Q4 2021 E W Scripps Co Earnings Call

February 25, 2022

Okay.

Ladies and gentlemen, thank you for standing by welcome to the Scripps fourth quarter 2021 earnings call. At this time all participant lines are in a listen only mode. Later, there will be an opportunity for your questions. If you would like to ask a question you may depress. One then zero on your telephone keypad.

You will hear acknowledgment that your line has been placed in Q and you may remove yourself with the same problems by pressing one then zero again.

As a reminder, today's conference is being recorded I would now like to turn the conference over to Carolyn Micheli head of IR for Scripps. Please go ahead.

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 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 use of their formulations included in our earnings release or the.

The non-GAAP financial measures to the GAAP measures reported in our financial statements will.

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 this call as controller, Dan pristine and now here is Adam.

Good morning, everybody and thanks for joining us as we report results for what was a terrific year for our company.

We're so pleased to be delivering to your free cash flow that is 25% higher than the mid range of our projections, a year ago and 8% higher than we expected even in November .

In 2019, our free cash flow was $65 million. We ended 2021 with $280 million of free cash flow quite a change for us in a non election year.

Testament to the work we are doing to transform the company and to our continued focus on execution.

Both of our divisions contributed to our outstanding 2021 financial performance in local media our sales teams capitalized on the rebound in the advertising marketplace and generated a record level of new business for us.

They helped our advertisers reach targeted consumers on air through our connected TV products and across digital platforms.

2021 reaffirmed the important role of local television advertising plays in the marketplace.

Our Scripps networks team came together to build a powerful and profitable economic engine that outpaced our financial expectations for its first year.

The networks division fully realized its year, one synergies for the ion acquisition invested to launch three networks over the air and began an aggressive plan for connected TV distribution, all while beating our initial acquisition thesis.

As we look ahead to our results this year, our Scripps networks expectations, and our political revenue forecast point to free cash flow of between 400 $450 million JC.

Jason will talk more in a moment about our Q1 and full year guidance.

While so many other players in the TV ecosystem are focused on the streaming wars spending tens of billions of dollars in a battle for a finite share of the consumer's wallet. When you think of the EW Scripps Company I want you to think of the power of free AD supported TV.

During 2022 expect to see scripts continue to focus on further expansion into the fast growing connected TV marketplace across all of our local and national brands.

And then there is over the air it's not as sexy as digital but <unk> is growing right alongside connected TV.

It's a regulated distribution platform with barriers to entry, where we are already fully scaled and have a distinct leadership advantage. So it stands to reason, we're going to accelerate its growth.

More about how we will do that in a moment.

Recent studies show that cord cutters, and cord nevers or spending an average of $142 a month between high speed Internet access and up to 11 subscriptions, a higher price tag now than pay TV.

In a recent Deloitte survey, 40% of respondents said they would be canceling at least one service and with no real customer captivity. It's no wonder Wall Street is so focused on subscriber retention rates and churn.

We are after all in the middle of record inflation pressuring the consumer's pocket book.

Even those who arent price sensitive report being overwhelmed by the content glut.

Research firm Horowitz found 49% of streamers say they find it hard to know what shows are aware and 44% say they often have a hard time, finding something to watch it all.

There's just so much new premium content in fact, tens and tens of billions of dollars worth of it.

And yet according to Nielsen the most popular shows on streaming services are actually the network shows still available for free over the air.

We know live sports is the single most important driver of linear viewing.

But if you streamed to the Super Bowl you were watching up to 60 seconds delayed and it's no fun to get a tweet about a touchdown before you see it let alone if you participate in in game sports betting.

This past season, the NFL ratings came roaring back reaffirming the value of live sports.

<unk> next year broadband homes will have two choices to catch the action. They can sign up for several different subscription services and then try to keep track of where to watch which game win or are they can watch it all in the best quality high definition in real time over the air and for free.

<unk>.

It is against this backdrop, plus fatigue and content overload, where we see opportunity to capitalize over the years growth.

Use of the over the air TV is expected to surpass 50 million households in the next three years.

Already more than 8 million digital antennas are sold in the U S every year.

And one in four broadband homes is using free over the year television bundled alongside subscription services.

But I should really say only one in four because we will do better.

Studies show that awareness and familiarity are the biggest obstacles to more consumers, making OTI a part of their TV bundles.

One common misperception is that they only get a small selection of stations in fact more than two dozen networks are available over the year. In addition to the big four ion local independent stations and PBS.

Over the air television is once again, the best and easiest way for consumers to watch the most popular shows live sports and news for free.

So its time, we let America know <unk>.

Scripps is launching a consumer marketing campaign to help broadband homes better understand how to get free television through digital antennas.

And how much great content is there for them once they do.

We are also forming partnerships with key retailers antenna manufacturers rooftop installers and TV hardware companies that will benefit from the growth of free over the air television.

Stay tuned over the coming months for more on this campaign and these powerful partnerships.

In recent years, rather than waiting to see what happens in our industry, you've seen us take control of our own destiny.

Several years of strategic divestitures local station in National networks acquisitions, and operating performance improvements have positioned Scripps exceedingly well, we've carved out our own lucrative corner within the thriving television ecosystem and so we will continue to drive both excellent.

<unk> near term operating performance and long term value creation for the benefit of our employees and our shareholders now here's Jason.

Thanks, Adam and good morning, our earnings tables in today's press release include our as reported results from fourth quarter 2021, as well as an illustrative comparison to fourth quarter of 2020, as though we had owned ion and had divested of WP IX My.

<unk> segment comparisons today will be on that adjusted combined basis.

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

Local media core advertising revenue was up 8% in Q4, driven by our strong sales execution in a rebounding ad market.

Total revenue was down 24%, reflecting that lack of 2020 presidential election spending.

Political AD revenue in the quarter was $11 million compared to $137 million in the fourth quarter of 2020.

Local media retransmission revenue was up nearly 1%.

Local media expenses increased just 4% from the year ago quarter.

Segment profit for the division was $82 million.

Turning to the Scripps networks Division revenue for the fourth quarter of 2021 was $273 million up 14% from the prior year.

This performance helped us outpace our revenue expectations for the year as we drew larger audiences to our nine national networks capitalized on the health insurance open enrollment season and began to realize the benefits of our successful upfront.

Networks segment expenses rose, 14% over the fourth quarter 2020, adjusted combined results that includes our cost for launching three networks over the air.

Segment profit for the networks was $106 million.

Shared services and corporate expenses were just under $20 million in the fourth quarter.

The company realized Q4 income from continuing operations of <unk> 43 per share.

The quarter included $4 8 million of acquisition and related integration cost as well as the $1 $6 million loss on extinguishment of debt.

During the quarter, we redeemed $15 million of our 2027 senior notes and $22 million of our 2031 senior notes.

In addition, the outstanding warrants to Berkshire Hathaway increased our diluted weighted average share count by seven 5 million shares in the quarter.

These items impacted earnings per share in the fourth quarter by nine.

As of December 31, cash and cash equivalents totaled $100 million.

That amount includes $34 million from the sale of the Denver building that was restricted cash until last month.

During 2021, the company paid down a total of $581 million in debt and we expect to use excess cash to continue paying down debt in future quarters.

Our net debt at year end was $3 1 billion and our net leverage was four seven times per the calculations in our credit agreements.

With our new cash flow profile, and our 2022 political AD revenue outlook, we expect to move our leverage to about four times by the end of this year.

I'm pleased to point out that this is a whole turn ahead of where we are expected to be by that point when we closed the ion deal a year ago.

Finally, we were extremely pleased to end the year with more than $280 million of free cash flow, that's 25% higher than our original projections, a year ago, and 8% higher than our projection last November .

We can credit sales execution in both divisions for growing our market share in the rebounding advertising marketplace.

Now looking ahead I'd like to give guidance for a few key areas for the first quarter of 2022.

We expect total local media revenue to be up low single digits from the first quarter of 2021, we.

We expect local core AD revenue also to be up low single digits.

We expect Q1 local media expenses to be up high single digits.

In the Scripps networks Division, we expect revenue to be up about 10% accounting for the typical first quarter AD market seasonality.

Networks' expenses are expected to increase in the mid 20% range that includes cycling through the startup cost for the three new over the air networks that we launched in the back half of 2021.

First quarter shared services cost will be about $24 million.

And one note on our other segment. It will include the expense for our over the air consumer marketing campaign that Adam discussed that's about $20 million for the full year.

Now I'd like to touch on a few other key guidance items for the full year of 2022.

We expect local media retransmission revenue to be up high single digits over 2021 will.

It will be about flat for Q1 with year over year growth beginning in Q2, as we renew about 20% of our subscriber households, and we've already completed that agreement.

We expect local media political revenue to be on par with 2020 levels. Despite the fact that this is not a presidential election year compared.

Compared to the last mid term elections in 2018 will be up nearly 40%.

We expect cash interest outlay this year of between 130 and $140 million cash taxes of $100 million to $110 million capex of $70 million to $80 million and.

<unk> and amortization of about $160 million combined.

We do not have any required pension contributions this year due to new federal legislation and the strong growth in our pension assets over the last few years.

Finally, given the expectations for another record political spending year, we expect to deliver free cash flow of between 400 and $450 million at the midpoint that works out to about a 55% free cash flow conversion and would represent the highest amount of free cash flow that this company has delivered since we spun off our cable networks back in 2008.

Now here's Brian to talk about local media.

Thanks, Jason Good morning, everybody.

2021 was a year when we saw the local broadcast been business demonstrated its full power for resilience and longevity we.

We started the year with a national economy, beginning to rebound from the global pandemic and lockdown.

We built on the return of the consumer and business spending with strong sales execution record new dollars coming into Scripps stations and advertiser enthusiasm for our connected TV products.

We reached our 2019 core advertising performance in Q4 for the second quarter in a row, despite the headwinds from automotive and.

In fact, our.

<unk> forecast for the first quarter that will be up results in five consecutive quarters of core advertising growth for scripts, which is remarkable since it includes automotive.

We added a meaningful new growth categories sports betting, which provides a perfect match with local broadcast because of our depth in local markets and our ability to educate a broad mainstream audience.

30 States, where Scripps does business now have legalized sports betting and Ohio should be a big one for us when it comes online this fall in time for the NFL season.

And speaking of the NFL League saw viewers grow by 10% this season and 14% for the Super Bowl and each of the conference Championship games drew 50 million viewers.

That viewership translated to real dollars for us.

Live sports and local broadcast again, driven by our geographic depth or another great match, and we saw that play out better than ever during this season.

Finally, we want to continue to deliver advertising messaging on our trustworthy local brands and news programs, which businesses know give their adds more value and relevance with consumers.

All of these elements of the local broadcast business allowed us to capitalize on the economic rebound in categories, such as services, which was up 14% in the fourth quarter travel and leisure, which was up more than 100% media and communications up 25% and home improvement up.

16%.

As we move through 2022, we continue to build on these fundamental pillars in our business.

In January six of our seven largest categories were well into positive year over year growth.

As for auto what we're seeing in Q1 is consistent with everything you are reading right now and we hope the category will start to improve in the third quarter of this year.

The other perfect match for our local market depth and are trustworthy news programs comes from election seasons.

Scripps is expecting to reach 2020 political revenue levels. This year, even though it's a mid term not a presidential election.

The growth will be driven by strong statewide U S Senate and governor races for the Senate, we expect competitive races in Arizona, Florida, Nevada, Ohio and Wisconsin.

The firm add impact projects. These five races alone to generate more than $800 million in spending.

On the Governor's races, we expect to host seven competitive match ups in Arizona, Florida, Kansas, Maryland, Michigan.

<unk>, Wisconsin.

Among the U S House races, we're still waiting on congressional maps in some states, but already expect 25 districts to be competitive for us in.

In addition, the high level of partisanship in our country is put increasing emphasis on down ballot races.

We are hearing estimates of $2 5 billion in spending nationwide on these reasons, which is another factor in our 2022 outlook.

I'd like to end by recognizing outstanding work from our investigative reporting team at KNX be in Phoenix.

The team has spent several years investigating Phoenix area police departments in the court system.

They have produced nearly 100 reports and three documentary specials on their findings of wrongdoing.

Their work has received national <unk> and Iot Award.

Peabody and most recently the prestigious Dupont Columbia University Award.

Journalism that serves everyone in our communities is the biggest pillar of our business and the reason local broadcast continues to stand strong.

Now here's Lisa.

Thanks, Brian and good morning, everyone. Our team at Scripps networks is already well into our second year of operation and I have a lot to share. This morning about what's ahead.

But first I'd like to spend a few minutes discussing our first share performance, which surpassed our expectations.

I am very pleased with the way our team came together and fully delivered on what we had said we were going to do we.

We realized the full year, one synergies we had projected we successfully package together our network for advertisers, creating an attractive portfolio that brings complete national reach and caters to a mosaic of America wheel.

We launched two new entertainment networks and transition newsy over the air.

Today, all line of our networks reached well over 90% of U S television households.

We saw our five Nielsen rated entertainment networks become the only entertainment portfolio to grow audience year over year.

And for the full year, we delivered 13% revenue growth and a 41% margin.

Needless to say the integration of ion has gone quite smoothly and I'm very pleased with the way our division has coalesced into the powerful and profitable economic engine that Adam described.

I'd like to give a big shout out to my team Division leaders and the 800 plus employees, who really delivered this past year.

Contributing to our performance in the fourth quarter with tremendous revenue growth it down as we continue to refresh its programming for black audiences.

Across our portfolio. We also saw nice growth in our AD rates in the scatter market in Q4.

And our connected television revenue grew 45% over Q4 of 2020.

As we move through the first quarter, we continued to benefit from a strong upfront presentation last summer.

The upfront dollars account for a substantial portion of our revenue each quarter and that lays a solid foundation on which we can grow as we optimize our rates across direct response in the scatter market.

We have already begun to prepare our upfront presentation for this season, and we anticipate our portfolio being even more attractive to national advertisers now that we have nine over the air networks and an expanded CTV offering we will take an integrated approach to selling CTV inventory alongside our linear screens.

Turning to distribution, we have continued our cadence of launching on connected TV platforms with key partners, including Samsung Vizio and Roku.

Our networks ion bound court TV ion Ministry and grid will be launched across a majority of these platform by mid year and.

And as you know newsy in core TV are already fully launched across CTV our.

Our streaming network bounce XL has been especially good.

<unk> has seen an especially good success since its fast channel launch last September in a short time. It has become one of the leading connected TV brands. For example, <unk> bounce XL has averaged more than 2 million viewing minutes a day.

<unk> also strong solid strong viewership growth for its linear product in the fourth quarter up 24% among viewers 25 to 54 and for the first time <unk> outperformed the cable network.

Among total viewers for the total day both of these milestones has helped to drive significant growth and bounce revenue.

Our National News network Newsy received an important recognition in the fourth quarter with its first seat assignment in the White House briefing room. This access reflects the respect annuity has earned and puts it in a better position to hold the upper echelons of government accountable.

We also are proud of the high quality and long form storytelling by new These new weekly documentary series in real life and.

And in January the network relaunched its primetime show the Y focused on explanatory journalism and distinctive energy.

Court TV viewership spiked during the fourth quarter due to the high profile trials, and then Michael convicted of killing amount, operator, and with constant versus Kyle Rittenhouse for.

For the quarter, our core TV was up 47% over year over year for viewers ages 25 to 54.

The network saw its best year since we launched it nearly three years ago. It.

It is also receiving recognition from the industry for its groundbreaking legal journalism and its work to allow cameras and the Derrick Sheldon trial and other high profile Court room cases, now operator, we're ready for questions.

Thank you, ladies and gentlemen, once again, if you would like to ask a question. Please press one zero on your telephone keypad.

And our first question is from Dan <unk> with the benchmark company. Please go ahead.

Great. Thanks.

Good morning.

I guess, just two for me, Adam asking us and obviously, Brian feel free to jump in here I've been asking this a kind of the group the dynamics around Retrans net retrans, it's been changing given as you put it Adam with billions of dollars being put into the streaming wars and we've heard that.

From several companies both on the network and the broadcast side now that the step up on the.

The reverse side have come in and also obviously the growth side at the begins to mature a little bit a little bit.

Less of a jump in sort of that first year. So can you just kind of talk through the dynamics as you see them.

Going ahead for net Retrans and when do you start there and then I'll ask a follow up.

Hey, Dan It's Brian Let me just start by talking a little bit about what I see relative to our discussions with the networks and kind of.

The environment that you just described but look I think as you know over the decades, the largest value of the relationship between the networks and affiliates what's been the exclusivity of the programming that we get and we pay for in our local markets.

These last two years or so the launch of the direct to consumer products by the networks has really begun to diminish that exclusivity in our local markets and so I think the conversations changing in the results of that are diminished exclusivity is forcing a different value discussion with the networks.

Yes, and Dan just jumping kind of from a net retrans perspective on what we're seeing ultimately that that timing is really dependent on the timing of your MVP renewals versus your affiliation renewals in 'twenty. One 'twenty two will have reset all of our affiliation agreements. We don't have a ton renewing in terms of our mvpds. So for us we're.

See kind of flattish net retrans this year, but as we look forward to next year, 75% of our sub base renewing having already laid in all of our affiliate expense I think youll see us resume really strong growth again in net retrans.

I guess, maybe just to follow up on that.

I'll ask a content question, but.

Looking out ahead now, though I mean would you view your and we don't like to really look at net retrans margins that have they have they stabilized.

From a linear perspective.

Yes, yes, I would think they have yes, I mean, thats certainly our experience.

Okay, great. Thanks, and then.

Neither for Adam or at least I guess, just again because of all of the content. That's going behind these paywall is it's going to create a very interesting ecosystem, where the networks you are talking about deemphasizing the same.

Hey network content, you talked about that's free that still remains the most popular so to the extent that.

The Cvs is in Disney in Adcs, and whatever the world is continue to spend more and more and deemphasize the network content, how do you see the content lineup evolving.

For the network business over time, especially as you guys make it looks like a really strong position.

CEB ecosystem coming forward here good morning, Dan It's Adam.

I actually think that we're very very well positioned because theres. So much being made right now of what I would consider the billions and billions of dollars of Av.

Spend on content.

The content creators the networks those that own other <unk> platforms, ultimately are going to need to make sure. They properly monetize those assets and we expect that they will continue to recognize the value of having their cake and eat it to eating it too the opportunity for them to both.

<unk> put their content behind their paywalls and drive subscription while simultaneously recognizing the real value having that same content available on linear platforms, even potentially as a barker channel for that content, we've seen what's happened when content completely disappears from <unk>.

<unk> and its put behind the paywall. It gets lost consumers don't know, it's there and ultimately it doesn't create value on the other hand, we've also seen the value of programmers, who recognize the mix of linear free whether thats, Avon and fast or over the year and <unk> and we have.

<unk> seen countless examples of the continued renewal of off network series in subscription and.

And syndicated content.

In addition to that content being placed behind a brand specific slide platform. So I think it's going to spell up incredible opportunity for us actually because I think the pressures the economic pressures on these content creators and these <unk> platforms will absolutely forced them to identify new ways to monitor.

That content I don't see it coming out of the linear marketplace or out of the AD supported marketplace I actually see more content going into the AD supported marketplace. Because these two marketplaces work really well together.

That is very thorough and super helpful. Thank you Adam and thank you Brian .

Yes.

And our next question is from Craig Huber with Huber Research partners. Please go ahead.

Yes, Hi, I guess, Brian .

Brian or Adam.

<unk> three point out maybe just give us an update on that.

How do you envision the long term revenue model playing out for you guys, maybe talk about the chances of maybe rent excess spectrum down the road I mean, Nexstar. Obviously, you talked about this two days ago on their call mentioned that they are speaking with your company about it about potential teaming up to rent out the excess spectrum.

In the marketplace.

On that just a long term outlook and how long how many years you think it will take.

The business model sort of play out meaningful to you guys for your guys topline and Bottomline.

Good morning, Craig we are working with other broadcasters and through our leadership with Perl to continue to advance the technology and the business use cases I mean, one. Recent example was the test we did across Michigan with Nexstar, which confirmed what I would sort of referred to as the cellular realization of the broadcast distribution of data.

Which was really a critical step for.

For a number of the different use cases, including for mobile entertainment telematics data streaming.

Meanwhile, on the consumer side, we're seeing enough live <unk> three data sets in some markets that they soon that will soon rival the number of households.

Mark It's Nielsen panel and just as a reminder, a reminder that will also ultimately open up a first party data and addressable advertising opportunity for us down the road. So we.

We continue to see opportunity there.

I would say it is important to remember that Scripps is already the most efficient monetize or of spectrum through our networks Division and so we've set ourselves a challenge we're looking always to identify the best and highest use of that spectrum and we're very serious about looking for new business opportunities to lever that spectrum.

For programming like we are doing already with our with our with our over the air networks or with data casting and we would always focused on identifying a way to create value that is the best and highest use of that spectrum will continue to do our work on the development of <unk> and that spectrum opportunity for scripts and look quite frankly I want to encourage.

Broadcast companies to join our effort to inform America on the benefits of using a digital antenna for over the air television, which is ultimately necessary for consumers to get the greatest benefit from <unk>. So I'm very very bullish on the opportunity for us because we're already doing so much with spectrum today.

But I'm just curious how many years out do you think it might be so it could be meaningful for your topline. However, the model plays out and I sort of ask that just because we've been talking about this as an industry for it feels like five plus years now and stuff how meaningfully how far out do you think it really is here.

We'll actually probably generate our first dollar on <unk> III auto this year.

That's not meaningful that's nascent but I think it's the first step and then what we'll have to track carefully are the number of sets that are sold and the different market opportunities. So if we take the path of identifying multi burgeoning and data informed advertising, obviously, we will need a certain number of sets to be in the marketplace, but on the.

The other hand, if through our work with the Big four auto manufacturers, we continue to see progress leveraging <unk> as an.

Opportunity for the cellular realization of data casting that could come sooner. It just all going to depend and we're being equally aggressive on all fronts to identify the best path for creating value.

And my other Big picture question guys. What are you hearing from your advertisers with these much higher inflation rates obviously.

Interest rates going up here and then more recently the all these.

Huge tension fighting going on in Ukraine, what does it mean for your advertising I mean, we've obviously got your outlook here for the first quarter, but are you hearing any any pullback of budgets.

General thoughts from your advertisers supposed to the both of the Scripps networks side, but also the local TV station side.

Greg I'll start it's Brian .

Really no impact.

There's a lot of momentum still in the local marketplace obviously.

The news of what's happening over in the Ukraine is relatively new in the last 48 hours. So.

We'll have to see how that develops at first blush. It looks like beyond gas prices. It may not have a lot of impact on on local markets and local businesses, but beyond that I don't think inflation is yet a factor.

Our categories are.

As I've described several rate.

Categories categories were up in Q4, we are seeing that same trend as we now work our way through Q1.

It seems like there remains a lot of health.

In.

In the categories and the local sector and so at this point we are.

Not feeling any impact from either.

Great. Thank.

Yes, yes.

We expect obviously to have another strong quarter I think the Ukraine situation and inflation are not a factor at this point in time and as Brian said, we'll sort of see how that plays out our strong growth up 10%.

We are.

Comfortable with and Thats.

Really primarily driven by a repricing in the upfront which is already laid in.

We feel good about the quarter.

And then Brian I wanted to hear if I could please about the auto what percent.

Of your AD Rev. Core AD revenue does have representatives at the sort of mid teens here, maybe you could you could share with us what percent down when it is year over year and my other nitpick question Retrans subs I think you told us Brian .

Third quarter was down a little less than 5% year over year, how was that in the fourth quarter. Thank you let.

Let me start with the latter.

Of this change.

We continue to see.

Nice improvement relative to sub decline Craig in.

And.

We always report our quarter back, but for the third quarter total subs declined 0.5% so half of 1%.

And if you look on a 12 month trailing or net decline was about four 5%. If you go back a year earlier it was six 5%. So we're seeing dramatic improvement there.

And you can see.

Almost no net decline in Q3.

Relative to automotive.

Our challenge here is inventory and so we work closely with our local dealers. We have many local dealers who were still staying on the are keeping their brands out there and in many cases pushing used cars.

It's fairly consistent across the dealer groups foreign is down a little bit more than domestic.

But needless to say every sector of auto is down at.

It represents to your point about mid teens of our total core revenue.

And it was down a little over 25%.

As we looked at Q4 and I see kind of the same sort of numbers as we work through first quarter.

Great. That's all I have thanks, guys. Thanks.

Thanks, Greg.

And our next question is from Michal Krupinski with noble capital markets. Please go ahead.

Thank you for taking the questions I appreciate it Brian .

Brian I was wondering can you frame for me, how how biggest sports spreading for the company right now and then do you have any thoughts.

I know, Ohio is coming online potentially here.

Do you have any thoughts how big the category may become for you for this year.

Good to hear from me Mike.

Sports betting has become a pretty meaningful category in fact, we've rolled it into travel and leisure, but I guess, we should foreshadow, we're going to start breaking it out as its own category next year because of the size of it but it represents more than 5% of our core.

And.

So certainly becoming a material category.

It really is it's following some ebbs and flows there is a lot of money that goes into a market when they launch.

I think some of the big players are very aggressive recognizing that people aren't going to have five or six sports betting apps on their phone they might have two possibly three and so they try and win that space and get a couple of bets placed and then there is engagement.

Then there is a little bit of a pull back and we're seeing that pull back money and then they stay active in the markets for that money is moving to new launch markets and we've had.

A couple of.

Market's launch recently Maryland's launched Lafayette, Louisiana has now launched but as I said, Ohio will be material, having two NFL cities in Ohio, the other one.

Big one that will be for us, although I don't think it's going to happen in 'twenty, two but do expect it.

To move through its legal process and voting process and the 22 would be Florida, and so I think thats, probably 2023 money but.

Okay.

I think they are still in.

There's 30 states that currently have sports betting legalized I think it will move through the process of across the country. Most allstate's, becoming legalized and then I think there'll become some standardization many of the states.

Look different I think they will ultimately be standardization and then I think the real pay day as we see in Europe and other places is when you can get to it.

In game betting in Europe more than 50% of the betting that happens is actually happening in game and so I think that there'll be a several year move of a very healthy category to get to that point and then I think it becomes an even more robust category for us.

Got you and then just following up on Craigs.

Question about auto.

Asked a different way can you frame for me, where auto advertising is relative to 2019.

It's probably two thirds roughly of what it was.

Okay, and then just kind of moving on.

Just I guess I wanted to ask now that you've moved newsy over the year how has it performed relative to the other networks.

Hey, Mike It's Lisa.

We're pretty happy with Newsy and its fifth month of over the air.

Certainly.

Before going over the year, it was primarily an OTT or CTV.

Play with most of our growth over the last several years coming there we're seeing audiences build over the air.

A little too soon to.

Tell at this point, we're not Nielsen rated but certainly.

We're pretty happy with where we sit in month five of new seed launch and.

And Lisa is losing no longer carried on the Comcast systems correct.

Okay, and then when do the comps is part of the renewals that you indicated for next year, 75%.

Are those Comcast subs as well.

Yes that includes Comcast subs.

Okay, and I know that you it seems like a little money on the table.

Last time, when you went through the test subs, especially as you're launching new Z over the year I'm sorry.

On Comcast.

So do you have any thoughts in terms of what we could look forward in terms of retransmission revenue growth potentially.

Maybe a range looking out to 2023.

Well first I would I would sort of Clare.

Clarify I don't think we left money on the table quite frankly.

Just remember dependent on from where we started we started at zero so the negotiations.

<unk> proved to be very positive for us, but you sort of start where you start.

I would expect us as we will with all of our Retrans.

Especially in this mode right now, where we're fully scaled as a local broadcaster to get full market value for all of our retransmission consent.

Gotcha, Alright, that's all I have thank you.

Thanks, Mike.

Next we have a question from Steven Chahal with Wells Fargo. Please go ahead.

Thanks, Adam I, just wanted to ask you a little more on the marketing campaigns for OTA and OTT I guess first is there a way for us to think about the advertising <unk> that you generate on OTH.

Or or an OTT viewer just kind of thinking about what that opportunity looks like and any idea of how many incremental viewers you hope to get.

Through the $20 million campaign that you're putting through for this year and.

And you mentioned the connected TV opportunity I'm, just curious where you are in taking your OTT networks, making them available as absent CTV.

And if in the future we might see a similar sort of marketing push on the digital side, where you're using like the roku and the fire sticks in the world to help you get to those viewers as well yes.

Thanks, Steve and Theres, a lot of math behind this first according to Nielsen Scripps has between the 25 million a 30 share of OTA viewing at any one time, so that between that formidable share and our ability to execute obviously running a very large revenue business right now on the network side and that does.

And even count the upside we think we will get on the from OTI growth on the local side that gives us the formula to invest pretty modestly in a way, where we know that the OTI viewer value will definitely exceed acquisition costs. So we're now operating about a $3 billion growing business, that's going to benefit as the OTA marketplace continues to.

Grow and we're tracking the cost of our customer acquisition.

With expectations that youre going to begin to see the benefit of vota marketplaces growth.

As we continue to develop our business given our strong share in the marketplace. I think Lisa can provide you a little bit more data on the on the CTV progress and on marketing for CTV, Yes. Steven of course, we launched <unk> in the fourth quarter of the year, which is doing really well we have plans to launch.

<unk>.

Most all of our brands over the next six months, probably the one I'm. Most excited about is the ion ion as the fifth largest broadcaster. It's a top three cable entertainment network and really will be the only network of that caliber carried on SaaS services that is.

A pretty big deal and we are.

Anxious to get that launched I would say from a marketing perspective.

This is a plan that we have executed really really well with new D. Over the years certainly at court TV with lines CTV.

Employ a lot of those same tactics from a marketing perspective with that David.

Platform in the coming months, Yeah. Let me let me also add we talked about this a little bit last quarter.

We went out and were able to acquire the rights for our linear streams and will now bring those into the SaaS marketplace and in the SaaS marketplace I'm, a really big believer that the cream will ride rise to the top with respect to premium programming and that really that really means that our hour.

Streams will really be the best of the best premium content and the SaaS marketplace, and we expect that to be able to share a lot more with you with respect to the revenue growth ahead.

As we launch and go live.

Great and then.

Jason I think you all beaten raised your free cash flow number a few times in 2021 can you talk about what came in better than what you expected in 2021.

And as we think about 2022 should.

Should we also perceive this one as being maybe a little bit conservative or particularly does the marketing campaign, just generate a little more.

Maybe uncertainty in the free cash flow guide because if things go well you might you might want to spend a little more but then political could come in higher or maybe just some of the puts and takes in your 2022 guide. Thanks.

Sure. So specific to 2021 I mean, the single biggest thing was just the pace of the rebound in the advertising marketplace and the sales execution you saw both on local and networks throughout the year, we continue to see us exceed our expectations and take up our expectations on the topline revenue side I would also say as the year went on we also.

We're pretty selective as we started adding back in some of those frozen cost during the early part of the pandemic that we curtailed and so I think the combination of those things really drove that free cash flow performance.

As you talk about our number this year, there's a lot of variables right I mean political.

Has can have wild swings because one of the reasons why we have the range. We provided there but certainly we are hopeful there is upside on political.

We're always hopeful that we can see a little bit of outperformance on Retrans and then also just on <unk>.

So where the top line and advertising revenue.

Great. Thanks.

Yes.

And we have a question from Keith Smith with Barnhill for capital. Please go ahead.

Yes, great great job good job guys I have a few quick questions here. The first one is what portion of your current as Theyre CTV versus linear and what do you see the trends ongoing there and then a little bit more on the sort of the timing of the.

The online sports betting in terms of the.

In the event sort of belt tightening there.

Thanks.

Yes. This is Adam I'll sort of answer answer for the enterprise on the CTV versus linear I mean, the vast majority of our advertising revenue today comes from linear.

There is very strong growth across local and national networks on the CTV side, but we have very very big.

Huge platforms in local and national networks and so.

And so.

It makes the CTV look relatively small although growing quickly Brian on sports betting.

Look I think sports betting will be pretty consistent as we go through the year as I said 30 states already launch so there is.

Either maintenance or.

Our acquisition marketing Thats going on in all of those states and beyond that then we will have new states launching.

As I mentioned, Ohio is probably the biggest opportunity for us and that should come online somewhere right around the NFL season, So expect to see a little bump as we.

At September and work our way through Q4.

Okay.

What I was looking for specifically as you guys have any timeline on the end game.

The in game betting sort of services like you mentioned in Europe , Yes, I think it's a couple of years.

Keith I think the whole country is going to have to ratify sports betting that you're going to have to have some consistent rules on how it's executed and then I think.

You are in a position to be able to standardize something like that so I would think that theres a couple of years before that happens.

Alright. Thanks.

And we have no further questions I will turn the conference back to MS. Ms. Shelly for closing comments. Thank you Lia thanks, everyone for joining us as we reported a terrific year across the company and discussed our leadership in free AD supported TV. We have every reason to believe we have another great year ahead. Thank you for joining us.

Ladies and gentlemen that does conclude your conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.

We're sorry your conferences ending now please hang up.

[music].

Ladies and gentlemen, thank you for standing by welcome to the Scripps fourth quarter 2021 earnings call.

At this time all participant lines are in a listen only mode. Later, there will be an opportunity for your questions. If you would like to ask a question you may depress. One then zero on your telephone keypad, you will hear acknowledgment that your line has been placed in Q and you may remove yourself with the same problems by pressing one then zero again.

As a reminder, today's conference is being recorded I would now like to turn the conference over to Carolyn Micheli head of IR for Scripps. Please go ahead.

Thank you Leah good morning, everyone and thank you for joining us for a discussion of the E. W. Scripps company's financial results and business strategies, you can visit Scripps Dot com for more information and a link to the replay of this call. A reminder, that our conference call and webcast include forward looking statements and actual results may differ factors that may cause them to differ are outlined in our SEC.

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 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 use it their 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 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 this call as controller and Dan for ski and now here is Adam.

Good morning, everybody and thanks for joining us as we report results for what was a terrific year for our company. We're so pleased to be delivering to your free cash flow that is 25% higher than the mid range of our projections, a year ago and 8% higher than we expected even in November .

In 2019, our free cash flow was $65 million. We ended 2021 with $280 million of free cash flow quite a change for us in a non election year.

Testament to the work we are doing to transform the company and to our continued focus on execution.

Both of our divisions contributed to our outstanding 2021 financial performance in local media, our sales teams and capitalized on the rebound in the advertising marketplace and generated a record level of new business for us.

They helped our advertisers reached targeted consumers on air through our connected TV products and across digital platforms.

2021 reaffirmed the important role of local television advertising plays in the marketplace.

Our scripts networks team came together to build a powerful and profitable economic engine that outpaced our financial expectations for its first year.

The networks Division fully realized this year, one synergies for the ion acquisition invested to launch three networks over the air and began an aggressive plan for connected TV distribution, all while beating our initial acquisition thesis.

As we look ahead to our results this year, our Scripps networks expectations, and our political revenue forecast point to free cash flow of between 400 $450 million Jason.

Jason will talk more in a moment about our Q1 and full year guidance.

During 2022 expect to see scripts continue to focus on further expansion into the fast growing connected TV marketplace across all of our local and national brands.

And then there is over the air it's not as sexy as digital but <unk> is growing right alongside connected TV.

Our regulated distribution platform with barriers to entry, where we are already fully scaled and have a distinct leadership advantage. So it stands to reason, we're going to accelerate its growth.

More about how we will do that in a moment.

Recent studies show that cord cutters, and cord nevers or spending an average of $142 a month between high speed Internet access and up to 11 subscriptions.

Higher price tag now than pay TV.

We are after all in the middle of record inflation pressuring the consumer's pocket book.

Even those who arent price sensitive report being overwhelmed by the content glad.

Research firm Horowitz found 49% of streamers say they find it hard to know what shows are aware and 44% say they often have a hard time, finding something to watch it all.

There's just so much new premium content in fact, tens and tens of billions of dollars worth of it.

And yet according to Nielsen the most popular shows on streaming services are actually the network shows still available for free over the air.

We know live sports is the single most important driver of linear viewing.

But if you stream to the Super Bowl you were watching up to 60 seconds delayed and it's no fun to get a tweet about a touchdown before you see it let alone if you participate in in game sports betting.

This past season, the NFL ratings came roaring back reaffirming the value of live sports.

Darting next year broadband homes will have two choices to catch the action. They can sign up for several different subscription services and then try to keep track of where to watch which game win or they can watch it all in the best quality high definition in real time over the air and for free.

<unk>.

It is against this backdrop, plus fatigue and content overload, where we see opportunity to catalyze over the years growth.

Use of the over the air TV is expected to surpass 50 million households in the next three years.

Already more than 8 million digital antennas are sold in the U S every year.

And one in four broadband homes is using free over the year television bundled alongside subscription services.

But I should really say only one in four because we will do better.

Studies show that awareness and familiarity are the biggest obstacles to more consumers, making OTI a part of their TV bundles.

Over the air television is once again, the best and easiest way for consumers to watch the most popular shows live sports and news for free.

So its time, we let America know sue.

Scripps is launching a consumer marketing campaign to help broadband homes better understand how to get free television through digital antennas and.

How much great content is there for them once they do.

We are also forming partnerships with key retailers antenna manufacturers rooftop installers and TV hardware companies that will benefit from the growth of free over the air television.

Stay tuned over the coming months for more on this campaign and these powerful partnerships.

In recent years, rather than waiting to see what happens in our industry, you've seen us take control of our own destiny.

Near term operating performance and long term value creation for the benefit of our employees and our shareholders now here's Jason.

<unk> segment comparisons today will be on that adjusted combined basis.

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

Local media core advertising revenue was up 8% in Q4, driven by our strong sales execution in a rebounding ad market.

Total revenue was down 24%.

Collecting that lack of 2020 presidential election spending.

Political AD revenue in the quarter was $11 million.

Compared to $137 million in the fourth quarter of 2020.

Local media retransmission revenue was up nearly 1%.

Local media expenses increased just 4% from the year ago quarter.

Segment profit for the division was $82 million.

Turning to the Scripps networks Division revenue for the fourth quarter of 2021 was $273 million up 14% from the prior year.

Networks segment expenses rose, 14% over the fourth quarter 2020, adjusted combined results that.

That includes our cost for launching three networks over the air.

Segment profit for the networks was $106 million.

Shared services and corporate expenses were just under $20 million in the fourth quarter.

The company realized Q4 income from continuing operations of <unk> 43 per share.

The quarter included $4 8 million of acquisition and related integration cost as well as the $1 $6 million loss on extinguishment of debt.

During the quarter, we redeemed $15 million of our 2027 senior notes and $22 million of our 2031 senior notes.

In addition, the outstanding warrants to Berkshire Hathaway increased our diluted weighted average share count by $7 5 million shares in the quarter.

These items impacted earnings per share in the fourth quarter by nine.

As of December 31, cash and cash equivalents totaled $100 million.

That amount includes $34 million from the sale of the Denver building that was restricted cash until last month.

During 2021, the company paid down a total of $581 million in debt and we expect to use excess cash to continue paying down debt in future quarters.

Our net debt at year end was $3 1 billion and our net leverage was four seven times per the calculations in our credit agreements.

With our new cash flow profile, and our 2022 political AD revenue outlook, we expect to move our leverage to about four times by the end of this year.

I am pleased to point out that this is a whole turn ahead of where we expected to be by that point when we closed the ion deal a year ago.

We can credit sales execution in both divisions for growing our market share in the rebounding advertising marketplace.

Now looking ahead I'd like to give guidance for a few key areas for the first quarter of 2022.

We expect total local media revenue to be up low single digits from the first quarter of 2021, we.

We expect local core AD revenue also to be up low single digits.

We expect Q1 local media expenses to be up high single digits.

And the Scripps networks Division, we expect revenue to be up about 10% accounting for the typical first quarter AD market seasonality.

Networks' expenses are expected to increase in the mid 20% range that includes cycling through the startup costs for the three new over the air networks that we launched in the back half of 2021.

First quarter shared services cost will be about $24 million.

And one note on our other segment. It will include the expense for our over the air consumer marketing campaign that Adam discussed that's about $20 million for the full year.

Now I'd like to touch on a few other key guidance items for the full year of 2022.

We expect local media retransmission revenue to be up high single digits over 2021 will.

It will be about flat for Q1 with year over year growth beginning in Q2, as we renew about 20% of our subscriber households, and we've already completed that agreement.

We expect local media political revenue to be on par with 2020 levels. Despite the fact that this is not a presidential election year.

Compared to the last midterm elections in 2018 will be up nearly 40%.

We expect cash interest outlay this year of between 130 and $140 million cash taxes of $100 million to $110 million capex of $70 million to $80 million and depreciation and amortization of about $160 million combined.

We do not have any required pension contributions this year due to new federal legislation and the strong growth in our pension assets over the last few years.

Now here's Brian to talk about local media.

Thanks, Jason Good morning, everybody.

2021 was a year when we saw the local broadcast has been business demonstrated full power for resilience and longevity we.

We started the year with a national economy, beginning to rebound from the global pandemic and lockdown.

We built on the return of consumer and business spending with strong sales execution record new dollars coming into Scripps stations and advertiser enthusiasm for our connected TV products.

We reached our 2019 core advertising performance in Q4 for the second quarter in a row, despite the headwinds from automotive and.

In fact, our.

Forecast for the first quarter that will be up results.

Our results in five consecutive quarters of core advertising growth for scripts, which is remarkable since it includes automotive.

30 States, where Scripps does business now have legalized sports betting and Ohio should be a big one for us when it comes online this fall in time for the NFL season.

And speaking of the NFL League saw viewers grow by 10% this season and 14% for the Super Bowl and each of the conference Championship games drew 50 million viewers.

That viewership translated to real dollars for us.

Sports and local broadcast again, driven by our geographic depth are another great match, and we saw that play out better than ever during this season.

Finally, we want to continue to deliver advertising messaging on our trustworthy local brands and news programs, which businesses know give their adds more value and relevance with consumers.

Media and communications up 25% and home improvement up 16%.

As we move through 2022, we continue to build on these fundamental pillars in our business in.

In January six of our seven largest categories were well into positive year over year growth.

As for auto what we're seeing in Q1 is consistent with everything you are reading right now and we hope the category will start to improve in the third quarter of this year.

The other perfect match for our local market depth and are trustworthy news programs comes from election seasons.

Scripps is expecting to reach 2020 political revenue levels. This year, even though it's a mid term not a presidential election.

The growth will be driven by strong statewide U S Senate and Governor's races for the Senate, we expect competitive races in Arizona, Florida, Nevada, Ohio and Wisconsin.

The firm add impact projects. These five races alone to generate more than $800 million in spending.

On the Governor's races, we expect to host seven competitive match ups in Arizona, Florida, Kansas, Maryland, Michigan.

<unk>, Wisconsin.

Among the U S House races, we're still waiting on congressional maps in some states, but already expect 25 districts to be competitive for us in.

In addition, the high level of partisanship in our country is put increasing emphasis on down ballot races.

We are hearing estimates of $2 $5 billion and spending nationwide on these reasons, which is another factor in our 2022 outlook.

I'd like to end by recognizing outstanding work from our investigative reporting team at KNX fee in Phoenix.

The team has spent several years investigating Phoenix area police departments in the court system.

They have produced nearly 100 reports and three documentary specials on their findings of wrongdoing.

Their work has received national Emmys.

In IRI Award.

Peabody and most recently the prestigious Dupont Columbia University Award.

Journalism that serves everyone in our communities is the biggest pillar of our business and <unk> in local broadcast continues to stand strong.

Now here's Lisa.

Thanks, Brian and good morning, everyone. Our team at Scripps networks is already well into our second year of operation and I have a lot to share. This morning about what's ahead.

But first I'd like to spend a few minutes discussing our first year performance, which surpassed our expectations.

I am very pleased with the way our team came together and fully delivered on what we had said we were going to deal.

We launched two new entertainment networks and transition newsy over the air.

Today, all line of our networks reached well over 90% of U S television households.

We saw our five Nielsen rated entertainment networks become the only entertainment portfolio to grow audience year over year.

And for the full year, we delivered 13% revenue growth and a 41% margin.

Needless to say the integration of ion has gone quite smoothly and I'm very pleased with the way our division has coalesced into the powerful and profitable economic engine that Adam described.

I'd like to give a big shout out to my team Division leaders and the 800 plus employees, who really delivered this past year.

Contributing to our performance in the fourth quarter with tremendous revenue growth at <unk> as we continue to refresh its programming for black audiences.

Across our portfolio. We also saw nice growth in our AD rates in the scatter market in Q4.

And our connected television revenue grew 45% over Q4 of 2020 as.

As we move through the first quarter, we continued to benefit from a strong upfront presentation last summer.

The upfront dollars account for a substantial portion of our revenue each quarter and that leads and a solid foundation on which we can grow as we optimize our rates across direct response in the scatter market.

Turning to distribution, we have continued our cadence of launching on connected TV platforms with key partners, including Samsung Vizio and Roku.

Our networks ion bound core TV ion mystery and grid will be launched across the majority of these platforms by mid year and.

And as you know newsy in core TV are already fully launched across CTV our.

Our streaming network bounce XL has been especially good.

<unk> seen especially good success since its fat channel launch last September in a short time. It has become one of the leading connected TV brands. For example, <unk> bounce XL has averaged more than 2 million viewing minutes a day.

Also strong solid strong viewership growth for its linear product in the fourth quarter up 24% among viewers 25 to 54 and for the first time <unk> outperformed the cable network.

Among total viewers for the total day both of these milestones has helped to drive significant growth and bounce revenue.

We also are proud of the high quality and long form storytelling by new These new weekly documentary series in real life and.

And in January the network relaunched its primetime show the Y focused on explanatory journalism and distinctive energy.

At core TV viewership spiked during the fourth quarter due to the high profile trials of and then Michael convicted of killing amount operate and Wisconsin versus Kyle Rittenhouse for.

For the quarter, our core TV was up 47% over year over year for viewers ages 25 to 54.

<unk> saw its best year since we launched it nearly three years ago. It is also receiving recognition from the industry for its groundbreaking legal journalism and its work to allow cameras and the Derrick Sheldon trial and other high profile Court room cases, now operator, we're ready for questions.

Thank you, ladies and gentlemen, once again, if you would like to ask a question. Please press one zero on your telephone keypad.

And our first question is from Dan <unk> with the benchmark company. Please go ahead.

Great. Thanks, good morning.

I guess just two from me Adam.

Asking us Hey, Brian feel free to jump in here I've been asking this is kind of the group.

Dynamics around Retrans net retrans, it's been changing given as you put it Adam the billions of dollars being put into the streaming wars and we've heard that from several companies both on the network and the broadcast side now that the step up on.

The reverse side have come in and also obviously the growth side at the begin to mature a little bit a little bit.

Less of a jump in sort of the first year. So can you just kind of talk through the dynamics as you see them.

Going ahead for net Retrans and why did you start there and then I'll ask a follow up.

Hey, Dan It's Brian Let me just start by talking a little bit about what I see relative to our discussions with the networks and kind of the.

It is less I guess two years or so the launch of the direct to consumer products by the networks has really begun to diminish that exclusivity in our local markets and so I think the conversation is changing and the results of that.

Diminished exclusivity is forcing a different value discussion with the networks.

Yes.

Dan just jumping kind of from a net retrans perspective on what we're seeing ultimately that that timing is really dependent on the timing of your mvpds renewals versus your affiliation renewals in 'twenty. One 'twenty two we will have reset all of our affiliation agreements. We don't have a ton renewing in terms of our mvpds. So for us we're going to see kind of flattish net.

Retrans this year, but as we look forward to next year, 75% of our sub base renewing having already laid in all of our affiliate expense I think youll see us resume really strong growth again in net retrans.

I guess, maybe just a follow up on that.

Did want us a content question, but.

I guess looking out ahead now, though I mean would you view your and we don't like to really look at net retrans margins that have they have they stabilized.

From a linear perspective.

Yes, yes, I would think they have yes, I mean, thats certainly our experience.

Okay, great. Thanks, and then.

Either for Adam or at least I guess, just again because of all of the content. That's going behind these paywall is it's going to create a very interesting ecosystem, where the networks youre talking about deemphasizing. The same network content you talked about that's free that still remains the most popular so to the extent that.

The Cvs is in Disney in Adcs, and whatever the world is continue to spend more and more and deemphasize the network content, how do you see the content lineup evolving.

For the network business over time, especially as you guys, Nick what looks like a really strong pushes the CEB ecosystem going forward here.

Dan It's Adam.

I actually think that we're very very well positioned because theres so much being made right now.

What I would consider the billions and billions of dollars of.

<unk> spend on content that the content creators the.

Network those that own other <unk> platforms, ultimately youre going to need to make sure they properly monetize those assets and we expect that they will continue to recognize the value of having their cake and eat it to eating it too the opportunity for them to both put their content behind their payroll.

Walls and drive subscription while simultaneously recognizing the real value having that same content available on linear platforms, even potentially as a barker channel for that content. We've seen what's happened when content completely disappears from linear and its put behind the paywall It gets <unk>.

Lost consumers don't know, what's there and ultimately it doesn't create value on the other hand, we've also seen the value of programmers, who recognize the mix of linear free whether thats, Avon and fast or over the year and <unk> and we've seen countless examples of that.

<unk> renewal of off network series in subscription and.

And syndicated content in.

In addition to that content being placed behind a brand specific slide platform. So I think it is going to spell incredible opportunity for us actually because I think the pressures the economic pressures on these content creators and these asphalt platforms will absolutely forced them to identify new ways to monetize.

Ties that content I don't see it coming out of the linear marketplace or out of the AD supported marketplace I actually see more content going into the AD supported marketplace. Because these two marketplaces work really well together.

That is very thorough and super helpful. Thank you Adam and thank you Brian .

And our next question is from Craig Huber with Huber Research partners. Please go ahead.

Yes, Hi, I guess, Brian .

Brian or Adam.

<unk> three point out maybe just give us an update on that how is it how it is.

In the marketplace.

On that just a long term outlook and how long how many years you think it will take.

The business model sort of play out would be meaningful to you guys you guys topline and bottomline.

Which was really a critical step for.

For a number of the different use cases, including for mobile entertainment telematics data streaming.

Meanwhile, on the consumer side, we're seeing enough live <unk> three data sets in some markets that they soon that will soon rival the number of households.

Market's Nielsen panel and just as a reminder, the reminder, that will also ultimately open up a first party data and addressable advertising opportunity for us down the road. So we.

We continue to see opportunity there.

I would say it's important to remember that Scripps is already the most efficient monetize or of spectrum through our networks Division and so we've set ourselves a challenge we're looking always to identify the best and highest use of that spectrum and we're very serious about looking for new business opportunities to lever that spectrum.

For programming like we are doing already with our with our with our over the air networks or with data casting and we would always focus on identifying a way to create value that is the best and highest use of that spectrum will continue to do our work on the development of <unk> and that spectrum opportunity for scripts and look quite frankly I want to encourage.

We'll actually probably generate our first dollar on <unk> III auto this year.

The other hand, if through our work with the Big four auto manufacturers, we continue to see progress leveraging <unk> as an opportunity for the cellular realization of data casting that could come sooner. It just all going to depend and we're being equally aggressive on all fronts to identify the best path for creating value.

<unk>.

And my other Big picture question guys. What are you hearing from your advertisers with these much higher inflation rates obviously.

Interest rates going up here and then more recently the all these.

Huge tension fighting going on in Ukraine, what does that mean for your advertising I mean, you've obviously got your outlook here for the first quarter, but are you hearing any any pullback of budgets.

General thoughts from your advertisers as opposed to the both of the Scripps network side, but also the local TV station side.

Hey, Greg I'll start it's Brian .

Really no impact I mean, I think there is a lot of momentum still in the local marketplace. Obviously.

The news of what's happening over in the Ukraine is relatively new in the last 48 hours. So.

We will have to see how that develops at first blush. It looks like beyond gas prices may not have a lot of impact on on local markets and local businesses, but beyond that I don't think inflation is yet a factor.

Our categories are.

Describe several rate.

Categories categories were up in Q4, we're seeing that same trend as we now work our way through Q1. So it seems like there remains a lot of help.

In.

In the categories and the local sector and so at this point.

Not feeling any impact from either.

Great. Thank.

Yes, yes, it's Lisa.

We expect obviously to have another strong quarter I think the Ukraine situation and inflation are not a factor at this point in time and as Brian said, we'll see how that plays out our strong growth up 10%.

We are.

Comfortable with and that's really primarily driven by a repricing in the upfront which is already laid in.

We feel good about the quarter.

And then Brian I wanted to hear if I could please about the auto what percent.

Of your AD Rev core AD revenue to set represented sort of mid teens, maybe you could share with us what percent down when it is year over year and my other nitpick question Retrans subs I think you've told us Brian .

Third quarter was down a little less than 5% year over year, how is that in the fourth quarter. Thank you let.

Let me start with the latter.

Sub change.

We continue to see.

Nice improvement relative to sub decline Craig in.

And.

Okay.

We always report our quarter back, but for the third quarter total subs declined 0.5% so half of 1% and if you look on a 12 month trailing or net decline was about four 5%. If you go back a year earlier. It was six 5%. So we're seeing dramatic improvement there and you can see.

<unk>.

Almost no net decline in Q3.

Relative to automotive.

Look at it.

Our challenge here is inventory and so we work closely with our local dealers.

Many local dealers who were still staying on the are keeping their brands out there and in many cases pushing used cars.

It's fairly consistent across the dealer groups foreign is down a little bit more than domestic.

But needless to say every sector of auto is down.

Represents to your point about mid teens of our total core revenue and.

And it was down well over 25%.

As we looked at Q4 and I see kind of the same sort of numbers as we work through first quarter.

Great Thats, all I had thanks guys. Thanks.

Thanks, Greg.

And our next question is from Michal Krupinski with noble capital markets. Please go ahead.

Thank you for taking the questions I appreciate it Brian .

Alright, I was wondering can you frame for me, how how big is sports betting for the company right now and then do you have any thoughts.

I know, Ohio coming online potentially here.

Do you have any thoughts how big the category may become for you for this year.

Good to hear from you Mike.

And.

So certainly becoming a material category.

It really is it's following some ebbs and flows there is a lot of money that goes into a market when they launch.

Some of the big players are very aggressive recognizing that people aren't going to have five or six sports betting apps on their phone they might have two possibly three and so they try and win that space and get a couple of bets placed and then there is engagement.

Then there is a little bit of a pull back and we're seeing that pullback money then they stay active in the markets, but that money is moving to new launch markets and we've had.

A couple of.

Market's launch recently Maryland's launched Lafayette, Louisiana has now launched but as I said, Ohio will be material, having two NFL cities in Ohio.

Big one that will be for us, although I don't think its going to happen in 'twenty, two but do expect it.

To move through its legal process and voting process and the 22 would be Florida, and so I think thats, probably 2023 money but.

Okay.

I think theres still in.

There's 30 states that currently have sports betting legalized I think it will move through the process of across the country. Most all states, becoming legalized and then I think there'll become some standardization many of the states.

Look different I think they'll ultimately be standardization and then I think the real pay day as we see in Europe and other places is when you can get to in.

And then just following up on Craigs.

Question about auto.

Asked a different way can you frame for me, where auto advertising is relative to 2019.

It's probably two thirds roughly of what it was.

Okay, and then just kind of moving on.

Just I guess I wanted to add.

Now that you've loosely over the year how has it performed relative to the other networks.

Hey, Mike It's Lisa.

We are pretty happy with Newsy and its fifth month of over the air.

Certainly.

Before going over the year, it was primarily an OTT or CTV.

Play with most of our growth over the last several years coming there we're seeing audiences build over the air.

A little too soon to.

Tell at this point, we're not Nielsen rated but certainly.

We're pretty happy with where we sit in month five of new.

<unk> launch.

And Lisa losing no longer carried on the Comcast systems correct.

And then when do the comps.

As a part of the renewals that you indicated for next year, 75%.

Comcast subs as well.

Yes that includes Comcast subs.

Okay, and I know that it seemed like you were a little money on the table.

Last time, when you went through the tests, especially as we're launching new Z over the year I'm sorry.

On Comcast.

So do you have any thoughts in terms of.

What we could look forward in terms of retransmission revenue growth potentially or maybe a range looking out to 2023.

Well first I would I would sort of.

Clarify I don't think we left money on the table quite frankly.

Remember dependent on from where we started we started at zero so the negotiations.

<unk> proved to be very positive for us but.

You sort of start where you start.

I would expect us as we will with all of our Retrans.

Especially in this mode right now, where we're fully scaled as a local broadcaster to get full market value for all of our retransmission consent.

Gotcha, Alright, that's all I have thank you.

Thanks, Mike.

Next we have a question from Steven Chahal with Wells Fargo. Please go ahead.

Thanks, Adam I, just wanted to ask you a little more on the marketing campaigns for OTA and OTT I guess first is there a way for us to think about the advertising <unk> that you generate on OTH.

Or an OTT viewer.

Thinking about what that opportunity looks like and any idea of how many incremental viewers you hope to get through.

The $20 million campaign that you're putting through for this year.

And you mentioned the connected TV opportunity I'm, just curious where you are in taking your OTI networks, making them available as absent CTV and if in the future we might see a similar sort of marketing push on the digital side, where you're using like the roku and the fire sticks in the world to help you get to those viewers as well yes.

Thanks, Steve and Theres, a lot of math behind this first according to Nielsen Scripps has between the 25 million a 30 share of OTT viewing at any one time, so that between that formidable share and our ability to execute obviously running a very large revenue business right now on the network side and that doesn't even.

The upside we think we'll get on the from OTI growth on the local side that gives us the formula to invest pretty modestly in a way, where we know that the OTI viewer value will definitely exceed acquisition costs. So we're now operating about a $3 billion growing business, that's going to benefit as the OTA marketplace continues to grow.

And we're tracking the cost of our customer acquisition.

With expectations that youre going to begin to see the benefit of the OTA marketplaces growth as we continue to develop our business given our strong share in the marketplace. I think Lisa can provide you a little bit more data on the on the CTV progress and on marketing for CTV, Yes, Steven of course, we launched.

Bounce XL in the fourth quarter of the year, which is doing really well we have plans to launch.

Most all of our brands over the next six months, probably the one I'm. Most excited about is ion ion as the fifth largest broadcaster. It's a top three cable entertainment network and really will be the only network of that caliber carried on SaaS services. So that is.

A pretty big deal.

Anxious to get that launched I would say from a marketing perspective.

This is a plan that we have executed really really well with newsy over the years certainly at court TV with lines CTV will employ a lot of those same tactics from a marketing perspective.

<unk>.

Yes.

Platform in the coming months, Yes, let me let me also add we talked about this a little bit last quarter.

We went out and were able to acquire the rights for our linear streams and will now bring those into the fast marketplace and in the SaaS marketplace I'm, a really big believer that the cream will ride rise to the top with respect to premium programming and that really that really means that our our St.

<unk> will really be the best of the best premium content and the SaaS marketplace, and we expect that to be able to share a lot more with you with respect to the revenue growth ahead, as we launch and go live.

Great and then Jason I think you all beaten raised your free cash flow number a few times in 2021 can you talk about what came in better than what you expected in 2021.

And as we think about 2022.

Should we also perceive this one as being maybe a little bit conservative or particularly does the marketing campaign, just generate a little more.

Maybe uncertainty in the free cash flow guide because if things go well you might you might want to spend a little more but then political could come and hires maybe just some of the puts and takes in your 2022 guide. Thanks.

Sure. So specific to 2021 I mean, the single biggest thing was just the pace of the rebound in the advertising marketplace and the sales execution you saw both on local and networks throughout the year, we continue to see us exceed our expectations and take up our expectations on a top line revenue side I would also say as the year went on we also.

As you talk about our number this year, there's a lot of variables right I mean political.

Has can have wild swings, it's one of the reasons why we have the range. We provided there but certainly we are hopeful there is upside on political.

We're always hopeful that we can see a little bit of outperformance on Retrans and then also just on sort of the topline advertising revenue.

Great. Thanks.

And we have a question from Keith Smith with Barnhill for capital. Please go ahead.

Yes, great great job guys.

A few quick questions here. The first one is what portion of your current ads or CTV versus linear and what do you see the trends ongoing there and then a little bit more on the sort of the timing of the.

The online sports betting in terms of the.

In the event sort of bad timing there.

Thanks.

Yes. This is Adam I'll sort of answer answer for the enterprise on the CTV versus linear I mean, the vast majority of our advertising revenue today comes from linear.

There is very strong growth across local and national networks on the CTV side, but we have very very big.

Huge platforms in local and national networks and so.

And so it makes the CTV look relatively small although growing quickly Brian on sports betting.

Look I think sports betting will be pretty consistent as we go through the year as I said 30 states already launch so there is.

Either maintenance or.

Acquisition marketing Thats going on in all of those states and beyond that then.

We will have new states launching as I mentioned, Ohio is probably the biggest opportunity for us and that should come online somewhere right around the NFL season, So expect to see a little bump as we.

Hit September and work our way through Q4.

Okay great.

What I was looking for specifically as you guys have any timeline on the end game. The in game betting sort of services like you mentioned in Europe , Yes, I think it's a couple of years.

Keith I think the whole country is going to have to ratify sports betting that you're going to have to have some consistent rules on how it's executed and then I think.

You are in a position to be able to standardize something like that so I would think that theres a couple of years before that happens.

Alright. Thanks.

Ladies and gentlemen that does conclude your conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.

Q4 2021 E W Scripps Co Earnings Call

Request a DemoDemo

SSP

The E.W. Scripps Co

Earnings