scripps Networks Division the.
This division includes eye on Vacates networks and Newsy.
Advertising for these networks will be sold together and their support functions have been centralized create efficiency. So our financial reporting on that division will reflect the way we are operating now.
Scripps networks revenue for the first quarter of 2021 was $220 million down just a bit from the prior year quarter adjusted combined results and in line with our guidance excluding from both periods. The two eye on multi cash networks that we shut down in February networks revenue was flat to the prior year.
So we'll provide more color on the network's revenue performance in just a moment.
Segment expenses declined three 3% over the Q1 2020 adjusted combined results segment profit for the quarter segment profit for the networks was $95 million delivering a margin of 43%.
Also a reminder, that stitcher was sold on October 16th and the sale of trade and just closed on March 31.
Triton's results for the first quarter are now included in the other segment.
Turning to shared services and corporate expenses, they were $19 million in the first quarter right in line with our guidance.
The company's Q1 loss from continuing operations was $8 million or <unk> 10 per share.
We made a $67 million noncash adjustment due to the increase in the fair value of the outstanding common stock warrants during the first quarter.
As a reminder, we brought in Berkshire Hathaway to help US fund the eye on acquisition and as part of that arrangement issued them $23 1 million warrants at a price of $13 per share. So our stock price gains in the first quarter increased the fair value of those warrants.
We realize this noncash charge create some noise in our reported EPS, but keep in mind discharge is completely unrelated to our strong first quarter operating performance.
The quarter also included an $82 million gain from the sale of Triton $29 million in acquisition and related integration costs and $7 million in restructuring costs.
These items decreased income from continuing operations by $29 million or <unk> 36 per share.
On March 31, cash and cash equivalents totaled $538 million and net debt was $3 3 billion.
On January 7th.
The company issued an $800 million term loan and received $600 million of financing from Berkshire Hathaway in exchange for series a preferred shares the.
The proceeds from these transactions in combination with the $1.05 billion of bonds issued on December 30, and other cash on hand provided the financing for the eye on acquisition.
On may 15th we will redeem $400 million in senior notes that were due in 2025.
The redemption price of the notes is equal to 102.563% of the aggregate principal amount plus accrued and unpaid interest on that day.
We will use cash on hand to redeem the notes so it will not impact of our leverage ratio.
This is of significant first step towards reducing our debt and as we move forward. We anticipate continued strong results will allow us to pay down additional debt this year.
Our net leverage ratio at the end of the first quarter was four seven times per the calculations in our credit agreements that's lower than the five times, we projected at the close of the eye on deal our.
Our strong fourth quarter results and ongoing momentum in local core advertising raised EBITDA more than expected.
As Adam said, we are reinstating our guidance so I'd like to take a moment to look ahead at a few key items.
We expect total local media revenue for the second quarter to be up in the high teens per cent range that includes core AD revenue up in the mid 40% range.
We expect Q2 local media expenses to be up in the low to mid teens per cent range as we come up against some significant expense cuts in Q2 of 2020.
In the Scripps networks Division, we expect Q2 revenue to be up about 20% compared to adjusted combined results for Q2 of 2020 <unk>.
Expenses are expected to increase around 10%.
We expect shared services costs of about $20 million in the second quarter as we fully integrate eye on and restore some COVID-19 related cost cuts.
And for the following below the line items I have a few full year updates from our February call.
We now expect cash interest outlay of $120 million to $125 million pension.
Pension contributions of about $25 million cash taxes of $85 million to $90 million and capex of $65 million to $70 million.
We expect to deliver 2021 on free cash flow of between $210 million to $240 million far exceeding what we would have generated in a non election year prior to our recent transformation.
And now here's Brian to talk about local media.
Yeah.
Thanks, Jason Good morning, everybody.
We've been very pleased by the continued strong performance of local core advertising since the end of last year, we entered the first quarter with uncertainty about the economy and the timing of the vaccination rollout of.
January broke much earlier than usual and each month grew throughout the quarter as the economy began to rebound.
The first quarter brought together the benefits of our new business development efforts over the last year with the return of some advertisers who sat dormant for several months of the pandemic.
In the first quarter, we had more than 800, new to television advertisers across our 41 markets. These new clients are providing added lift to our performance as we welcome back our long standing clients.
While these new business dollars spanned many categories no category benefited more from our efforts.
Then the services, our largest category, which represented about a third of our total AD dollars in the quarter.
Insurance medical legal financial and home services, all showed year to year of growth inside of the services category.
Looking beyond services or other top five AD categories, all showed year over year of growth in March.
Auto reach positive territory of March for the first time in more than a year. Looking ahead, we expect auto to stay positive through the second quarter. Despite the industry is well documented supply chain issues.
I'd also like to call out the first quarter performance of our travel on leisure category, which was up nearly 100% and keep in mind that compares to a pretty normal quarter last year before of the pandemic.
Although the travel and leisure has been one of the worst hit categories due to the Lockdowns and COVID-19 restrictions. It has come back. Thanks to the addition of sports betting.
Sports betting is a lot like capturing political dollars, it's geographically based more and more states had been legalized sports betting this year and Scripps is well positioned with markets and seven of them already.
Many sports betting companies are working to establish their customer base as the state opens up and we expect the industry spending to grow into a meaningful new core category.
Also on the first quarter, we were pleased to see the NFL continue to rely on the networks and their local affiliates of primary distributor of the NFL games for the next decade.
As we had expected the NFL expanded its distribution to include all of the big for networks, adding a b C and to the regular season.
This move will have a positive impact on our large E E C footprint on stations.
And with the addition of a B C into the Super Bowl rotation, we of the Super Bowl every year on the Scripps portfolio.
In addition to the NFL Scripps received good news on two other important sports rights late last year. The S. E. C Conference continued its announced it would make a move to whether it's football and basketball rights to a b C. Starting in 2024, and a new 10 year deal.
Last month, the National Hockey League announced a new agreement with a B C and ESPN that would bring NHL regular season games and the Stanley Cup to a b C and the new seven year contract.
This is a big opportunity for Scripps, which has ABC stations and some of the NHL is most important cities, including Tampa, Las Vegas, Detroit and Buffalo.
And keep in mind that NBC agreement with the IOC for the Olympics continues until 2032.
Bottom line major sports organizations will continue to use broadcast as their primary source of distribution for a long time.
I'd like to end with political advertising. Although this is not a major election year, we do have a competitive governor's race in Virginia. This fall as well as the California gubernatorial recall election, where we're beginning to see some spending and.
And we do expect some early spending for a few key Senate and gubernatorial races. As we worked through the back half of 2020 one.
We expect to deliver political in the low $20 million range. This year.
For 2022, our recent station acquisitions and put us in a strong position to outpace 2020.
As I had said previously.
We have the 18th Senate races, 19, governors races, and about the same number of competitive house races that we saw in 2020. So we expect the another stellar political spending year right around the corner now.
Now here's Lisa.
Thanks, Brian and good morning, everyone in the new Scripps networks Division, we have been working diligently over the last few months to launch our new business and the game capturing our year one deal synergy we approach the first quarter with these objectives in mind to create the most efficient and effective organization that captures the synergy.
We promised that the eye on the acquisition drive strong out the strong operating results and lay the foundation for long term value creation.
I'm happy to report we're off to a fast start we have been integrating our new employees from eye on and elsewhere as we're building the right organizational structure presenting our new networks upfront advertising story transitioning our direct response sales to our proven D. Our agency and shuttering the low performing I am multi cast network in order to read.
Place them with our own.
We also are in the midst of planning for the launch of our new networks true real end of five television in July and the launch of news the over the air. This fall. We expect these networks reach more than 80 per cent of the country by year's end of life. So strong is only possible because we own so much of our own broadcast distribution.
Our angle for this work is to make the most of the leadership opportunity we've created for ourselves and the growing over the air market place. So we can capture of the benefits of scale growing our audience and Advertiser bank.
Five years ago, Keith and I on where each taking just 7% share of national network feeling over the air today, we've taken share from the National broadcast networks, and then 'twenty 'twenty garnered 26 per cent of that viewing and that's before we launched two new networks and take newsy over the air.
And as we're growing the number of people and as we're growing the number of people watching O T E. It's growing to projected to go from 50 million homes today to 65 million in the next five years O T. E is a massive marketplace and Scripps owns that space.
In addition to leveraging the growth in the over the air marketplace. The networks group has three other key drivers for future growth, we will expand the distribution of our networks across all television viewing platform not just O T E, but O T. T. M E. T. D will continue to expand our portfolio of networks as we increase our ownership in the space.
And we'll optimize our advertising rate yield I carefully managing our mix of general market and direct response advertising for the best possible outcome.
These for drivers are helping us to create a national networks powerhouse that we expect to deliver double digit revenue growth over the next few years as well as the highly efficient expense structure to result in division margin of more than 40 per cent.
In addition in our first quarter reporting as the division we were very pleased to have met expectations for financial results.
As our networks portfolio moves through the upfront season, we are getting good traction from advertisers for regarding the massive on duplicated national audience, we can deliver to them.
These advertisers the S F.
The solution for reaching cord cutters, who subscribe to non advertising streaming services, but self bundle with free television over the air.
And we're seeing building the momentum in the scatter market as we offer advertisers portfolio sales, where we combined networks for similar demos to expand and advertisers participation with us and cater to a very specific need for ad buyers.
We are on track to realize the synergies we expect of the eye on acquisition. In addition to the corporate cost synergies as I've mentioned, we have begun to new of our networks on to eye on spectrum. During the first quarter, we transitioned more than 200 channels on the other broadcasters over to eye on this.
This was the major move towards more fully serving the over the air Peeler.
I'd like to end with a few program.
It's been a big few months for court T D, which provided video for its viewers and the other news outlets in the courtroom for the Derrick chosen trial in Minneapolis, as well as live gavel to gavel coverage with expert legal commentary and on the ground reporting core television has received high international visibility in viewership.
From the trial its full day audience on linear television was up 119% of across the three weeks of the trial and its average weekly streaming audience was the 105 million viewing minutes compared to 20 million pre trial adverts.
Advertisers have followed the audience growth and we expect the networks progress to continue with several high profile trials ahead. This year.
During the quarter, we hired veteran journalists and television network of executive Kate O'brien to lead our new the core television news vertical Kate will lead the way in planning. These these new programming lineup of news coverage strategies as it launches over the air in October well be filling of the day with the original news gathered by reporters and 12 bureaus of cross.
The country.
Well, we plan on a number of changes to bolster its neither of these national visibility and impact we will not change its straightforward facts based approach to covering the news.
In addition, these distribution over the air will make it the only American television.
It was the network with the ubiquitous O T T and O T. A rich news. He has already carried on nearly every major streaming service and the O T. A launch will build on the success with audiences and advertisers.
And I on were adding more than 600 hours of new content to its crime and justice lineup this year, including operating Chicago fire for the first time and new seasons of law on order S. C U E and Chicago P D.
These networks together deliver a collection of the audience demographics that are attracting premium advertisers and driving strong AD rates, both immediately and over the long term, we will harness the scale of our business to continue growing audience and national advertising share.
And now operator, we're ready for questions.
Certainly in the just as a reminder, ladies and gentlemen, if you wish to ask a question. Please press one then zero on your telephone keypad.
And our first question is from John <unk> with Wolfe Research. Please go ahead.
Thanks, Good morning.
Maybe one for Brian and then one per lease of Brian for US just on the 800 of new to television advertisers can you talk more about them.
You know what was the was the contribution of a needle mover on the segment had revenue is the new business is opening up post pandemic and if not where is that money coming from and you seem more bullish on the auto versus your peers, what do you think differentiates Scripps.
The portfolio from others and then for at least the with the National networks some of them together as they get integrated into the upfront and you touched on this a little bit but can you talk more about it any incremental price empower youre seeing them given the reach of the conversations ongoing are there any anecdotal comments you can share from advertisers.
You bet.
Well I'll kick it off Hey, John good to hear for me its Brian.
You know as I touched on more than 800, new business advertisers were on our air across our markets and in Q1.
You know it.
We put a lot of focus on new business during the pandemic as our sales reps of working from home, we put a lot of systems in place to be able to you know.
Develop the virtual presentations, we changed our incentive plans to really focus our business on on new business. We shared a lot of of learnings across our division as we saw specific categories that were benefiting and spending more during the pandemic and I think we took advantage of all of those things I mean, it was truly the phone.
Because of the energy of the hard work of our local sellers.
As I mentioned in my prepared remarks, you know services really benefited from that a real focus on people are spending money on their homes people were taking care of themselves.
Insurance medical but a lot of money in HVAC, a home renovation pools spas windows contractors, and we took advantage of all of that of what people were home able to receive those service reps. So it was just a real focused effort and a real great execution by our teams for a plan that way.
Put in place early on the pandemic that's for.
For automotive.
We mentioned that it grew sequentially each month of Q1.
It was a positive by the end of the quarter we're.
We're seeing obviously the the comps are relatively favorable in the second quarter, but we had a really good April and still a good may we believe the Q2 will continue you know rolled up and it'll be positive I think like everyone else, we're watching what the long tail of the supply chain issues will be relative to the chips I think it'll probably.
Impact our business to some degree of over three to six months, but the foundation is already laid in and I think second quarter will wind up being a pretty good quarter for automotive.
Hey, John and you know across our portfolio, we're really are experiencing the resurgence of advertisers coming back in.
We on as we've guided will be up 20% in the second quarter, we're seeing a lot of strengthening in the scatter market increased buying activity from advertisers.
We also think our portfolio of sales approach is really taking hold we're seeing on a number of cross network buys on and really great rates and so that bodes well for the Upfronts on you know, we think advertisers and sellers are eager to make up for a rough 2020 on.
And by the time, the new television season starts we think CPM for increased substantially.
That's key categories of return.
Thank you very much.
Our next question from Kyle Evans with Stephens. Please go ahead.
Hi, Thanks.
There's a lot of moving parts in the networks right now you sound like you are very very busy what are the one of the limitations to adding <unk>.
New stations are networks, one of the timelines typically two to getting the.
The Nielsen ratings on.
On those launches and then and then you mentioned kind of long term double digit topline growth of 40% margins.
Seems like you have a lot of tailwind what do you think the biggest contributor to growth will be over the next couple of years and then I've got some follow on for Brian.
Yeah, it's still the kind of thing for the question and we do have a lot going on on.
It's a pretty exciting business that we're building and obviously the results I think speak for themselves.
A couple of things you know, we just announced this year three really taken three networks over the air So we've got on.
Really to execute on the on those strategies, we would see on your question on Nielsen and certainly it takes time to build audience and as the audience builds we would add Nielsen rating remember the former Katz networks, we're really on.
Each of them with the exception of car T. D was Nielsen rated which is a very different which means you've got demand you've got eyeballs watching those networks and so we would carefully manage on you know.
As as we build our audience we will then.
Move toward adding Nielsen ratings, but that will certainly come over time.
And I think.
Thank you had one other question Kyle the.
The limitation of adding new stations I mean, it just seems like if you can come up with the great name and find the category, that's maybe the underpenetrated and find content that fits in.
And I was just wondering.
One of the brackets around how many of them yeah.
That is of good question, because I think it's the complementary question to our strategy on the OTT you heard MS day in my prepared remarks part of our distribution strategy is not only O T a growth, but the OTT growth and I think exactly what you were saying, where we are poised to take nearly all of our brands for OTT and to find Katz.
Cory, it's where we can continue into the continue to expand on other content categories potentially on based on our content that we already own or have access to them through license agreements. So I think from an O T. A perspective, we are and we feel good about where we are with the brands that were.
Launching this year, where we will always be opportunistic and continue to watch the marketplace to make sure that if there is an opportunity we would certainly take.
Take advantage of that but I think it's my answer is both O T E N O T. T certainly are where we see the opportunities.
And then and then I think I snuck another one in there on you and that you have of.
Yeah.
Number of tailwind behind you right now on its platform showing at the new platforms for our existing channels.
The new networks coming on line.
Do you think is the most powerful growth driver and then ill father Brown.
I would say that the most powerful growth driver is our maximizing our advertising yield right. It is really about you know we're in the early stages of bringing these businesses together I'm really really pleased where the quarter ended and you can see it doesn't the you know the guide that we gave on revenue growth for the quarter.
We also think that we've created a very efficient expense structure. You know, we're very mindful of delivering on the promises that we made at the eye on acquisition to investors and we're set about to do that and to really pull the levers from the growth driver of perspective, certainly revenue being the biggest driver there.
Great.
And Brian I'll, just I'll keep it to one question how help us think about.
For the puts and takes on on Retrans as we move across the quarters of 'twenty, One and then the major drivers for 22. Thanks.
Hey, Kyle look I think you know as we think about Retrans, we still believe that we've got a couple of cycles of growth ahead of us and so you know as we've now got new scale. We look forward to taking advantage of that just the kind of you know.
Bring the whole picture back together you know as you know we completed renewals last year for about half of our subs are.
And we're really happy with the outcome of those and not even included Comcast rates renewing at the end of the last year.
You remember those renewals drove I think more than 30% grocery trend growth.
From an E over 19 on the same station basis.
And obviously that resulted in pretty good margin expansion there. This.
This year, we had no network of renewals.
Renewals are.
For this point, we don't have any up.
Through the end of the year and so the cadence of the step up some of the expenses had been in our favor I don't think we've given our 2021 guidance yet on Retrans, but I think you know of can say that the timing of margin growth. This entirely tied to the timing of contract renewals and so we've got about 4% of all of our households, renewing in 'twenty one.
We've got about 20% of 'twenty 'twenty two in the 75% just two years from now so hopefully that answered. The question you were looking for co yep.
Without giving guidance I think it does.
Okay. Thanks.
Yeah.
And next we'll go to Dan Kronos with benchmark. Please go ahead.
Thanks, Good morning.
Maybe just the Brian the follow up on John's earlier question I know you don't have a crystal ball and we did actually here for Expedia last night, they were gonna start leaning into marketing and especially the top of the funnel. So.
It sounds like travel is coming back maybe a little earlier than anticipated just how youre thinking about the.
The year relative to say 2019, and I know Theres a lot of puts and takes in the we'll have to see how the political shakes out in the back half of year, maybe let's just start there.
Yeah, Dan look we're really out.
Excited about the opportunity on the back half of the year I think as you pointed out you know travel as a category, we talked about sports betting, which has really been on a nice driver, but when you look at that you know the travel concerts sporting events community events festivals all of that really has yet to <unk>.
<unk> out we started to see in the last <unk>.
The 60 days, there's the Florida visit Michigan visit Ohio started the campaign this week and so we're starting to see the states quickly opened back up but I think you know very quickly now we're going to start to see the sports teams coming back the concerts and so we think that theres going to be a lot of energy around that and of course.
All of the stimulus money now in People's pockets of you know, we see the price of of travel of the price of the airlines all through the roof. So people are anxious to get out they're anxious to be with each other on spend and so we think that's going to be a real big catalyst of our drive on the back half of the year on top of that as I talked about is we got to March and now we're seeing in the <unk>.
Second quarter retail really strong home improvement communication the service category is on fire.
You know auto is relatively stable I think it's gonna stay stable I don't think it's going to drop back, but I don't think we'll see a surge for a couple of months just due to inventory issues, but I think we have enough other stuff, that's driving us to give us a lot of optimism and then you know.
I think we're building momentum in the back half of the or on political starting to move toward what it'll be a boomer year next year, but already you know in Q2 or in Q1 on that went through Q2, we're seeing the issue spending in Arizona, Wisconsin, and Michigan as I said earlier of Virginia Governor's race of spending some money.
You know there are some issue money that's getting spent in places, California recall. So I think we're really optimistic about what the back half of the year kind of look like.
Got it that's really helpful. And then you can cancel all of that come to Florida, as we have enough people coming here already Brian.
But I'm going to Michigan.
Maybe on on the Retrans side.
You gave a pretty good sub number obviously I think you still believe in general we're kind of on that mid single digit decline range I don't think that there's probably the change to that but one thing that's come up in recent calls has just been the economics on the OTT front a lot of those deals were probably struck prior to a pretty significant step up in.
And I'm just curious you know as you think about upcoming network negotiations or just kind of where you stand on the economics, just on the linear side and the E.
E packages, how youre thinking about attacking that opportunity, especially if the <unk>.
On the FCC decides not to reclassify them as mvpds, which would be wrong, but it doesn't seem like there's any traction there.
Yeah look we agree with you what we think it's wrong and we do think that these virtual services should be classified as mvpds, but I guess that's for another conversation of the reality is down that we negotiate these deals on an affiliate board representing all of the affiliates with the networks and these are you know.
Two year deals typically something like that three year deals. So while there's clearly been of rate step up and the market has moved in the last couple of years since these virtually have lunch.
I can tell you that for two of the networks I've been involved in the last 90 days that we've completed new renewals on new financial terms that I think reflect market values. So I wouldn't I wouldn't model that we're working off of old numbers. There I think the affiliates are having the opportunity of renegotiate that.
The networks as often as they are renegotiating their deals with the virtual is on our behalf.
Okay. So we are getting progress there that's good to hear and then the lease one rational one crazy for you just on the margin front. Thanks for you know obviously the reiteration of the long term target near Q1 crushed it though on the national side and I'm, just curious how youre thinking about sort of and we have <unk>.
The <unk> guide, but just sort of the pace of expense controls over the balance of the year.
Yeah.
We definitely and as you said sort of crushed it in the first quarter, obviously, you know where I.
Just over 100 days and the op.
There's the new divisions that were still.
Parting ways with employees also adding new employees as we build throughout the year on.
Evaluating our program schedules and those sorts of things So you know on.
<unk> expenses as I reiterated our you know, 40% plus margin and you know.
In the near and longer term, we will have some lumpiness. This year, we did announce a couple of on couple of new networks that are launching in July newsy over the air in October so you'll see a bit of lumpiness throughout the year, but reiterating that that for.
8% on margin for the year.
Okay, and then my Tin foil hat question, the beauty of Avon or OTT and O T. A is that the portable beyond domestic borders if you have content rights.
Am I crazy to think that there isn't a longer tailed opportunity to get some of the stuff.
You know I know they have distribution agreements probably internationally already with a lot of the content but is.
Is that of Crazy thought that you can start to push some of this a little of it beyond the U S over time.
I'll answer on in the short term and then Adam probably could chime in in terms of longer term. We I think you know the stand we do have a little bit of international on a distribution with core television in the UK on and that's something you know we're certainly you know during the shelf in trial in particular.
We saw really great engagement.
However, you know for at least this year on our division is very focused on delivering domestically the things that we need to deliver on both from an O T. A perspective as well as in the OTT perspective, as I mentioned, we've got a lot of things for lunch here.
That we.
Really believe will be needle movers on the CTV and OTT space for us longer term on and then I'll, let Adam take the longer term international question.
Oh, Hey, Dan Ah well.
So I mean, I think there's you're pointing out to the scalability of the business I mean, obviously I think particularly of the OTT space with fast services the free AD supported television services.
You can easily see how you're not constrained by borders I think we'll continue to look at the opportunity since we have the infrastructure and the wherewithal already setup. We will look at the opportunity we have to continue to expand beyond North America as the case merits.
But at least his point is exactly right I think at least in the near term our focus is going to be on making sure. We do what we say we do continuing to expand upon our leadership position in the network television space in the in North America, Both O T E on OTT and <unk>.
Ideally.
Expanding our ability to grow our audience and youll higher revenue from.
From here.
Yes fair enough. Thanks for all of the color everyone. Appreciate it.
Our next question is from Steven Cahall with Wells Fargo. Please go ahead.
Thanks, So maybe first Adam if we think about monetization of the big Forestation sub on the bundle and we kind of compare that to monetization of a viewer in the networks Division can you kind of help us just think about what that looks like I mean, you've got an interesting business here, where my phrasing would be kind of on.
Have a cash cow and local media, but there is some cord pressure and then you have is this growth in O T. E. So maybe help us think about how is maybe viewer's shift the monetization trends and then Lisa I think on networks, you, mostly sell spots not impressions. It sounds like the market is strong can you just give us any sense of what spot pricing is done for those impression.
And how your upfront deals might be impacting pricing as you go forward. Thanks.
Hi, Steve Good morning, I think you're pointing to sort of an old adage that we say all the time around here of two things can be true at the same time I mean, we think we have a lot of opportunity to continue to head in local media.
The the the pay TV bundle continues I think we'll we'll continue to provide strength as we renegotiate over the course of the next several years Retrans step ups, but youre right. I mean, there was some pressure on subs.
And this company has made a major move in to the over the aerospace because we see a growth opportunity. There now just be mindful, we expect that growth opportunity to pay off handsomely for both our networks division and our local media.
The division as consumers make decisions on their own about where theyre going to consume television. We have an outsized share of that marketplace. I would say I think Lisa pointed to the fact that today Scripps networks yields 26% of all over the year of viewing that.
It doesn't count our local viewing and it doesn't count our launches of three new networks. This year and so when we think about the value of the viewer we expect the value of the viewer in local media will continue to increase as consumers as we reprice retrans and us.
We obviously continue to execute our content strategy and ensure that our product is very very valuable to them, but I expect the value of the viewer for our network side will also continue to increase as we grow the share of the audience, we get in the O T E marketplace. One important point I'd make also it's not a mutually.
Looser proposition O T. A growth will continue to grow and a lot of consumers plug in digital antennas, along with streaming services along with participating in Eagle Eyed S wide and frankly.
Along with their use of pay TV services. So for us it's an all of the above proposition and we expect to yield a higher.
The return for each viewer as the over the year marketplace continues to grow I mean, I think the exciting thing about our company as we've taken this position.
Where do you otherwise find growth businesses and this media ecosystem with a 40 plus margin.
And I think some of you think that are that we're being conservative there I expect it will continue to expand our leadership position in that will inure to our benefit.
Over the coming years.
Hey, Steven Thanks for the question. So a couple of things you know.
We you know we are seeing on rates rise did of demand and on yeah.
Obviously C. P ends are also increasing early you know we've seen some early success on some of the programming changes that we've made on our network and we're seeing really really great momentum there also on.
And we think that bodes well for on a strong upfront season, you know the we haven't mentioned it but the D. Our advertising space has continued its strong momentum on from.
From late last year of into first quarter, and we're seeing you know.
The NAND and rate increases on the Dr side so on.
Obviously, you know our guide of 20 of 20% on you know its all about maximizing the the mix that we have on our on on our networks and we're really focused on maximizing those dollars whether it's in the Dr space or the general market space.
One comment I'd add also.
Is.
Lisa did a nice job of of walking through the for growth drivers that we see for the Scripps networks, I guess I'd add a little commentary in the now that we've been inside the business getting getting a better view of what we're acquiring an eye on they've got a really nice job of building their business as a single network, but it's very clear.
And then we will be benefited in the advertising marketplace by both bundling of eye on together with our other networks.
And cross selling and by better yield management, managing the interplay between direct response and general market across all of our networks in order to manage up rate and we expect that that opportunity is probably even a little better than we had with debt.
Than we had expected.
Prior to getting inside the business and understanding of the puts and takes.
Thanks, Adam.
Our next question is from Craig Huber with Huber Research partners. Please go ahead.
So I think you've got a few questions. One I'm curious how would you would describe.
The programming market now with sort of a buyer's market or a seller's market. The masking that both on the Scripps networks side that would be first and then Brian I'd Love to hear your thoughts true for the syndicated program of your buying but the.
How are you finding that kind of advantageous right now of volume programming.
Or the opposite.
Yeah, and actually we we we are really pleased with the market on at this point in time, you know I think many of the studios that are launching their own D to C products, but.
At the same time, our licensing that content and in as many ways as they can and whether that's true you know cable and in our case through the T E broadcast.
I think Craig cash is king and they're looking for ways to monetize their content and we certainly have a really strong relationships with all of the studios and as I said in my prepared remarks, we are on.
Adding several hundred hours of news programming this year and reiterating or a margin of 40%. So we're really pleased with what we're seeing in terms of on being able to secure a really terrific programming.
Hey, Craig Brian I'll take the local side you know I think right now we're on the syndicated side.
Cycle where between cycles.
On the next season will start in September and so most of our programming is already locked up through that point.
Thank you know what we've learned is that when it comes to the syndicated programming scale matters.
And you know when you represent 25 per cent of the country with some great television stations like we have our.
People come to us for early early wanting us to be a launch partner and trying to clear of core of the country with some of the the country's best television stations and so I think you know, we're a very desirable for many syndicators and will replace that they start early.
But there's nothing that's the active right now I would also just remind you that you know for more than a decade, we have balance syndicated programming with our own programming.
We have right. This minute we have the list shows that we own and produce that run across most of our markets I think that gives us a lot of flexibility and allows us to manage our stations with the their news expansion of our own product or syndicated we get to pick whats you know because I have the best return and the <unk>.
The profile for our our advertisers on our audiences. So I think we're on a pretty enviable position.
And then also on the Scripps networks side can you just named for US If you would.
As you can.
The channels for them.
We're going to launch this year and then what are the ones exactly that you did shut down <unk>.
On that thank you.
Yeah, So Craig and I on ahead and sort of a nascent and.
On digital our.
Digital sub channels that they ran and they also ran some you know shopping channels and so that was cubo in the eye on class on those were the two that on obviously in the order for us to new of our channel over to the eye on digital sub channel, we moved our higher performing.
Networks and shut those down on at the beginning of March we so all of the so you think about the former Katz networks on the.
Those networks were migrated on to over 200 channel I think we mentioned over 200 channel for migrated onto the ions digital spectrum, which was a big piece of our delivery of the distribution synergies that we talked a lot about at the time that the IATA the acquisition.
The help you with that so think about balance and you know loss core television grit on core television Ministry of those are the the former Katz networks that are now migrated on we we like to think of them. It's over the air networks not networks on digital sub channels because of their al.
On.
Available free.
Over the on the two new networks for launching on true real enterprise I T E will launch on.
On July 1st a reality based on one male skewing one female skewing and then certainly we talked a lot about new the going over the air on October 1st.
I appreciate that.
Brian or Adam the.
The.
Recent Supreme Court ruling of the two with the transactions in your local media space.
What is your thought on the Supreme Court ruling or do you think of as can materially change things out there from the deal flow standpoint.
Yes.
Yeah, Hey, Craig look I think that it provides some clarity of that was much needed I would expect that the UHF discount for something that you know will probably be taken up by the FCC, but what you know this didn't do was give us clarity on cross ownership and most importantly.
Eliminating the eight voices for us that's a real opportunity.
As you know we have.
Still some upside opportunity to add a second station on the markets markets that we have a dominant position in and we've always wanted to own a second television station, but the rules prevented us from doing that and I think there's a real opportunity for us to acquire a second stations, we'd still I think it's a little bit of a long putt to get on the second big for in those.
At this point, but it's not out of the around the possibility of.
By proving how the local community would benefit, but even the benefit of adding E.
CW on my network of independent and being able to expand our local news and credit and expand some of the local programming I talked about I think that's where our biggest opportunity is right now you know down the road, we'll see what are the decisions. This FCC makes but I think the elimination of the invoices was a big opportunity for our company.
So just to be clear on my interest to do think with the with the Supreme Court ruling will be helpful to be able to get of <unk>.
Second big for them.
Out of CW, My network and welcoming to the sort of changed much book for the Supreme Court ruling on your mind the opportunity there for for your company and others Yeah.
For our company. It does I think the opportunity to add Duopolies in markets that we were limited from having a second station problem in the past.
That opportunity now exists.
It's easier now okay.
Just nitpick question your Retrans subs, Brian with the down about 5% year over year.
I think that's the right range Greg.
Okay, great. Thank you very much guys.
Yeah.
And our next question for Michael Kaplinsky with Noble capital markets. Please go ahead.
I wanted to follow up on your comments about the.
Better than expected free cash flow and I was just wondering if you can just talk a little bit about your thoughts about target library age what your subsequent capital allocation plans might be when you might begin.
Repurchasing stock and so forth what your thoughts are about that outlook.
Hey, Mike It's Jason Yes, so from a leverage perspective, we said it many times it for we're committed to managing towards the clean of flexible balance sheet. The targets of the leverage we had at the end of Q1 was $4 seven which is better than we would have anticipated when we modeled out the eye on transaction and our goal is still to get to.
Our net leverage in the mid threes.
As we start to shake out some of the most significantly impacted Toby quarters from our <unk> Youll really see our delevering accelerate with the hopes of being back in the low fours by the back half of 2022.
In terms of share buybacks. The the terms of the Berkshire preferred prohibit us from buying back buying back shares or issuing dividends, while those are outstanding so.
Our focus is really going to be on paying down debt and using our new larger free cash flow profile to do that.
Thanks for the color and then a question because I know that you've been updating some of your stations with the E. T. S. The pre porno can you just give us some out of.
Some thoughts about what you learned from that upgrade and where what might be the revenue opportunity there.
Hey, Mike It's Brian.
Youre right were pretty active in the.
Of the advancement of that a lot of the testing I think for two of them and talking to you and others about the fact that the first real market to launch in and test in cooperation with the other broadcasters in the networks as Phoenix and that market's been now up and running in a PSC for over a year on a lot of testing continues there.
The expectation is that our I think the the target for the industry is to get somewhere in the 50% to 60% of the of households.
Sort of buy a TSA this year and so I think by the end of the year. We'll have maybe 15 16 of our markets that have launched in a three day, though but theres a lot of testing the continues to happen relative to not just what we can do in local markets. I think we're starting to get a feel for that but what does this mean on a on a grand scale of should start to put the country.
Together, so you know where the lighthouse stick and in Detroit in one of the things that we've done has carved out a part of our spectrum of basically giving it to the auto industry to users of Testbed and so we're working very closely with the auto manufacturers as well as suppliers for auto.
The test the viability of the spectrum relative to updating entertainment systems in cars.
And.
Knowing where their fleet is on things like that you know the other thing. We're testing is in places, where we have two or three or four adjacent markets testing contiguous spectrum and seeing the flow of as you go bounce from market to market to market the mobility of it in the the credibility of the signal as you continue to flow. So what I can tell you is there's a ton of.
Testing going on with all of the right partners and I think that theres going to be a tremendous opportunity down the road I still think it's you know.
Several years before the full country has scaled with a TSA and I think that's when you get to the full benefits, but I'm excited about the tests of the partners that we have the results of those tests and there's definitely going to be new revenue streams created from this when it's all of sudden zone.
Brian Thanks for the color that's all I have thank you.
And with the no further questions I will turn it back to the company of for any closing comments.
Thank you John and thanks to everybody for joining us today have a great day take care.
Ladies and gentlemen that does conclude your conference for today. Thank you for your participation you may now disconnect.
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