Q1 2021 E. W. Scripps Co Earnings Call
Yeah.
Ladies and gentlemen, thank you for standing by and welcome to the Scripps first quarter 2021 earnings call at this point all the participant lines are in a listen only mode. However, there 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.
Today's call is being recorded I will turn the call now over to 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.
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 for COVID-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 is a discussion of certain non-GAAP financial measures that are provided as supplements to assist management and the public in their analysis and valuation of the company. These metrics are not formulated in accordance with GAAP and are not meant to replace GAAP financial measures and may differ from other companies uses or formulations.
Included 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 scheme.
Now here's Adam.
Thanks, Carolyn and good morning, everybody on thank you for joining us we're very pleased today to be presenting first quarter results that met or exceeded expectations by every measure one 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 second quarter.
With significant and sustained 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 pandemic chaos to our advantage to play offense and to continue our quest to remake this company.
Today, we are reinstating our guidance out of 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 TV.
Since 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 America.
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.
For 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 in 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 thing in 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 Kate's networks and newsy to create a new powerhouse portfolio of National TV 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's best local regions.
Scripps is media businesses reached nearly every American through cable and satellite over the top platforms and free TV over the air.
Let's talk for a moment about why free T V is so important.
Free over the air television solves a few big problems in the TV 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 about $92 a month.
About the same as an average cable package of $93 on them and that's before factoring in that a household still has to pay for intranet.
A recent Deloitte survey found that the average American subscribes to 12 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 to binge watch next where to watch it how to keep up with all of those monthly fees.
In contrast to streaming and over the air digital antenna. These days is cheap a onetime purchase and from their free 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 originals to attract new subs. The fact remains that the top screen shows are the same premium off network programs that consumers lean back and watch for free on our networks.
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 'twenty on 19th of 'twenty 'twenty.
Horowitz research forecast 65 million households will be watching O T E in 2025, either by itself or coupled with our streaming cable or satellite service.
As the leader in over the Air Network television and one of the nation's 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 a significant percentage of streamers aren't yet using a digital antenna where.
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.
Reaching 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 a play to consumer behavior today.
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.
Level, we would have only reached in the past during a big election year.
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 a 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.
One W. P I X New York. They also present illustrative Scripps networks results and so the division had been formed on January one of 2019.
Just a reminder, the sale of W. P. I X closed on December 30th any acquisition of eye on closed on January 7th. So my 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 on political advertising.
This 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 had 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 that in the first quarter of 2020, we had $8 million of loss 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 costs.
Local media segment profit was $56 million.
Now, let's turn to our first quarterly report for the New Scripps Networks Division.
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 cast networks that we shut down in February networks revenue was flat to the prior year.
Lisa will 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.
Profit for the quarter segment profit for the networks was $95 million delivering a margin of 43 per cent.
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 10 cents per share.
We made a $67 million non cash 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 creates 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 30, <unk> 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 proceeds from these transactions in combination with the $1.05 billion of bonds issued on December 30th 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 our leverage ratio.
This is a 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 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 per cent compared to adjusted combined results for Q2 of 2020 picks.
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.
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 TV advertisers across our 41 markets. These new clients, who are providing added lift to our performance as we welcome back our long standing clients.
While these new business dollars span many categories no category benefited more from our efforts.
Then 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 growth inside of the services category.
Looking beyond services or other top five AD categories, all showed year over year growth in March.
Auto reach positive territory in 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's well documented supply chain issues.
I'd also like to call out the first quarter performance of our travel and leisure category, which was up nearly a 100% and keep in mind that compares to a pretty normal quarter last year before the pandemic.
Although travel on 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.
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 as a primary distributor and for 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 into 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 have the Super Bowl every year in 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 into 2024, and a new 10 year deal.
Then 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 a 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 N D. CS 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 a California gubernatorial recall election, where we're beginning to see some spending.
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 'twenty 'twenty two our recent station acquisitions have put us in a strong position to outpace 2020.
As I had said previously.
We have 18 Senate races, 19, governors races, and about the same number of competitive house races that we saw on 2020. So we expect it in other stellar political spending here right around the corner.
Now here's Lisa.
Thanks, Brian and good morning, everyone and the new Scripps networks Division, we have been working diligently over the last few months to launch our new business and began capturing our year one deal synergy we approached the first quarter with these objectives in mind to create the most efficient and effective organization that captures the synergies.
Jesely promised at the eye on acquisition drive strong our 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 shattering the low performing eye on 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 and defy TV in July and the launch of news the over the air. This fall. We expect these networks to reach more than 80 per cent of the country by year's end. Our lives. So strong is only possible because we own so much of our own broadcast distribution.
Our end goal 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 that we can capture 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 network 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.
To expand the distribution of our networks across all T V dealing platform not just O T E O T. T M E T D well 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.
As 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 a highly efficient expense structure to result in division margin of more than 40 per cent.
In addition in our first quarter reporting as a division we were very pleased to have met expectations for financial results.
As our networks portfolio moves to the upfront season, we are getting good traction from advertisers regarding the massive aren't duplicated national audience, we can deliver to them.
These advertisers see us as a 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 momentum on the scatter market as we offer advertisers portfolio sales, where we combine networks for similar demos to expand on 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 move our networks on to eye on spectrum. During the first quarter, we transitioned more than 200 channels from other broadcasters over to eye on this was a major move towards more fully serving the over there.
The air Bueller.
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 other news outlets in the courtroom for the Derrick Sheldon trial in Minneapolis, as well as live gavel to gavel coverage with expert legal commentary and on the ground reporting Court TV has received high international visibility and viewership.
From the trial its full day audience on linear TV was up 119% across the three weeks of the trial and its average weekly streaming audience was 105 million viewing minutes compared to 20 million pre trial.
Advertisers have followed this audience growth and we expect the network's progress to continue with several high profile trials ahead. This year.
During the quarter, we hired veteran journalists and television network executive Caito, Brian to lead our new the Court T V News vertical Kate will lead the way in planning news. These new programming lineup and news coverage strategies as it launches over the air in October we'll be filling the day with original news gathered by reporters and 12 euros across.
The country.
While we plan a number of changes to bolster newsy 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.
News network with a ubiquitous OTT 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 our 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 E U and Chicago P D.
These networks together deliver a collection of 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 for Lisa Brian for assistance on.
On the 800, new to TV advertisers can you talk more about them, meaning you know what was the contribution of needle mover on on segment had revenue is it new businesses opening up plus pandemic on it not where is that money coming from and you seem more bullish on auto versus your peers. What do you think differentiates Scripps portfolio.
From others and then for at least some with the national networks coming 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.
Given the reach of other conversations ongoing are there any anecdotal comments you can share from advertisers I'm thinking about.
Well I'll kick it off Hey, John good to hear from me its Brian.
As I touched on more than 800, new business advertisers were on our air across our markets and in Q1.
We put a lot of focus on new business during the pandemic as our sales reps are working from home, we put a lot of systems in place to be able to <unk>.
Develop 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 those things I mean, it was truly the folk.
For the energy of the hard work of our local sellers.
As I mentioned in my prepared remarks services really benefited from that a real focus on people were spending money on their homes people were taking care of themselves are insurance medical but a lot of money in HVAC, a home renovation pools spas windows contractors, and we took advantage of all of that well people.
We're 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 we put in place early in the pandemic that's for automotive.
Mentioned that it grew sequentially each month of Q1, it was a positive by the end of the quarter.
We're seeing obviously the comps are relatively favorable and second quarter, but we had a really good April and still a good may we believe that 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.
No no impact to our business to some degree 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 experiencing a resurgence of advertisers coming back and we are on as we've guided will be up 20 per cent 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 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 T. V season starts we think C. P M for increased substantially.
That's key categories 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 networks right now you sound like you are very very busy what are the what other limitations to adding <unk>.
Stations are networks, what are the timelines typically to.
Nielsen ratings on them.
Launches and then and then you mentioned kind of long term double digit topline growth and 40% margins. It 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 Kyle Thanks 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.
On a couple of things you know, we just announced this year three really taking 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 an audience builds we would add Nielsen ratings.
Remember that our former case networks, we're really on.
Each of them with the exception of car T D with 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.
And as we build our audience. We will then move toward adding Nielsen ratings, so that will certainly come over time and I E.
Thank you had one other question Kyle.
The limitation on adding new stations I mean, it just seems like if you can come up with a great name and find a category that's maybe.
Underpenetrated and find content that fits it.
And I'm just wondering.
What are the brackets around how many yeah.
That it is a good question because I think it's a complementary question to our strategy on the other T. T. You heard me say in my prepared remarks part of our distribution strategy is not only O T a growth, but OTT growth and I think exactly what you were saying, where we are poised to take nearly all of our brands to OTT and to find cash.
<unk>, where we can continue to continue to expand you know on other content categories potentially on based on our content that we already own or have access to on 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.
We're 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 advantage of that but I think it's and my answer is both O T E. N O T. T certainly are where we see the opportunity.
And then I think I snuck on another one in there on you and that was like do you have on.
Do you have a number of them.
Number of tailwind behind you right now on its platform showing its new platforms for existing channels.
It's new networks coming online, which of those 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 next to me I think our appetite for 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 those levers from a growth driver 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.
The puts and takes on on Retrans as we move across the quarters of 'twenty, One and then the major drivers for 'twenty two.
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 and then just to kind of.
Bring the whole picture back together you know as you know we've completed renewals last year for about half on par subs.
And we're really happy with the outcome for those in and not even included Comcast rates renewing at the on the last year.
If you remember those renewals drove I think more than 30% gross retrans growth.
From an E over 19 on a same station basis.
And obviously that resulted in pretty good margin expansion there.
This year, we had no network.
Renewals are to this point, we don't have any up.
Through the end of the year and so the cadence for the step ups on the expenses you know had been in our favor I don't think we've given our 2021 guidance yet on Retrans, but I think I 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 our households, renewing in 'twenty one.
We've got about 20% in 2022, and then 75% just two years from now so hopefully does that answer. The question you were looking for comp.
Yes, without giving guidance I think it does.
Okay. Thanks.
Thanks.
And next we'll go to Dan Crinose with benchmark. Please go ahead.
Thanks, Good morning.
Maybe just to Brian to follow up on John's earlier question. I know you don't have a crystal ball and we did actually hear from 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 year relative to say 2019, and I know, there's a lot of puts and takes on what we'll have to see how our political shakes out in the back half day or maybe let's just start there.
Yes, Dan look were really.
Excited about the opportunity on the back half for 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 be.
<unk> out we started to see in the last you know.
60 days visit Florida visited Michigan visit, Ohio started a 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 there's going to be a lot of energy around that and of course.
On the stimulus money now in People's pockets, you know, we see the price of of travel the price of 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 in the back half for the year on top of that as I talked about is we got to March and now we're seeing in <unk>.
Second quarter retail really strong home improvement communication. The service category is on fire. So 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.
So that gives us a lot of optimism and then you know.
I think we're building momentum in the back half for the or on political is 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 issue spending in Arizona, Wisconsin, and Michigan as I said earlier on Virginia Governor's race for 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 for the year can look like.
Got it that's really helpful and you can cancel all to come to Florida, as we have enough people coming here already Brian.
But I'm going to Michigan.
On 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 any change to that but one thing that's come up in recent calls has just been the economics on the OTT upfront a lot of those deals were probably struck prior to a pretty significant step up in <unk>.
And I'm just curious you know as you think about upcoming network negotiations or just kind of where you stand on the economics on the linear side and on the OTT package is how you're thinking about attacking that opportunity, especially if the <unk>.
The FCC decides not to reclassify them as M. P P DS, which would be wrong, but it doesn't seem that goes on the attraction 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 on the reality is down that we negotiate these deals on an affiliate board representing all of the affiliates with the networks and these are two year deals are typically something like that three year.
So while there's clearly been a 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 value. 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 to renegotiate that within 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 maybe.
One rational one crazy for you I'm just on the margin front. Thanks for you know obviously your reiteration of the long term target in your Q1 crushed it though on the national side and I'm, just curious how youre thinking about sort of we have <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 we're at just over 100 days and operating as the new divisions that were still you know a parting ways with employees also adding new employees as we build throughout the year on evaluating our program schedules on those sorts.
So you know our expenses as I reiterated our you know 40 per cent 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 a couple of new networks that are launching on July newsy over the air in October so you'll see.
A bit of lumpiness throughout the year, but reiterating that that 40% 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 a portable beyond domestic borders if you have content rights.
For my Crazy to think that there is on a longer tailed opportunity to get some other stuff.
You know I know they have distribution agreements probably internationally already with a lot of this content but.
Is that a crazy thought that you can start to push some of this a little bit beyond 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 this Dan we do have a little bit of international on a distribution with court T V. In the UK on and that's something you know we're certainly 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 I think that we need to deliver on both from an O T. A perspective as well as an OTT perspective, as I mentioned, we've got a lot of things for lunch here.
On that we are on really.
Really believes 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 in the OTT space with fast services. The free AD supported TV services you.
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 Rd set up we'll look at the opportunity we have to continue to expand beyond North America as the case merits.
But at least at this 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 and then in North America, both O T E on OTT and ideally expanding.
Expanding our ability to grow our audience and youll higher revenue from.
From here.
Yes fair enough. Thanks for all 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 a big four station 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 theres. Some court 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 on it sounds like the market is strong can you just give us any sense of what spot pricing is done for those impression.
And then 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 two things can be true at the same time, we think we have a lot of opportunity to continue to head in local media.
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 you're right I mean, there is some pressure on subs.
And this company has made a major move into 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.
Division as consumers make decisions on their own about where theyre going to consume television. We are 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 air 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 a viewer we expect the value of the viewer on 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 a viewer for our network side will also continue to increase as we grow the share of audience, we get in the O T E marketplace. One important point I'd make also it's not a mutually.
Lucid proposition oops.
T E growth will continue to grow and a lot of consumers plug in digital antennas, along with streaming services along with participating in <unk> 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.
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 on otherwise find growth businesses and this media ecosystem with a 40 plus margin.
Right 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 due to demand and yeah.
Obviously C. P ends are also increasing early you know we've seen some early success on some other 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.
We haven't mentioned it but the D. Our advertising space has continued its strong momentum on.
On from late last year into first quarter, and we're seeing you know.
Demand and rate increases on the Dr side so on.
Obviously, you know our guide of 'twenty up 20% on you know its all about maximizing the mix that we have on our on our on our networks and we're really focused on maximizing those dollars whether its in a day or space or the general market space.
One comment I'd add also.
As you know we leased it did a nice job on walking through the for growth drivers that we see for the Scripps networks, I guess I'd add a little commentary in that now that we've been inside the business getting getting a better view of what we're acquiring at eye on they've got a really nice job on building their business as a single network, but it.
It's very clear that we will be benefited in the advertising marketplace by both bundling I on together with our other networks.
Yeah, 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 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 on the masking that both on the Scripps networks side that would be first and then Brian I'd Love to hear your thoughts too for the syndicated program on your buyback.
How are you finding as you find it advantageous right now if a volume programming.
What are the opposite.
Yeah.
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 our content and in as many ways as they can and whether that's through you know cable and in our case through other T April.
Cash.
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 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 per cent. So we're really pleased with what we're seeing.
For instance, 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 so.
Next season will start in September and so most of our programming is already locked up through that point.
You know what we've learned is that when it comes to syndicated programming scale matters and you know when you represent 25 per cent of the country with some great television stations like we have other people come to us for early early wanting us to be a launch partner and trying to clear a core of the country with some of the country's best TV.
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 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 either news expansion of our own product or syndicated we get to pick what's you know because I have the best return and the best profile for 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 you.
We're going to launch this year and then what are the ones exactly that you did shut down not clear on that thank you.
Yeah, So Craig and I on head and sort of a nascent and.
On a digital a digital.
Digital sub channels that they ran and they also ran some you know shopping channels and so that was cubo and I on class and those were the two that on obviously in order for us to news on 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 case network on.
Those networks were migrated on to over 200 channel I think we mentioned over 200 channel for migrated on to eye on the digital sub spectrum, which was a big piece of our delivery of the distribution synergies that we talked a lot about at the time that the eye on the acquisition.
Help you with that so think about balance and last court T V grid.
On Court T V Ministry, but other than the former Cape networks that are now migrated on we we like to think of them as over the air networks not networks on digital sub channel because they're all.
On.
Available free.
Over the air.
The two new networks for launching on true real Enterprise T E.
On July 1st a reality based on one nail skewing one female skewing and then certainly we talked a lot about newsy are going over the air on October 1st.
I appreciate that.
Brian or Adam.
Hum.
Recent Supreme Court ruling out other do with transactions in your local media space.
What is your thought on the Supreme Court ruling or do you think it can materially change things out there from a deal flow standpoint.
Yes.
Yeah.
Look I think that it provides some clarity that was much needed I would expect that the UHF discount is something that you know will probably be taken up by this 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 a second big for in those markets at this point, but it's not out of the realm of possibility.
By proving how the local community would benefit, but even the benefit of adding E. S.
CW on my network, and independent and being able to expand our local news and credit and expense 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 other decisions. This FCC makes but I think the elimination of the eight voice. So this 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 go to <unk>.
Second big for ore.
Out of CW from one of my network and welcoming did that change much book from 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 from in the past I think that opportunity now exists.
It's easier now okay.
I look just nitpick question your Retrans subs Brian.
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 from Michael Kaplinsky with Noble capital markets. Please go ahead.
Thank you I wanted to follow up on your comments about the better.
Other than expected free cash flow and 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 Yeah, so from a leverage perspective, we said it many times. It for you know we're committed to managing towards a clean and flexible balance sheet. The targeted debt leverage we had at the end of Q1 was $4 seven which is better than we would have anticipated when we modeled out the iron transaction and our goal is still to get to.
We get leverage in the mid threes.
As we start to shake out some of the most significantly impacted COVID-19 quarters from our LTE way, you'll 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 that color and then a question because I know that you've been updating some of your stations with the E. TSB free Porno can you just give us some thoughts about what you learned from that upgrade and where what might be the revenue opportunity there.
Hey, Mike It's Brian Yeah, right now we're pretty active in.
The advancement of that a lot of the testing I think for you know you're on two I've been 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 you know that market has been now up and running in a T. A C for over a year on a lot of testing continues there.
The expectation is that our I think the target for the industry is to get somewhere in the 50% to 60% of our of households.
<unk> served by a T. A C. 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 that 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 as you start to put the.
Free together, so you know where the lighthouse stick and in Detroit and one other things that we've done has carved out a part of our spectrum and basically giving it to the auto industry to use as a testbed and so we're working very closely with auto manufacturers as well as suppliers for auto.
To test the viability of a spectrum relative to updating entertainment systems in cars.
And you know 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 as you go bounce from market to market to market the mobility of it.
On 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 there's 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 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 said and done.
Brian Thanks for the color that's all I have thank you.
And with no further questions I will turn it back to the company 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.
Yeah.
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