Q2 2021 E W Scripps Co Earnings Call

August 6, 2021

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Ladies and gentlemen, thank you for standing by and welcome to the Scripps second quarter 2021 earnings call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time should you require assistance during the call. Please press Star then zero.

The operator will assist you offline as a reminder.

Your conference is being recorded I would now like to turn the conference over to your host head of Investor Relations Carolyn Micheli. Please go ahead.

Thank you Louis 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 the Scripps Dot com for more information and a link to the replay of this call. A reminder, that our conference call and webcast include forward looking statements and actual results may differ factors that may cause them to differ are outlined in.

Our SEC filings, we do not intend to update any forward looking statements we make today.

Included on this call will be a discussion of certain non-GAAP financial measures that are provided a supplement 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 or the reconciliation.

On a non-GAAP financial measures to the GAAP measures reported in our financial statements.

We'll hear first 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 first piece.

Here's Adam.

Good morning, everybody and thanks for joining us today's Scripps is reporting a quarter of these across the board as we continue to deliver stellar operating results driven by strong sales execution in both our local media and Scripps networks businesses in fact, what appears to be industry, leading results in local.

Both divisions turned in higher than expected revenue and profitability aided by the return of the U S economy, and the AD marketplace as well as excellent work from our sales teams.

Because of this strong performance and with a clear view into the back half of the year I am very pleased to share that we have raised our free cash flow guide for this year from a range of $210 million to $240 million to a new range, starting at $240 million and moving up to 260 million.

Yeah.

Investors, who have been with us and our sector for a while will recognize this is a remarkable achievement in a non election year.

Today, we are in the early stages of an economic recovery still very much navigating a global pandemic and 7 months into the successful integration of the company's largest acquisition in its history.

This level of execution, the second quarter results and today's free cash flow guide would not have been possible without the transformation of this company over the last several years.

We have assembled a large portfolio of high performing local television stations to serve local audiences and an expanding list of advertisers a platform of scale that captures the full retrans revenue opportunity and is exceptionally well designed for political advertising.

We have better aligned our company's expense structure with our current operating structure.

<unk> tightened our focus and unlock shareholder value. When we grew and then exited our podcasts and digital audio businesses for very nice cash on cash returns.

And through M&A innovation and organic growth emerged with a full scale national TV networks business, the largest portfolio of national broadcast networks, reaching more than 90% of U S. TV households, with exceptional margins and an attractive organic growth profile.

And an expanding TV marketplace.

I hope Youll agree that Scripps today is a high performing company at every level and enterprise that once again has proven its ability to manage through change actually I should say take advantage of change as an opportunity and execute at the highest level for the benefit of our shareholders.

The second straight quarter of exceeding expectations. After the company's transformation is merely the beginning of the near term benefit of our work. We are realizing these short term gains. While we are also positioned exceptionally well for the longer term value creation ahead.

And we see no reason to sacrifice 1 over the other we know that investors want us to achieve both at the same time.

We aren't sacrificing our mission focus either and I'd like to end with a few words about meaningful recognition. We recently received.

A few weeks ago, the NAV leadership.

Foundation recognized Scripps with its prestigious 2021 service to America Award.

This award honors 1 company for its outstanding community service and we were honored for our local station projects, the rebound, which helps our viewers navigate the road back to economic recovery.

We are incredibly proud of our local teams all across the country, who executed this important and ongoing initiative.

In addition, Scripps received 3 top women in media awards from Synopsys media.

Scripps Networks' President Lisa Knutson was honored as a corporate visionary.

Chief Diversity officer, an employment attorney Danielle right was recognized as an industry innovator and disruptor for her work to bring Scripps is equity diversity and inclusion strategies to life.

And Scripps itself was selected as a 2021 distinguished company because of its work to support and promote women leaders.

These awards recognize some of our most closely held company values, serving our audiences through objective news and information leading the way toward the future of our industry and maintaining a respectful inclusive workplace. We very much appreciate this independent acknowledgment of our <unk>.

<unk> hard work.

Now here's Jason.

Thanks, Adam and good morning.

I'd like to start our discussion of Scripps second quarter 2021 results with a reminder, that our earnings tables from February 26 provide an illustrative looked at those 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 as though we had non <unk> exit New York.

Tables also for expense illustrative Scripps networks results as though the division had been formed on January 1 of 2019.

The sale of WPS closed on December 30.

And our acquisition of ion closed on January 7th.

My comparisons today will be on net adjusted combined basis.

Can find our as reported results in today's press release.

Let's begin with the local media results for the second quarter.

Total division revenue was up 22% for $58 million from the second quarter of 2020.

For the strong performance was driven by core advertising revenue, which was up 48% as we see the ongoing return of the local and national advertising marketplace and continue to develop significant new to television business.

Our 48% increase nicely outperformed our guidance of up mid 40% as well as the performance of our peers, who have reported this week.

Political AD revenue for Q2 was $3.2 million.

Local media retransmission revenue was up 11% in Q2.

That number also was above our expectations driven by smaller than expected declines in our subscriber counts from the fourth quarter of $2020 for Q1, our latest reporting period.

Local media expenses increased 13% over the year ago quarter.

In addition to contractual programming expense increases.

We have added back some of the Covid related cost cuts from Q2 of 2020, but we've done so conservatively with consideration for the pace of our revenue rebound.

Local media segment profit was $65 million.

Turning to the Scripps networks Division revenue for the second quarter of 2021 was $239 million up an impressive 23% above the prior year quarter, adjusted combined results and above our guidance of up about 20%.

The outperformance was driven largely by strong direct response business.

Segment expenses rose, 7% over Q2.2020 adjusted combined results.

Segment profit for the networks was $107 million delivering a margin of 45%.

Turning to shared services and corporate expenses, they were $19 million in the second quarter, a bit less than our guidance of about $20 million.

The company's Q2 loss from continuing operations was <unk> 14 per share.

Several Q2 transactional items decreased income from continuing operations by <unk> 58 per share.

Among them was a noncash charge totaling $31.9 million related to the Berkshire outstanding common stock warrants.

Just a reminder, we brought in Berkshire Hathaway to help US fund the <unk> acquisition and as part of that arrangement issue them a warrant for $23.1 million class a common shares at a price of $13 per share.

Our stock price gains in the second quarter increased the fair value of the warrant how.

However, we have now amended the Berkshire warrant and we will not record changes in fair value in future quarters and keep in mind. This charge is not directly related to our strong second quarter operating performance.

The quarter also included $7 million in acquisition and related integration cost and.

And about a $5 million in restructuring costs.

On June 30, cash and cash equivalents totaled $86 million.

And net debt was $3.2 billion.

On may 15th Scripps redeemed $400 million in 2025 senior notes for redemption price equal to 100% to 563% of the aggregate principal amount.

We also made an additional principal payment on our 2028 term loan totaling $50 million.

Our net leverage at the end of the second quarter remained at 4.7 times for the calculation in our credit agreements.

With our new cash flow profile, and our 2022 political AD revenue outlook, we expect to move our leverage into the low 4 times range next year.

We will continue to pay down debt consistent with our commitment to move back into our historically lower leverage range.

Looking ahead I'd like to give guidance for a few key areas.

We expect total local media revenue for the third quarter to be down in the mid teens percent range that includes core AD revenue up in the mid teens percent range.

We expect Q3 local media expenses to be up in the low double digits percentage range.

In the Scripps networks Division, we expect Q3 revenue to be up in the mid teens percent range in comparison to adjusted combined results for Q3 of 2020.

We'll be launching new the over the air on October 1 and we expect to see that new revenue stream begin to build in Q4.

Networks' expenses are expected to increase in the low to mid teens percent range.

This Q3 expense guide includes the cost of launching the 3 new networks over the air I think of it as a quarter or 2 of networks from startup investments in advance of the revenue build.

While we expect the networks division margin to contract a bit in the third quarter and begin growing back by the end of the year, we still expect to deliver a full year margin of at least 40%.

We expect Q3 shared services costs of about $19 million.

And finally as Adam explained we now expect to deliver 2021 free cash flow of between 240 and $260 million.

We raised that range because of our strong revenue performance across the company.

From local core advertising to stabilizing subscriber accounts to direct response and general market and strength at the networks.

Free cash flow number in that range for 2021 will far exceed what we would have generated in a non election year prior to the eye on acquisition and are remaking of the company.

And now here's Brian to talk about local media.

Thanks, Jason Good morning, everybody for the second quarter, we are reporting local core advertising results, where our outstanding sales execution put us in a position to outperform our peers.

With a rising consumer confidence and discretionary spending we saw a year to year growth in our 10 largest advertising categories. Our largest category services saw a 35% jump in year to year spending.

Our automotive category was up 64% compared to a big drop in Q2 of 2020, but also despite the chip shortages that are causing inventory issues.

Our retail category was up 66% in Q2, and our fourth largest category travel on leisure aided by both sports betting and American's return to travel and entertainment was up more than 600%.

In addition to a strong AD market, our core AD revenue is being bolstered by our success, capturing new to television ad.

Advertisers last quarter I told you we brought in over 800, new advertisers while on this quarter, we had over 1000, new businesses advertising on our local stations.

Across our footprint, we are focused on maintaining a strong and consistent effort to bring new business to local TV and effort, we expect to continue to pay off.

Turning to political advertising, we now believe that we will outpace our original 2021 expectations of low $20 million range and are on track to deliver in the high 20 millions for this year as we ramp to the 2022 mid term elections.

Our retransmission revenue also has outpaced our expectations for the second quarter as we gained more virtual mvpds subs than we had expected.

Virtual subs now accounts for 13% of our total pay TV households.

On the network side, we were pleased to have completed negotiations with summer for new affiliate contracts with CBS for 6 of our stations consisting of our top rated stations in Montana and Nashville.

Additionally, we have new contracts with the CW network for our 12 affiliates.

Looking ahead, we will have all of our network negotiations behind us by 2023, when we reset 75% of our pay TV subscriber base there.

The timing of our network and Mvpds renewals positions us well to maximize our retransmission revenue opportunity in less than 18 months.

I'd like to end by calling out a content and revenue initiative, we have launched in Florida, Florida is a very important state for Scripps we own 6 stations there. It's a place with a lot of breaking news extreme weather and very active political climate.

Scripps has doubled down on its commitment to our Florida audiences and advertisers with Florida 'twenty for a statewide news network available on over the top platforms across Florida's largest markets and.

In addition to the added service to our communities, Florida 20 for positioned Scripps well to capitalize more broadly on business opportunities across the entire state.

Now here's Lisa.

Thanks, Brian and good morning, everyone. Scripps networks Division has had a terrific start for the year in its first 7 months as a business after delivering strong results in the first quarter, we beat our second quarter guidance on revenue and margin. In addition, we continued to capture our 1 year deal synergies, we launched 2 new over the air networks.

92% of the country and we prepared for the launch of our ninth OTI network in October.

For Altice fully transitioned ion E.

Our direct response agency and we have smoothly integrated our new divisional employees into the organization. The pace of our work has not slowed down and our achievements continue to stack up.

Over the course of the second quarter. We also conducted our upfront presentation and the results have been beyond our expectations tremendous year over year growth.

<unk> growth compared to past ion and cage upfront substantial increases in CPM and significant expansion of our advertiser accounts.

All of our networks are benefiting from our portfolio strategy and the reputation Scripps networks and building on the leader and free TV with high quality programming that distribution and strong audience delivery I'm happy to share a few highlights.

Overall upfront total dollars committed to scripts were up more than 20% from the separate upfront of ion and the case networks last year and new did Scripps networks advertisers represent about 25% of our upfront dollars. This year.

The balance upfront revenue growth more than 50% from their 2020 upfront and CPM debt balance increased by high teens to low 20% low 20 percentage outpacing the reported upfront performance as nearly all cable networks.

National advertisers are increasingly eager to reach black audiences and balance is the number 2 launched national network for those audiences.

At ion we saw solid double digit growth in dollars and mid to high teens growth in CPM. In addition, about 20% of its upfront dollars are coming from advertisers who are new to ion. So we're pleased to be winning that vehicle.

Finally, our brand new reality focus networks true real and defy TV received nearly $10 million in commitment. We were extremely pleased that these 2 networks are attracting general market advertisers. So early in their life stage and that helped has us very optimistic about their future.

Keep in mind that no revenue from upfront as reflected in our Q2 results or Q3 expectation you'll start seeing net revenue flowing on during the fourth quarter of this year and through the third quarter of 2022.

Our successful upfront and the commitments that big brands in general market advertisers are making to our networks are now driving us forward into the scatter market with confidence.

The strong upfront season is also a testament to the ongoing importance of linear TV and the national advertising marketplace.

Turning to programming, we launched true real and defy on July 1 and it reaches nearly 20 or 92% of the U S primarily through our own station spectrum.

Once again, we're realizing that owning our own distribution is quite a competitive advantage given the national reach we can entertain.

On October 1 for lunch Newsy with the same 92% range and I'd like to spend a moment talking about near the strategic evolution.

The new leader of our news networks Caito, Brian came out of ABC News and other news organization with tremendous vision and depth of experience. She is preparing.

For this broader national stage in a new way with seasoned reporters more presence in Middle America, and a new level of collaboration with our 40 local news teams and our Scripps Washington Bureau at the same time. She is deepening new these commitment to objectivity fact, based reporting and great storytelling.

Well rounded approach to journalism that research shows National news audiences are craving.

Newsy has had tremendous success on over the top platforms and we look forward to bringing it into nearly every American household.

Regarding our entertainment programming, we launched Chicago fire on ion in mid June and that show, it's literally on fire for us with double digit gains in viewership over the prior show in its time slot.

Also during the second quarter balance grew its share of the 18 to 49 year old audience in prime time on both a year over year and a quarterly basis.

Sunday Night, we launched a new original program at <unk> that we're very excited about Paul Johnson Cedric day entertainer at the executive producer of the <unk> and it's about for Black men, who are close friends that all happen to have the lapsing Johnson more than 2 million viewers watched the premiere episodes. That's the most watched half hour series launch and <unk>.

<unk> history.

And we were able to run the show afterward on ion increasing its visibility and maximizing its impact a clear benefit of our network portfolio strategy.

All 9 of our Scripps networks are bringing their high quality programming to at least 90% of the U S. TV households over the air as we capitalize on that growth marketplace.

Over the top of course also a fast growing marketplace and the Scripps networks are available there as well both newsy in court TV are fully distributed on OTT platforms and all of our networks will eventually be available across the big OTT services capitalizing on the migration of National AD dollars to connected TV and <unk>.

Increasing OTT viewership is also a key pillar of our national growth strategy.

I'd like to end by reminding you that we expect our strategy of creating a national news powerhouse to deliver a solid double digit revenue growth over the next few years on a highly efficient expense structure to result in division margins of more than 40% and now operator, we're ready for questions.

Thank you and ladies and gentlemen, if you wish to ask a question. Please press. The 1 then zero on your telephone keypad.

Again, if you do have a question please press.

First 1 then zero you will hear an acknowledgment tone net.

You've been placed in the queue and you may remove yourself from queue at any time by repeating the 1 zero command.

1 moment for our first question.

And that question will come from the line of Steven <unk> with Wells Fargo. Please go ahead.

First Adam and Lisa can you talk about the new Z launch and what sort of advertising commitments you have there how much on newsy do you think about selling out ahead ahead of time versus maybe what you might win a hold back in scatter or programmatic.

And Lisa as you put all of the networks portfolio together can you just talk about in the upfront are you selling on a combined basis are you still kind of selling on an individual channel basis.

So a little bit of color there and then just lastly, maybe for Jason on the free cash flow guidance is that increase all from advertising I know sub declines have also been going a bit better than maybe cost synergies. So if you could just frame that up for us that'd be great. Thank you.

Stephen I'll I'll take a few of those and Jason can follow up and I may need you to repeat a couple of them.

Sorry, there was a lot of net if you no problem.

So in terms of new day remember new these growth over the last several years has come from OTT. So we are building on that base and when we launch networks like we've done with true real <unk> TV as well as the other case network, we really start layer.

Layering in Dr advertising early in the process. So that will begin to build in fourth quarter. So we don't expect to to really be selling on newsy in the.

Certainly not in the Upfronts and not in the general market until we build audience over time on OTI sales.

We are continuing to maximize our OTT revenue and over time as audience continues to build we will start to layer in general market advertising, but Dr. As we've talked about is a lucrative.

Certainly a lucrative marketplace.

We are on.

Especially in fourth quarter, there's a lot of health care dollars that are in the system and it's just on perfect.

Perfect timing for new these launch to be able to begin to capitalize on that as health care dollars.

I think your second question about the Upfronts, maybe portfolio says Oh, yes portfolio.

Strategy. So the answer is yes.

That's part of our certainly our strategy in every 1 of our networks that we sold in the upfront benefited from that strategy.

So we do sell both individually certainly ion beam the law.

<unk> network that we have and you heard in my comments balance we just saw such tremendous on.

Demand for balance on the upfront on a 50% increase on over last year, but every single 1 of our networks, it's sort of all boats rose on as a result of the portfolio sales approach.

Steven in regards to the question on free cash flow move it was a variety of factors certainly the biggest of those is our outperformance in terms of advertising revenue.

Retrans is pacing a little bit as well, which is helping and we did have a small move as well in terms of cash tax expectations for the years, but again predominantly driven by the advertising revenue.

Great. Thanks.

Thank you and our next question is from John to Dennis.

Wolfe Research. Please go ahead.

Close enough.

Maybe 1 for you on 1 for Bryan.

I wanted to follow up on your comments on the direct response advertising because it sounds like it's not clearing as much on other networks and you might be uniquely positioned to benefit from that so can you talk about how the tightness on network impacts pricing and demand and to what extent you think that could be a.

From a multi quarter tailwind just based on tightness of supply and then Brian on the new to TV advertisers do you track how sticky they are meeting of call. It for 800 or so from <unk>, how do those typically retain call it an <unk>.

And I guess expectation for subsea sub.

Second quarters on retention and how does the spend on those new to TV advertisers typically trend over time.

So John.

Take the first question. So we believe we're really uniquely positioned our strategy from the beginning that we talked about on at the Iron acquisition closed for its really to maximize revenue between <unk> and general market So as demand.

Certainly tightened to end on.

Alright.

On the general market side.

Able to shift dollars to.

Our Dr advertising for them and we've seen great success there.

Primarily.

Ion and balance you think of those as big General market.

Networks and then the remaining each network has its own.

Its own mix of revenue just to give you some sense of it about.

About for 2021 year to date, it's about a little bit of about $50.50, So general market and Dr. And again, we're maximizing to the highest rate possible as we continue to.

<unk> worked through the life stages of each of these businesses.

Hey, John its Brian following up on your question about the new to television advertisers. So the way we look at that when we develop a new piece of business.

That's never been on TV before we consider it a new advertiser for 12 months.

So that 800.

Advertisers that we referenced in the second quarter some of those in first quarter. Some of those would still be considered a new advertiser in second quarter.

But then obviously some probably turned off maybe they have now lapsed there 12 months and they are considered a regular advertiser and several hundred new ones were added into the quarter.

Typically they're pretty sticky these are local accounts that we develop local relationships with.

We sit in their car dealerships from their furniture stores.

And talk with them about their strategies in achieving their goals. So historically, we would have over 75% retention rate from when they expire from the 12 months of being a considered a new business client until they would rollover to just be a regular advertisers. So none of those thousand advertisers would be reported a year ago.

On a year from now as a new advertiser.

That helps thanks, a lot yes.

The next question is from the line of Dan Cornhouse with benchmark. Please go ahead.

Great. Thanks.

Adam obviously, I don't think it directionally relevant to the national business, but maybe could you just spend a second discussing jonathan's departure from the networks.

Yes, sure I mean, Jonathan did a tremendous job as an entrepreneur and a leader launching the capes networks for a balance and then the others.

And then continuing on through the ion acquisition under Lisa's leadership really helping to set the networks up for success.

Totally understandable that an entrepreneur of his caliber would would want to go on and do something different particularly after.

The acquisition.

We wish them the best we have a great relationship with him and and expect that we will continue to do so.

Thanks for that.

Did I hear it is that Theres, another network coming or am I misinterpreting those remarks.

When I refer to the third network its new vota. So when we launched news on October the.

Third network for launch this year.

Got it.

Just maybe I think you gave a really helpful. Color can you talk just a little bit more about the performance of the recently <unk> networks.

Network.

Now that youre seeing in the marketplace right now.

At week 6 so it's early days, but we are really heartened by.

Our.

<unk> ability to attract.

Dr dollars.

As I said earlier each of these networks starts on the Dr marketplace and builds over time, and so we're seeing and honestly 1 of the fastest growth and 1 of the 2 networks that we've seen in the launch of on our TV networks over the year. So.

We're really pleased I think attracting the 10 about $10 million in the upfront is really a testament to <unk>.

1 our portfolio sales approach, but also I think the.

Our ability to on.

I think look we got this right with these 2 new networks that were attracting general market advertisers earlier in the process than any other network, we've launched on over the years.

Great. Thanks, and then for Brian just on core.

Obviously, a strong guide and hearing consistently Q3 kind of in line for us to better than 2019 levels, just categorically what youre seeing.

Auto obviously still a challenged category, but maybe just help us get some more updated granular thoughts there would be great.

Yeah, sure Hey, Dan.

Look I think auto was probably the 1 category in our top 10 Thats got some headwinds.

We did share that we had a great performance in Q2 with auto I think we were also reported that.

July was up year to year on auto I think the lack of inventory is finally catching up with these dealers I was on a local lot. This weekend I said it probably normally would have 400 cars and I'm not sure I saw 40 there.

No.

Yes.

Theyre all stacked up ready to go they just need chips and parked all over the country.

But I do think that we're going to have a couple of months still.

Challenges in auto beyond that we've talked about service category.

That's been such a growth driver for us over the last several years medical legal financial Bank home services everything HVAC pest control all that really significant growth as people are investing.

In their homes travel and leisure, obviously finally, the return to more normalcy at least there has been.

Sports.

Sport franchise, our advertising concepts back travel state states are encouraging people to come visit them.

And then add to that the sports betting which has.

Ben obviously, a significant driver for us we've probably got I don't know 8 or 9 states now that.

We'll either have already or will have legalized sports by the end of the year, we're about to launch, Arizona with our footprint in Phoenix, and Tucson, and that'll be a really big day for us and Thats about to come on line at the.

End of the quarter, So I think.

All of the momentum you see the fact that we are now significant down and about to catch up to 2019 tells you.

For auto everything else has got a lot of momentum to it.

Thanks, Dan.

And our next question is from Mike Pinsky with Noble capital markets. Please go ahead.

Just a couple of quick questions I know, obviously, you sold your podcast business and so forth.

This might have a reflection on maybe your digital initiatives and I was just wondering since you didn't really mention much about digital and what.

What's going on with websites website development and things like that I was wondering if there is a change in thought of your direction in terms of your digital strategy and what maybe you can explain whether or not you think there is an opportunity still there.

So I was just.

What are your thoughts about your digital strategies.

Hi, Mike its Adam Thanks for the question no. There is there is no change in strategy I mean, we expect that our.

Our digital presences presence is at this point in our local media marketplaces as well on National are table Stakes for the well developed brands that we run I think 1 area. We're definitely focused on is in the over the top space and we've seen tremendous growth in both audience and revenue in OTT in our local mark.

<unk> as our local newsrooms produce more and more content that audiences are seeking at all hours on local platforms. All of our brands are launched on all of the major OTT OTT platforms and all of our all of our account executives at this point are out in the marketplace selling OTT.

Advertising as part of their TV portfolio because it is TV. It is just delivered digitally likewise on the national side.

We are moving all of our brands into the OTT space, We're very focused on the free AD supported TV opportunity also on OTT and connected TV and we've seen strength continued strength with Newsy and court TV in the sales marketplace, which gives us I think very a.

Very good signal that as we continue to move our entertainment brands into the OTT space will be well equipped to monetize those so to be clear no change in strategy digital is incredibly important both for our news audiences and news advertisers and and local advertisers and it will continue.

To be a pillar as Lisa said of our network strategy for.

For the foreseeable future.

Okay.

Brian you talked a little bit about your Florida State wide news network and I know that these.

Lot of broadcasters and launch these networks in the past and they've had like to check on performance and I was just wondering what is your strategy here is it more to provide.

News cognitive for your stations in the market or in syndicate that news out or how are you eventually thinking this could be a.

Like a cable network or what are your thoughts in terms of how you see the network develop.

Hey, Mike.

Look I think our strategy is really different than all the others that have started because it would create an OTT network and so.

With that foundation, our cost base is much different.

And our ability to take content from around the state and pass it through.

It is far more efficient.

We are we finalized some partnerships in the state with some other groups from the markets that we don't have but we think as people are moving toward more streaming and looking for more local news.

Rather than have the heavy lift of a massive studio and a big production facility in trucks, all over and that kind of thing having an OTT platform that allows any of our local markets to insert some local stuff, but being able to share that across the state is really efficient and of course with our our platform on our footprint with 5 markets from <unk>.

Patients.

On some really dominant stations I think theres, some really compelling not just day of news, but enterprise around what's important around the state.

On the sugar fields water.

Oil or those kinds of things and I think it is important to all floridians and so I think we've built a very cost efficient platform that will allow us on our partners to monetize that in our local markets.

Great.

Brian I was just wondering in terms of you mentioned about auto industry is doing up there with some headwinds in Q3 are there any changes in the AD categories.

From Q2, Q3, I know, obviously, you're facing more difficult comps and so forth but.

Other changes in the composition of what Youre seeing in terms of the <unk>.

Net.

The percentages maybe of the contributions from Q2 to Q3.

And Mike I assume youre, just talking broadly that specifically in auto.

Correct.

Look I think our ranking of our top 6 or 7 categories. Hasnt changed services is still number 1 auto is still second retail.

Very comfortable third travel leisure home improvement.

Bring on our top 5 services, 35% of our business that's been a growing category, even when auto was healthy.

Services replaced auto as our top category several years ago, and just continues to build on auto right now was about 15% to 17% of our business in the last couple of years, it's been about 20, and I think that's where it settles back in when it hits momentum again, I don't ever see an opportunity where auto has.

Enough momentum nor enough dollars to get back to now the strength of our services category.

Sure. Thanks, Brian I appreciate it.

Thanks, Mike.

Yes.

Thank you and once again, if you do have a question. Please press 1 day zero and we will go to the line of Craig Huber with Huber Research. Please go ahead.

Thank you my first question if I could ask.

Last quarter, Brian and the quarter before I believe you said Retrans subs net of OTT was down 5% each quarter on a year over year basis, what wasn't in the quarter. We just finished police was similar.

The right net range again, Mike were down mid single digits year over year, we did see a little bit of improvement in our trailing 4 quarter churn rate.

But not overly dramatic right in that range down 5% okay.

Next question.

Broadly, Brian and I guess from the Scripps networks on local and national with this new variance here on the virus front are you seen any impact at all reasonably on a national level on certain categories. There any impact at all with the ups and downs for this virus senior business, Yes, I'll take it first Craig.

<unk>.

Really minimal to this point.

<unk>.

Theres only obviously, we got a big footprint in Florida, and so we're watching Florida closely and we've seen a couple of little things. We've seen a couple of legal folks pushed some money from Q3 to Q4 as maybe some courtrooms are delaying.

Delaying their opening we've seen a little bit of money on health care, where hospitals are now filling up and saying Hey, we don't need to advertise we don't want to cut our budget, we just want to push it back.

Back.

60 days or something like that and.

And those 2.

Examples are specific to Florida, and they are relatively small we have not seen any other impact as a result of the variant Craig.

And Craig on the National side, we've seen no impact.

Okay. Thank you for that.

Next question.

I on synergies can you, maybe just update us on that how it's going so for.

7 or so months into this.

How are you tracking towards your long term goal for synergies here.

So Craig we're tracking very well.

On already locked in the year 1 synergies.

I think we made some announcements probably the week. After we closed the deal in terms of locking in the people synergies so.

We feel very good about it right.

Right on track and feel good about the future synergies as well.

And then my other bigger picture question is I'm trying to figure out here your thoughts here, Brian for your TV station margins, obviously, they are lower than some of your public peers out there where is the opportunity to hear that you explained how you would explain to investors the upside even margins help close that gap as we think out over the next for <unk>.

5.6 years here on the Retrans side for right, there, which on the AD revenue side is there more to do on the cost side Where's the opportunity of close that gap.

Yes.

Yeah, Hey, Craig look I think <unk> been on this journey with us for a long time and you've seen that.

We've significantly improved our margins over the last decade dramatically.

Other than they used to be.

Some of that through sales.

Execution, some of that through M&A and changing our profile.

We've got a much more balanced.

<unk>.

The portfolio now of ABC NBC CBS Fox.

More number ones then we've had I think as we've talked about probably 1 of the reasons why our margins were lower was the company's investments.

15 years ago and HDTV.

And launching food and all those different networks at a time when people were adding very profitable second stations.

Our strategy was investing for a really good return in the networks business. So I think we've been aggressive in the last couple of years trying to pick up second stations. We just launched a second station in Denver. This year, we added a second station in Phoenix as part of our Tribune acquisition. We also acquired a couple of others. So we're very much focused on.

On that and I think that is probably a big differentiator between us on some of our peers.

Beyond that look I think R. R.

As we said our commitment to new businesses moving margin for us our political strategy is moving margin for us.

Our content strategy or improvement in ratings, especially on some of our larger markets has been significant that's moving margin for us. So we can flip it overnight it has been.

A journey and I think you've been following along with us but.

I am really pleased with where we're at and recognize that we still have more growth opportunity ahead of us.

Brian if I could just follow up on that do you think theres more upside in your retrans rates relative to what you understand from your peers have out there.

<unk>.

Thank you very much.

Thank you and at this time there are no further questions in queue. Please continue.

Thank you Louis and thanks to everyone for joining us today have a great day.

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Your conference is being recorded I would now like to turn the conference over to your host head of Investor Relations Carolyn Micheli. Please go ahead.

Thank you Louis good morning, everyone and thank you for joining us for a discussion of the EW Scripps company's financial results and business strategies, you can visit Scripps Dot com for more information on a linked to the replay of this call.

Under that our conference call and webcast include forward looking statements and actual results may differ factors that may cause them to differ are outlined in our SEC filings, we do not intend to update any forward looking statements we make today.

Included on this call will be a discussion of certain non-GAAP financial measures that are provided a supplemental 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 or the.

On a non-GAAP financial measures to the GAAP measures reported in our financial statements.

We'll hear first 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.

So on the call as controller Dan for PS.

Got it.

Good morning, everybody and thanks for joining us today's Scripps is reporting a quarter of beats across the board as we continue to deliver stellar operating results driven by strong sales execution in both our local media and Scripps networks businesses in fact, what appears to be industry, leading results in local.

Both divisions turned in higher than expected revenue and profitability aided by the return of the U S economy, and the AD marketplace as well as excellent work from our sales teams.

Yeah.

Investors, who have been with us and our sector for a while will recognize this is a remarkable achievement in a non election year.

Today, we're in the early stages of an economic recovery still very much navigating a global pandemic and 7 months into the successful integration of the company's largest acquisition in its history.

This level of execution the second quarter results on today's free cash flow guide would not have been possible without the transformation of this company over the last several years.

We have better aligned our company's expense structure with our current operating structure.

Tightened our focus and unlock shareholder value. When we grew and then exited our podcast thing in digital audio businesses for very nice cash on cash returns.

And an expanding TV marketplace.

I hope you'll agree that Scripps today as a high performing company at every level and enterprise that once again has proven its ability to manage through change actually I should say take advantage of change as an opportunity and execute at the highest level for the benefit of our shareholders.

Our second straight quarter of exceeding expectations. After the company's transformation is merely the beginning of the near term benefit of our work. We are realizing these short term gains. While we are also positioned exceptionally well for the longer term value creation ahead.

We see no reason to sacrifice 1 over the other we know that investors want us to achieve both at the same time.

We aren't sacrificing our mission focus either and I'd like to end with a few words about meaningful recognition. We recently received.

A few weeks ago, the NAV leadership Foundation recognized Scripps with its prestigious 2021 service to America Award.

This award honors 1 company for its outstanding community service and we were honored for our local station project, the rebound, which helps our viewers navigate the road back to economic recovery.

We're incredibly proud of our local teams all across the country, who executed this important and ongoing initiative.

In addition, Scripps received 3 top women in media awards from Synopsys Media <unk>.

Scripps networks, President Lisa Knutson was honored as a corporate visionary chiefs.

Chief Diversity officer, an employment attorney Danielle right was recognized as an industry innovator and disruptor for her work to bring Scripps as equity diversity and inclusion strategies to life.

And Scripps itself was selected as a 2021 distinguished company because of its work to support and promote women leaders.

<unk> hard work now.

Now here is Jason.

Adam and good morning.

To start our discussion of Scripps second quarter 2021 results with a reminder, that our earnings tables from February 26.

An illustrative look at those local media and the new Scripps networks divisions for the full year of 2019 and quarterly periods of 2020.

These tables provide a view of results as though we had not owned Wpa ex to New York.

The tables also for an illustrative Scripps Networks' result, as the division had been for them on January 1 of 2019.

The sale of WPS closed on December 30 <unk>.

And our acquisition of high on closed on January 7.

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 the low with the local media results for the second quarter.

Total division revenue was up 22% or $58 million from the second quarter of 2020.

This strong performance was driven by core advertising revenue, which was up 48% as we see the ongoing return of the local and national advertising marketplace and continue to develop significant new to television business.

Our 48% increase nicely outperformed our guidance of up mid 40% as well as the performance of our peers, who have reported this week.

Political AD revenue for Q2 was $3.2 million.

Local media retransmission revenue was up 11% in Q2.

That number also was above our expectations driven by smaller than expected declines in our subscriber counts from the fourth quarter of $2020 for Q1, our latest reporting period.

Local media expenses increased 13% over the year ago quarter.

In addition to contractual programming expense increases we.

We have added back some of the Covid related cost cuts from Q2 of 2020, but we've done so conservatively with consideration for the pace of our revenue rebound.

Local media segment profit was $65 million.

The outperformance was driven largely by strong direct response business.

Segment expenses rose, 7% over Q2.2020 adjusted combined results.

Segment profit for the networks was $107 million delivering a margin of 45%.

Turning to shared services and corporate expenses, they were $19 million in the second quarter, a bit less than our guidance of about $20 million.

The company's Q2 loss from continuing operations was <unk> 14 per share.

Several Q2 transactional items decreased income from continuing operations by <unk> 58 per share.

Among them was a noncash charge totaling $31.9 million related to the Berkshire outstanding common stock warrants.

Just a reminder, we brought in Berkshire Hathaway to help US fund the eye on acquisition and as part of that arrangement issue them a warrant for $23.1 million class a common shares at a price of $13 per share.

Our stock price gains in the second quarter increased the fair value of the warrant.

However, we have now amended the Berkshire warrant and we will not report changes in fair value in future quarters and keep in mind. This charge is not directly related to our strong second quarter operating performance.

The quarter also included $7 million in acquisition and related integration cost and.

And about a $5 million in restructuring costs.

On June 30, cash and cash equivalents totaled $86 million and net debt was $3.2 billion.

On may 15th Scripps redeemed $400 million in 2025 senior notes for redemption price equal to 100% to 563% of the aggregate principal amount.

We also made an additional principal payment on our 2028 term loan totaling $50 million.

Our net leverage at the end of the second quarter remained at 4.7 times for the calculation in our credit agreements.

With our new cash flow profile, and our 2022 political AD revenue outlook, we expect to move our leverage into the low 4 times range next year.

We will continue to pay down debt consistent with our commitment to move back into our historically lower leverage range.

Looking ahead I'd like to give guidance for a few key areas.

We expect total local media revenue for the third quarter to be down in the mid teens percent range that includes core AD revenue up in the mid teens percent range.

We expect Q3 local media expenses to be up in the low double digits percent range.

In the Scripps networks Division, we expect Q3 revenue to be up in the mid teens percent range in comparison to adjusted combined results for Q3 of 2020.

We will be launching new the over the air on October 1 and we expect to see that new revenue stream begin to build in Q4.

Networks' expenses are expected to increase in the low to mid teens percent range.

This Q3 expense guide includes the cost of launching the 3 new networks over the air think of it as a quarter or 2 of network startup investments in advance of the revenue build.

We expect the networks division margin to contract a bit in the third quarter and begin growing back by the end of the year, we still expect to deliver a full year margin of at least 40%.

We expect Q3 shared services costs of about $19 million.

And finally as Adam explained we now expect to deliver 2021 free cash flow of between 240 and $260 million we.

We raised that range because of our strong revenue performance across the company.

From local for advertising to stabilizing subscriber counts to direct response and general market AD strength at the networks.

Free cash flow number in that range for 2021 will far exceed what we would have generated in a non election year prior to the eye on acquisition and our re making of the company and.

And now here's Brian to talk about local media.

Thanks, Jason Good morning, everybody for the second quarter, we are reporting local core advertising results, where our outstanding sales execution put us on a position to outperform our peers.

Our automotive category was up 64% compared to a big drop in Q2 of 2020, but also despite the chip shortages that are causing inventory issues.

Our retail category was up 66% in Q2, and our fourth largest category travel on leisure aided by both sports betting and American's return to travel and entertainment was up more than 600%.

In addition to a strong AD market, our core AD revenue is being bolstered by our success capturing new to television.

Advertisers.

Last quarter I told you we brought in over 800, new advertisers while on this quarter, we had over 1000, new businesses advertising on our local stations.

Across our footprint, we are focused on maintaining a strong and consistent effort to bring new business to local TV and effort, we expect to continue to pay off.

Turning to political advertising, we now believe that we will outpace our original 2021 expectations of low $20 million range and are on track to deliver in the high $20 million for this year as we ramp to the 2022 mid term elections.

Our retransmission revenue also has outpaced our expectations for the second quarter as we gained more virtual mvpds subs than we had expected.

Virtual subs now accounts for 13% of our total pay TV households.

Additionally, we have new contracts with the CW network for our 12 affiliates.

Looking ahead, we will have all of our network negotiations behind us by 2023, when we reset 75% of our pay TV subscriber base.

The timing of our network and Mvpds renewals positions us well to maximize our retransmission revenue opportunity in less than 18 months.

I'd like to end by calling out a content revenue initiative, we have launched in Florida, Florida is a very important state for Scripps we on 6 stations there. It's a place with a lot of breaking news extreme weather and very active political climate.

In addition to the added service to our communities, Florida 20 for position Scripps well to capitalize more broadly on business opportunities across the entire state.

And now here is Lisa.

Thanks, Brian and good morning, everyone. Scripps networks Division has had a terrific start for the year and its first 7 months as a business after delivering strong results from the first quarter, we beat our second quarter guidance on revenue and margin. In addition, we continued to capture our 1 year deal synergies, we launched 2 new over the air networks.

On to 92% of the country and we prepared for the launch of our ninth OTT network in October.

We're also fully transitioned eye on.

Our direct response agency and we have smoothly integrated our new divisional employees into the organization. The pace of our work has not slowed down and our achievements continue to stack up.

Over the course of the second quarter. We also conducted our upfront presentation and the results have been beyond our expectations tremendous year over year growth.

<unk> growth compared to past ion encased upfront substantial increases in CPM and significant expansion of our advertiser accounts all of our networks are benefiting from our portfolio strategy and the reputation Scripps networks is building as a leader in free TV with high quality programming that disc.

<unk> and strong audience, delivering I'm happy to share a few highlights.

Overall upfront total dollars committed to scripts were up more than 20% from the separate upfront of ion and the case networks last year and new description networks advertisers represent about 25% of our upfront this year.

The balance upfront revenue growth more than 50% from their 2020 upfront and CPM debt balance increased by high teens to low 20% low twenties percentage outpacing the reported upfront performance of nearly all cable networks.

National advertisers are increasingly eager to reach black audiences and balance is the number 2 watched national network for those audiences.

And I on results solid double digit growth in dollars and mid to high teens growth in CPM. In addition, about 20% of its upfront dollars are coming from advertisers who are new to ion that we are pleased to be winning net new business.

Finally, our brand new reality focused networks true real and defy TV received nearly $10 million on commitments. We were extremely pleased that these 2 networks are attracting general market advertisers. So early in their life stage and that helps has us very optimistic about their future.

Keep in mind that no revenue from upfront as reflected in our Q2 results. Our Q3 expectations, you'll start seeing net revenue flowing on during the fourth quarter of this year and through the third quarter of 2022 or.

Our successful upfront and the commitments that big brands in general market advertisers are making to our networks are now driving net forward into the scatter market with confidence.

The strong upfront season is also a testament to the ongoing importance of linear TV and the national advertising marketplace.

Turning to programming, we launched true real and defy on July 1 and it reaches nearly 20 or 92% of the U S primarily through our own station spectrum.

Once again, we're realizing that owning our own distribution is quite a competitive advantage given the national reach we can attain.

On October 1st full launch Newsy with the same 92% range and I'd like to spend a moment talking about near these strategic evolution.

The new leader of our news networks Caito, Brian came out of ABC News and other news organization with tremendous vision and depth of experience. She is preparing.

For this broader national stage in a new way with season reporters more presence in Middle America, and a new level of collaboration with our 40 local news teams and our Scripps Washington Bureau at the same time. She is deepening new these commitments objectivity fact, based reporting and great storytelling E.

Well rounded approach to journalism that research shows National news audiences are craving.

Newsy has had tremendous success on over the top platforms and we look forward to bringing it into nearly every American household.

Regarding our entertainment programming, we launched Chicago fire on eye on in mid June and that show, it's literally on fire for us with double digit gains in viewership over the prior show in its time slot.

Also during the second quarter balance grew its share of the 18 to 49 year old audience in prime time on both a year over year and a quarterly basis last Sunday night, We launched a new original program about that we're very excited about called Johnson Cedric day entertainer at the executive producer of the dramedy and it's about for Black men, who are clear.

Brands that all happened to have the lapsing Johnson more than 2 million viewers watched the premiere episodes. That's the most watched half hour series launch and bounce history.

And we were able to run the show afterward on eye on increasing its visibility and maximizing its impact a clear benefit of our network portfolio strategy.

All 9 of our Scripps networks are bringing their high quality programming to at least 90% of the U S. TV households over the air as we capitalize on that growth marketplace.

Over the top of course also on fast growing marketplace and the Scripps networks are available there as well both newsy in court TV are fully distributed on OTT platforms and all of our networks will eventually be available across the big OTT services capitalizing on the migration of National AD dollars to connected TV and <unk>.

Increasing OTT viewership is also a key pillar of our national growth strategy.

Thank you and ladies and gentlemen, if you wish to ask a question. Please press. The 1 then zero on your telephone keypad.

Again, if you do have a question please put price.

1 zero you will hear an acknowledgment tone that you've been placed in the queue and you may remove yourself from queue at any time by repeating the 1 zero command.

1 moment for our first question.

And that question will come from the line of Steven Cahall with Wells Fargo. Please go ahead.

First Adam and Lisa can you talk about the new Z launch and what sort of advertising commitments you have there how much on newsy do you think about selling out ahead of ahead of time versus maybe what you might win a hold back in scatter or programmatic.

And Lisa as you put all of the networks portfolio together can you just talk about in the upfront are you selling on a combined basis are you still kind of selling on an individual channel basis.

Stephen I'll take a few of those and Jason can follow up and I may need you to repeat a couple of them.

Yes, sorry, there's a lot in there for you all now problem. So in terms of Newsy remembered knew these growth over the last several years has come from OTT. So we are building on that base and when we launch networks like we've done with true real and TV as well as the other cable networks, we really start les.

Layering in Dr. Advertising early in the process that will begin to build in fourth quarter. So we don't expect you to really be selling on newsy in the.

Certainly not in the Upfronts and non.

And the general market until we build audience over time on OTI sales.

We are continuing to maximize our OTT revenue and over time as audience continues to build we will start to layer in general market advertising, but Dr. As we've talked about is a lucrative.

Certainly a lucrative marketplace.

We are on.

Especially in fourth quarter. There is a lot of health care dollars that are in the system and it's just perfect.

Perfect timing for new these launch to be able to begin to capitalize on that those health care dollars.

I think your second question about the Upfronts, maybe portfolios from Oh, yes portfolio strategy. So the answer is yes, we that's part of our certainly our strategy and every 1 of our networks that we sold in the upfront benefited from that strategy. So we do sell both individually certainly.

I on being the largest network that we have and you heard in my comments.

Balance, we just saw such tremendous on dip.

Demand for balance on the upfront on that 50% increase on over last year, but every single 1 of our networks, it's sort of all boats rose as a result of the portfolio sales approach.

Steven in regards to the question on free cash flow move it was a variety of factors certainly the biggest of those is our outperformance in terms of advertising revenue.

Retrans is pacing a little bit as well, which is helping and we did have a small move as well in terms of cash tax expectations for years, but again predominantly driven by the advertising revenue.

Great. Thanks.

Thank you and our next question is from John to Dennis.

Wolf Research. Please go ahead.

Close enough.

Maybe 1 for you on 1 for Brian.

Call it multi quarter tailwind just based on tightness of supply and then Brian on the new to TV advertisers do you track how sticky they are meeting of call. It that 800 or so from <unk>, how do those typically retain call it on <unk>.

And I guess expectation for subsea sub.

Second quarters on retention and how does the spend on those new to TV advertisers typically trend overtime.

So John.

Take the first question. So we believe we're really uniquely positioned our strategy from the beginning that we talked about on the iron acquisition closed with really to maximize revenue between Dr. On general market So as demand.

Certainly tightened to end on.

On the general market side.

We're able to shift dollars to.

Dr advertising for them and we've seen great success there.

Primarily.

Ion and bounce you think of those as big General market.

Networks and then the remaining each network has its own.

Its own mix of revenue just to give you some sense of it about.

About for 2021 year to date, it's about a little bit of about $50.50, So general market and Dr. And again, we're maximizing to the highest rate possible as we continue to.

We worked through the life stages of each of these businesses.

Hey, John its Brian following up on your question about the new to television advertisers. So the way we look at that when we develop a new piece of business.

That's never been on TV before we consider it a new advertiser for 12 months and so that 800.

Advertisers that we referenced in the second quarter some of those in first quarter. Some of those would still be considered a new advertiser in second quarter.

But then obviously some probably churned off maybe they have now lapsed there 12 months and they are considered a regular advertiser and several hundred new ones were added into the quarter.

Typically they are pretty sticky. These are local accounts that we develop local relationships with.

We sit in their car dealerships from their furniture stores and talk with them about their strategies in achieving their goals. So historically, we would have over 75% retention rate from when they expire from the 12 months of being a considered a new business client until they would rollover to just be a regular average us or so.

None of those thousand advertisers will be reported a year ago, a year from now as a new advertiser.

That helps thanks, a lot yes.

Yes.

The next question is from the line of Dan Cornhouse with benchmark. Please go ahead.

Great. Thanks.

Add on obviously I don't think its directionally relevant to the national business, but maybe could you just spend a second discussing jonathan's departure from the networks.

Yeah sure I mean, Jonathan did a tremendous job as an entrepreneur and a leader launching the <unk> networks first balance and then the others and then continuing on through the ion acquisition under Lisa's leadership really helping to set the networks up for success.

Totally understandable that an entrepreneur of his caliber wood.

Want to go on and do something different particularly after.

The acquisition and we wish them the best we have a great relationship with him and and expect that we'll continue to do so.

Thanks for that Lisa did I hear that Theres, another network hunting or am I misinterpreting those remarks.

When I refer to the third network its new vota. So when we launched news on October 3rd network for launch this year.

Got it.

And just maybe I think you gave really helpful. Color can you talk just a little bit more about the performance of the recently birth.

Networks.

Although you are seeing in the marketplace right now.

At week 6 so it's early days, but we are really heartened by.

Our.

<unk> ability to attract.

Dr dollars.

As I said earlier each of these networks starts in the Dr marketplace and built over time and so we're seeing on <unk>.

Honestly, 1 of the fastest growth and 1 of the 2 networks that we've seen and the launch of on our TV networks over the year. So.

We're really pleased I think attracting the 10 about $10 million in the Upfronts, It's really a testament to <unk>.

On our portfolio sales approach, but also I think the.

Our ability to on.

I think we got this right with these 2 new networks that we're attracting general market advertisers earlier in the process than any other network, we'd launched on over the years.

Great. Thanks, and then for Brian just on core.

Honestly, a strong guide we've been hearing consistently Q3.

Kind of in line to better than 2019 levels, just categorically what youre seeing.

Auto obviously still a challenged category, but maybe just help us get some more updated granular thoughts there would be great.

Yeah, sure Hey, Dan.

Look I think auto was probably the 1 category in our top 10 Thats got some headwinds.

<unk>.

We did share that we had a great performance in Q2 with auto.

We were also reported that.

They are all stacked up ready to go they just need chips and parked all over the country, but.

But I do think that we're going to have a couple of months still.

Challenges in auto beyond that we've talked about service category just.

That's been such a growth driver for us over the last several years medical legal financial Bank home services everything in HVAC pest control all of that really significant growth as people are investing.

In their homes travel and leisure, obviously finally, the return to more normalcy at least there has been.

Sports are.

Sports franchise, our advertising concepts backed travel state states are encouraging people to come visit them and then add to that the sports betting which has.

And then obviously a significant driver for us we've probably got I don't know 8 or 9 states now that.

We'll either have already or will have legalized sports by the end of the year, we're about to launch, Arizona with our footprint in Phoenix, and Tucson, and that'll be a really big state for us and Thats about to come on line at the.

End of the quarter, So I think.

All of the momentum you see the fact that we are now SNP on down and about to catch up to 2019 tells you ex.

For auto everything else has got a lot of momentum to it.

Thanks, Dan.

And our next question is from Mike Pinsky with Noble capital markets. Please go ahead.

Just a couple of quick questions I know, obviously you sold.

Podcast business and so forth.

This might have a reflection on maybe your digital initiatives and I was just wondering since you didn't really mention much about digital.

So I was just.

What are your thoughts about your digital strategies.

Hi, Mike its Adam Thanks for the question no. There is there is no change in strategy I mean, we expect that our.

Advertising as part of their TV portfolio, because it is TV. It just delivered digitally likewise on the national side.

A very good signal that as we continue to move our entertainment brands into the OTT space will be well equipped to monetize those so to be clear no change in strategy digital is incredibly important both for our news audiences and news advertisers and and local advertisers and it will continue.

To be a pillar as Lisa said of our network strategy for.

For the foreseeable future.

Okay.

Brian you talked a little bit about your Florida State wide news network and I know that these.

Lot of broadcasters, who arm speeds Netflix in the past they've had like the checkered performance and I was just wondering what is your strategy here is it more to provide.

News content for your stations in the market or in syndicate that news out or how are you eventually thinking this could be a.

Like a cable network or what are your thoughts in terms of how you see the network develop.

Hey, Mike.

Look I think.

Our strategy is really different than all the others that have started because we've created an OTT network and so.

With that foundation, our cost base is much different.

And our ability to take content from around the state and pass it through.

It is far more efficient.

We are we've finalized some partnerships in the state with some other groups on the markets that we don't have but we think as people are moving toward more streaming and looking for more local news.

Rather than have the heavy lift of a massive studio and a big production facility in trucks, all over and that kind of thing having an OTT platform that allows any of our local markets.

Search and local stuff, but being able to share that across the state is really efficient and of course with our our platform on our footprint with 5 markets from 6 stations.

What's really dominant stations I think theres, some really compelling not just day of news, but enterprise around what's important around the state.

On the sugar fields water.

Great and Brian I was just wondering in terms of you mentioned about auto filling up some headwinds in Q3 are there any changes in the AD categories from <unk>.

Q2, Q3, I know, obviously, you're facing more difficult comps and so forth but.

Other changes in the composition on what Youre seeing in terms of.

The net.

Your purse.

<unk>, maybe the contribution from Q2 to Q3.

And Mike I assume Youre, just talking broadly that specifically in auto on my right correct Brian.

Look I think our ranking of our top 6 or 7 categories. Hasnt changed services is still number 1 auto is still second retail.

It's very comfortable third travel leisure home improvement.

Bring on our top 5 services, 35% of our business that's been a growing category, even when auto was healthy.

Services replaced auto as our top category several years ago, and just continues to build auto.

Now was about 15 and 17% of our business in the last couple of years, it's been about 20, and I think that's where it settles back in when it gets momentum again, I don't ever see an opportunity where auto has enough momentum nor enough dollars to get back to now the strength of our services category.

Sure. Thanks, Brian I appreciate it.

Thanks, Mike.

Yes.

Thank you and once again, if you do have a question. Please press London zero and we will go to the line of Craig Huber with Huber Research. Please go ahead.

Thank you my first question if I could ask.

Last quarter, Brian and the quarter before I believe you said Retrans subs net of OTT was down 5% each quarter on a year over year basis, what was in the quarter. We just finished police was similar.

Right in that range again, Mike were down mid single digits year over year, we did see a little bit of improvement in our trailing 4 quarter churn rate.

But not overly dramatic right in that range down 5% okay.

Next question.

Broadly, Brian I guess for the Scripps networks knowledgeable local and national with this new variance here on the virus front are you seen any impact at all regionally on a national level in certain categories, there any impact at all.

And down to this virus senior business, Yes, I'll take it first Craig.

Really minimal to this point.

<unk>.

Theres only obviously, we've got a big footprint in Florida, and so we're watching Florida closely and we've seen a couple of little things. We've seen a couple of legal folks pushed some money from Q3 to Q4 as maybe some courtrooms are are delaying their opening we've seen a little bit of money in health care, where hospitals are now filling up and saying Hey, we don't.

Need to advertise we don't want to cut our budget, we just want to push it.

Back.

60 days or something like that.

And those 2.

Examples are specific to Florida, and they are relatively small we have not seen any other impact as a result of the variant Craig.

And Greg on the National side, we've seen no impact.

Okay. Thank you for that.

Next question.

I on synergies can you, maybe just update us on that how it's going so far.

7 or so months into this.

How are you tracking towards your long term goal for synergies here.

So Craig we're tracking very well.

<unk> already locked in the year 1 synergies.

I think we made some announcements probably the week after we close the deal in terms of locking in the people synergies so.

We feel very good about it right.

Right on track and feel good about the future synergies as well.

And then my other bigger picture question is im trying to figure out here your thoughts sure Brian for you.

Television station margins, obviously as they're lower than some of your public peers out there where is the opportunity to hear that you explained how you would explain to investors the upside of your margin to help close that gap as we think out over the next for 5.6 years average on the Retrans side for right. There was on the AD revenue side is there more to do on the cost side Where's the opportunity on <unk>.

Close that gap.

Yeah, Hey, Greg look I think you've been on this journey with us for a long time and you've seen that.

We've significantly improved our margins over the last decade dramatically.

Other than they used to be.

Some of that through sales.

Execution, some of that through M&A and changing our profile.

We've got a much more balanced.

The portfolio now of ABC NBC CBS Fox.

More number ones then we've had I think as we've talked about probably 1 of the reasons why our margins were lower was the company's investments.

15 years ago and HDTV.

On launching food and all of those different networks at a time when people were adding very profitable second stations.

Our strategy was investing for a really good return in other networks business. So I think we've been aggressive in the last couple of years trying to pick up second stations. We just launched a second station in Denver. This year, we added a second station in Phoenix as part of our Tribune acquisition. We also acquired a couple of others. So we're very much focused on that.

And I think that is.

Really a big differentiator between us on some of our peers.

Beyond that look I think R. R.

We said our commitment to new businesses moving margin for us our political strategy is moving margin for us.

Our content strategy or improvement in ratings, especially on some of our larger markets has been significant that's moving margin for us. So we can flip it overnight it has been.

A journey and I think you've been following along with us, but I'm really pleased with where we're at and recognize that we still have more growth opportunity ahead of us.

Brian if I could just follow up on that do you think theres more upside in your retrans rates relative to what you understand from your peers have out there.

Absolutely.

Thank you very much.

Thank you and at this time there are no further questions in queue. Please continue.

Thank you Lois and thanks to everyone for joining us today have a great day.

Thank you, ladies and gentlemen that does conclude our conference for today. Thank you for your participation and for using AT&T teleconference Service you may now disconnect.

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