Q1 2022 E W Scripps Co Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Scripps first quarter 2022 earnings call.
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I would now like to turn the conference over to our host Ms. Carolyn Michele <unk> head of Investor Relations. Please go ahead.
Thank you Tony and 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 filings, we do not intend to update any forward looking statements. We make today include.
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 their formulations.
Included in our earnings release are the reconciliations of non-GAAP financial measures to the GAAP measures reported in our financial statements.
We'll hear this morning from Scripps President and CEO , Adam Simpson, Chief Financial Officer, Jason Com local media, President, Brian Lawlor, and Scripps Networks' President Lisa Knutson.
Also on the call as controller Dan per SKU.
Now here's Adam Thanks.
Thanks, Carolyn and good morning, everybody. Thanks for joining us once again in the first quarter scripts delivered a terrific financial performance.
Outstanding results in local media coming as a result of scripts this commitment to new business development and better than expected retransmission revenue and at Scripps networks AD revenue that outpaced its marketplace supported by both the growth in ratings share and advertising share. None of this is by chance it's.
A reflection of our company's evolution over the past several years, we have crafted and continue to craft, a durable and high performing company that delivers a steady stream of free cash flow one that comes despite fluctuations in advertising marketplaces and across political spending cycles.
Through investments that have grown our topline ongoing sales execution and careful expense management. We have built an economic engine that is not just stable, but designed to grow meaningfully every year to.
To illustrate this point in first quarter 2022, our free cash flow was three times higher than the comparable quarter in 2020.
Our growth strategy is fairly straightforward it relies on American television consumers desire for easy to use technology and efficient delivery of the shows they love in the most cost effective ways to watch TV, whether that would be over the air on a connected TV service or through cable or satellite.
Americans are watching more TV than ever before of course, how and where they are watching this changing.
At Scripps, we have put ourselves in the best position to profit from the evolving TV marketplace.
Our brands local and national can be found across every linear TV viewing platform pay TV over the air and connected TV.
So for scripts it continues to be in all of the above approach meeting the media consumer wherever they may be we execute our strategy with the best of both the pure play broadcast business and the lucrative national networks marketplace.
As you know, we're delivering strong growth with our nine fully distributed over the air networks, we benefit as free over the air television is buoyed by the rising cost of the <unk> services, the consumers plus fatigue and inflation attacking the American pocketbook.
We continue to expand those same networks distribution into the connected TV ecosystem through free advertising supported TV services.
We told you that we would be launching programming from most of our national networks on major CTV platforms. This year and we continued to do so.
We're finding big new engaged audiences in this rapidly expanding marketplace.
Remember that I said, it's in all of the above strategy because pay TV customers account for the majority of the audiences for our local media brands.
We believe forecasts of the demise of cable or not just premature but ill informed.
Pay TV to appears to be benefiting from plus fatigue and S. Five price increases.
Typical households, Internet and subscription services now surpassed the cost of the cable bundle.
Again American consumers are today more than ever guided by their wallets, Here's recent proof our pay TV subscriber households are up from the prior quarter and we saw significantly lower churn year over year.
And then there is spectrum and the opportunities we see ahead with the transition to <unk> III Dato Nextgen TV.
Scripps is the largest holder of broadcast spectrum today.
Today, the distribution of our Scripps networks also makes us the most efficient monetize or of that spectrum. We are dedicating significant resources to developing the new avenues for value creation that will come down the road from this valuable asset.
While Scripps has a long history of creating value over the long term. We've also proven to be disciplined operators with an excellent track record of near term operating results that.
That financial success comes as a result of all of the terrific employees across the EW Scripps company, including the superb work of our local and national networks sales teams.
They have been delivering best in class AD revenue growth against macroeconomic headwinds, garnering new business and launching new products programs and networks benefiting the enterprise and investors.
Now, we're moving into what by all accounts will be another record breaking national political spending season.
As leaders of our connected TV political sales consortium and owners of a prime political station footprint, we anticipate a record year ourselves leading to free cash flow of $400 million to $450 million.
At Scripps and our work to evolve and grow this company and create new shareholder value has no endpoint. Instead, we will continue to strive to meet milestones that build to our next big opportunity.
Several years of work have produced greater and more even free cash flow generation and a more economically durable financial engine that is creating new shareholder value.
And now here's Jason.
Thanks, Adam and good morning.
Our earnings tables in today's press release include our as reported results for the first quarter of 2022.
We also given a lesser to a comparison to first quarter of 2021 as though we had owned ion beginning January one rather than January 7th last year.
My networks Division comparisons today will be on that adjusted combined basis.
Let's begin with the local media results for the first quarter, which are all same station.
Local media core advertising revenue was up three 4% driven by our strong sales execution and attracting new advertising business.
Total revenue was up four 5% aided by solid core AD performance and retransmission revenue growth.
Political AD revenue in the quarter was about $6 million, that's about 70% higher than the first quarter of 2018, the last midterm cycle.
Retransmission revenue was up two 5% to $160 million.
Local media expenses increased 6% from a year ago quarter and segment profit was $54 million.
Turning to the Scripps networks Division revenue for the first quarter of 2022 was $239 million up eight 5% from the prior year on an adjusted combined basis.
Networks segment expenses rose, 23% over the first quarter 2021, adjusted combined results.
We continue to cycle through the cost of launching newsy defy TV into real over the air as well as continued investment in programming and higher cost tied to revenue growth.
Segment profit for the networks was $85 million.
Shared services and corporate expenses were $23 million.
The company realized Q1 income from operations of <unk> 10 per share.
The quarter included $1 6 million of acquisition related integration costs as well as a $1 $2 million gain on extinguishment of debt from the redemption of senior notes during.
During the quarter, we redeemed a total of $123 million on the outstanding principal of our senior notes.
As of March 31 <unk>.
Cash and cash equivalents totaled $35 million.
Our net debt at quarter 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 continue to expect to move our leverage to about four times by the end of this year.
Now looking ahead I'd like to give guidance on a few key areas for the second quarter of 2022.
We expect total local media revenue to be up about 10% from the second quarter of 2021.
We expect political AD revenue in the mid $20 million range.
We expect retransmission revenue to be up about 10% in Q2.
We expect Q2 local media expenses to be up in the high single digit range.
And that Scripps networks Division, we expect revenue to be up low single digits. Despite the macroeconomic climate.
Networks' expenses are expected to increase in the mid 20% range during.
During the quarter, we will continue to cycle through the startup costs for the three new over the air networks that we launched in the back half of 2021.
And we are assuming production costs for the scripts national spelling the broadcast and the bounce trumpet awards, both of which take place in the second quarter.
Lisa will speak more in a moment about the benefits of our bringing the national spelling Bee production in house for the first time this year.
We do expect the network's year over year expense increases to moderate significantly as we move into the back half of this year.
Second quarter shared services costs are expected to be about $21 million.
And one note on our other segment. It includes the expense for our over the air consumer marketing campaign, we expect about a $6 million operating loss in the other segment for Q2 and about two thirds of that is related to the marketing campaign.
Finally, we continue to expect to deliver free cash flow of between 400 and $450 million. This year and just a reminder, that the midpoint of that range equals about 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.
And now here's Brian to talk about local media.
Thanks, Jason Good morning, everybody.
Our local media team was very pleased to exceed expectations for core advertising revenue and total division revenue in the first quarter.
We had guided to low single digits for both and then achieved four 5% growth in total revenue and three 4% growth in core advertising.
Q1 was our fifth consecutive quarter of year to year growth in core.
The growth in core was driven by two categories in particular services, which was up 11% and home improvement, which was up 12%.
Five of our top seven categories showed year to year growth in the first quarter.
The two category showing declines were auto which continues to be challenged with supply chain and inventory issues and our new category gambling, where we now report sports betting.
Without gambling in auto core was up 11%.
Within gambling sports betting continues to be an emerging and materials segment. We now have two years of experience with this segment and are better understanding the cadence of the business as states legalize sports betting we see an aggressive pro Oh, an aggressive push for new customer acquisition by state.
Authorized companies.
After a defined period of time these companies take their spend to more moderate levels as they focus on customer engagement and move dollars into new states, where they seek to replicate this playbook.
We look forward to Ohio, and Kansas coming online this fall and other states in the near future.
Overall in core advertising, we were pleased that our local sales teams. Once again developed business for more than 1000, new to TV advertisers that sales execution has continued to be a driver and Scripps core advertising performance.
I'm proud of our teams have not taken their foot off the gas in their focus to help local businesses grow beyond the pandemic.
For the second quarter, it's still early but we've been seeing orders getting booked later as businesses manage through the current economic climate.
Waiting to make sure they have product and employees before advancing their marketing.
In addition to the performance of core our total division revenue growth of four 5% was aided by an increase in retransmission revenue.
We continue to see a slowing of subscriber churn from mid single digits to low single digits year over year, and actually up 1% from the prior reporting period.
Virtual subscribers continue to grow meaningfully for us.
Looking ahead, we are greatly anticipating this election years forecast continue to call for a record political AD spending and as we have experienced in Ohio over the last month, Scripps is extremely well positioned to capture more than its fair share of dollars.
You may have seen our April 5th announcements, we are leading a group of local broadcasters informing our political CTV consortium.
Nearly 2 billion of the $9 billion in projected election spending. This year is expected to go to connected TV and we're making it easy for agencies to access local broadcasters CTV inventory.
In terms of overall spending in the U S Senate forecasts call for $1 $5 billion for just nine top races.
And we have 12 stations and five of those States, Arizona, Florida, Nevada, Ohio and Wisconsin.
More than $1 billion is expected to be spent on nine governors' races, as well and we have 10 stations in six of those states, Arizona, Kansas, Maryland, Michigan, Nevada and Wisconsin.
And we see about 75 competitive U S house seats.
Overall, we projected about $270 million in revenue from Scripps footprint, we began to expect that record number about a year ago and now we are even more confident in that opportunity.
Now here's Lisa.
Thanks, Brian and good morning, everyone at Scripps networks, we are now well into the new advertising upfront season, and we are armed with a number of great stories to share.
Our new upfront presentation is themed create fee and it focuses on our nationwide audience reach across nine networks as well as our leadership and free AD supported TV of all kind of over the air and on connected TV.
During the first quarter, we outperformed our national network of the peer group and advertising growth.
And we're also leading viewership performance during the first three months of the year, we achieved a 5% year over year increase in total primetime viewers across our entertainment networks. According to Nielsen.
That growth came despite total nationwide linear usage declining 9%.
Our industry, leading viewership trends position us well to continue delivering better revenue performance than our peer set.
In fact, our Q1 revenue growth of 8.5% outpaced total national TV spending, which was up only 6%. According to <unk>, we also compared well against our network portfolio peers, whose AD revenue was down.
Our success is due in parts of our cross selling of portfolio inventory as well as our strategy of optimizing our advertising mix moving our AD inventory between general market and direct response to yield the best market rate.
We saw particular success in Q1 at our second largest revenue networks out.
As you know bounds produces programming primarily for black audiences and we have recently been working to refine the programming and further build its brand with black communities.
This effort paid off in Q1 with a 54% increase in AD revenue and that growth came across categories and platforms General market direct response broadcast and connected TV.
Our newest entertainment networks to find true real also exceeded our revenue expectations in the quarter as they continue to see audience growth and rate increases each month on the new side core television revenue was up 21% compared to last year due to growth in each of its revenue stream.
Looking into the second quarter, our AD revenue visibility is somewhat limited at the moment given the current macroeconomic environment. We do continue to expect nice year over year growth, we are experiencing solid scatter market rates maintaining levels of 30% to 40% above upfront pricing depending on the network.
And we are confident that our national advertising marketplace will return to full strength once we've moved through this economic climate.
On the Q2 expense side, we expect a few new expenses to moderate our profit margin in the short term, but you bring up the audience and revenue benefits in the near term.
We are still cycling through the first year of expense for launching newsy defy and true real over the air and watching them grow audience and revenue.
And this year the networks division will produce scripts national spelling Bee telecast for the first time and the balance trumpet awards in Q2 for the first time, we are extremely pleased to be producing in house. These marquee events.
The Scripps National spelling Bee telecast was produced by ESPN for 27 years and bringing it into scripts at the Tentpole event allows us to sell the advertising and to retain the intellectual property of this iconic American event in.
In addition, rather than only at cable audience, we will deliver the b K on cable satellite streaming platforms and over the air to 95% as TV U S. TV households that greatly expands the selling days audience reach and will allow many more Americans to watch the entertaining.
An impressive competition of young sellers.
National spelling Bee finals will air on ion and Bell at eight P. M. Eastern time on Thursday June 2nd and I Hope you and your families will tune in.
Turning to distribution, we continue to make strides in expanding our connected television audience reach and we are poised to take more dollars out of the lucrative CTV ad market.
During the first quarter, we reached agreements with BMO.
C L and Amazon Island, <unk>, and we just completed an agreement with Samsung TV, plus which is by far the largest free AD supported platform. The Samsung agreement covers all seven of script fast networks IR launched April 27, and grit extra and I on mystery launch on Samsung in the third quarter.
As you know newsy in core TV are already fully launched across CTV.
Speaking of Louisiana core television I'd like to end my remarks by highlighting how they contribute to creating a better informed world at Newsy with that reported Jason Bellini to Poland, and then into the Ukraine to give our viewers a closer look at the humanitarian crisis. After the Russian invasion, although newsy does not have staff oversee it.
Does not stop overseas bureaus, we believe it is important to provide objective firsthand coverage of major world in that.
At core TV, we made another successful bid to allow cameras in the courtroom. This time for AXT are Johnny depth libel lawsuit against ex wife Amber herd.
In the past few years, we've seen tremendous viewership for high profile cases.
The depth of her trial, our daily streaming hours have been up more than 300%.
In addition to building core TV viewership televising live court proceedings wins valuable transparency into our legal system. We are proud of court TV and ongoing efforts to serve and not watchdog role and now operator, we're ready for questions.
Yes.
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Our first question will come from the line of Craig Huber with Huber Research partners. Please go ahead.
Yes, hi, good morning, Thank you.
Maybe we start with television station side, Brian maybe.
Can be a little more specific on your outlook for two Q core AD revenue for your TV stations when we start there. Please.
Hey, Craig good to hear from you.
Right now it's still early in the quarter you got about seven weeks of business to write but right now we're looking to be about flattish compared to.
A year ago.
And then auto how did that do year over year, obviously, a tough environment for auto, but how did that do in the first quarter and what are you hearing from your dealers your advertisers out there when do you think it might start to at least start to flatten out I mean, the hope it used to be middle of the year second half of the year what are you thinking there.
I think that's still what we're hoping and talking to their dealers. They are some dealers are starting to get more inventory made available to them I don't think we'll be back to a normal inventory load in 2022.
But we do see a or do expect improvement in the back half in the first quarter. It was still down you know double.
Double digits over.
Over 20% and I think I would probably expect the same again.
In the second quarter.
Okay and in sports betting I guess with gambling in total I think you said it was one of the two categories that was down maybe can you just flush that out a little bit is that because of sports betting has sort of hit a wall here. After an initial flood of advertising when they roll into the various states and then it slows down afterwards.
No it really isn't yeah, Craig it really is about timing.
You know.
When.
The sports betting is legalized in states was really aggressive spending.
First quarter, a year ago, we had heavy spending in Michigan heavy spending in.
Virginia and Indiana.
And a big important Colorado, some big important markets are they do you know after a period of time as I said in my prepared remarks Peel back to a maintenance level and then move some money to new launch dates. So we did see Lafayette.
Louisiana come online this quarter, we had Arizona, which launched at the end of last year, but still in its first four quarters with active spending we saw in New York come online in the first quarter. So it really is just a timing.
Again I think.
We expect it to be a very healthy category for us This year, Ohio will come online around the fall in time for the football season, We think Kansas same thing of great opportunity for chips.
Browns and Bengals sports betting. So we just I think it's the cycle now and so it will depend on the cadence on the timing of when states launch and how long they stay with the aggressive spending, but we are definitely not reading into anything that this category is going to pull back.
What what percent of your advertising if I could ask as a.
Gambling into sports betting in the first quarter, saying.
Under 10%.
Okay and my last question guys.
I think I asked you this last quarter as well are you hearing or sensing.
In a recession, Brian and in any of your markets and had the same question on the Scripps networks side, I mean, given all the macro issues out there.
Picking up the reason, we're moving into a recession here in any of your markets.
So I can start and then anyone else can weigh in I don't think were.
Feeling the effects of moving into a recession I think we are feeling the effects of the challenges of supply chain.
And employment and so I think.
Businesses are challenged to get product in some categories and in other categories.
They are having a hard time getting employees and so I think that is the bigger.
One factor that is influencing our local business I don't see much of a pullback at this point that would indicate that it's a recession that is driving.
Any slowdown yeah, Craig I agree with Brian's comments, one thing I will add on the National AD marketplace is it's really the.
In Ukraine crisis, many advertisers, who we're doing business in Russia pulled out so that that is a little different nuance in our business, which created some pressure and at the end of first quarter and looking into the second quarter that really and I agree with Brian's comments about supply chain labor shortages are really the driving piece.
At this point.
Great. Thank you guys.
Yeah.
Thank you. Our next question will come from the line of Steven Chahal with Wells Fargo. Please go ahead.
Thank you.
Maybe first.
So just to follow up on that last line of questioning.
Your comments were that you know once the market comes back do you expect some strong growth in your networks Division.
Are we to imply though that at the moment and especially with the Q2 guide. It does feel like things have softened a little bit we've heard from companies like radio that theyre, starting to see a pickup in pace things as they get into May June after a slowdown in April could you maybe just give us a little more granularity are you seeing signs of things are recovering or are you seeing.
Stability or are you seeing instability would kind of love to know what the trend line looks like right now yes.
Yes, and actually you know early early days of May we are seeing some a little bit of a pick up in may versus what we.
At the end of first quarter and.
Early early days in second quarter, So I would echo some of that.
For us it's about executing our strategy of optimizing our inventory and continuing to find the best rate out there with our CTV launches I think we're really bullish that marketplace is really strong and with watching ion and on CTV. We're now able to capture dollars then that really lucrative marketplace.
Where I would say looking ahead, we're really.
Focused on third quarter with hopefully a lot of cars coming back on lots and you know paired with Sun and.
Outlook.
The improvement that we're seeing in the early days of May that we're really optimistic and confident in an.
And our AR growth.
Our directory.
Steve It's Stephen it's Adam I think I'd I'd want to just sort of add the strips out networks was up eight 5% in Q1, we.
We expect it to continue to demonstrate really superior revenue growth when compared to.
Any benchmark local peers national networks peers.
Well the networks generated its revenue in the national AD marketplace like the other cable network portfolios, where were sort of uniquely positioned to take advantage of the growth of over the year, which they've for the most part don't have access to so we're really a growth story in the national advertising marketplace on both ratings and advertising share mezz metrics, it's sort of the <unk>.
The both worlds.
You know I say this just because I want to jump in and focus on this sort of notion of you know.
That's the question of scripts compared to pure play this or pure play that I think that's really a red herring you know when you think about our company you have to think about the benefits of a company made stronger over the last several years through the development of the Scripps networks. We continue to have terrific scale and local broadcast that takes advantage of the growing dual revenue streams of course, including the upside with retreat.
But the networks is something we laid on top of our local broadcast business and it's a growth story and it's a strong growth story in the national AD marketplace, and we expect it to get back to that after we move through a cycle of some macro macroeconomic conditions.
Okay.
Yes, thanks, Thanks for those and maybe Adam.
To give you a little bit more of a floor on that could you talk about the marketing campaigns that are forecasted in the year ahead, and where you are in terms of achieving those and what sort of goals. We can expect to see whether that customer activation or growth in OTT or CTV.
Yes, yes, and yes, I mean, we expect our marketing campaign to kick off in earnest probably sometime in Q3 focused on several events that we know are coming that are going to be catalysts for consumer adoption of over the air we really expect to take advantage of this moment when consumers are frustrated.
With the increases that we're seeing by the subscription video on demand services. They are frustrated by the content glut and they're they're they're experiencing a level of plus fatigue. I know you all know that because I think you can see the impact on the.
Other networks in the <unk> services.
Stock prices.
According to Nielsen, we have about a 25% to 30 share of OGA viewing at any one time, it's a really formidable share of in that marketplace in that marketplace continues to grow Nielsen. Just recently released some information demonstrating again another year of growth and the O T. A marketplace our focus on growing the OTT marketplace, because well be.
And just a marketing campaign, we're developing now customer activation opportunities with retail partnerships that we're going to share more about in the coming months, we think theres a lot of opportunity to solve the problems that consumers have had on the install side and the user experience in any way we can we have.
Expect to introduce Americans to the opportunity for them to add free over the air TV to their bundles not no way, that's going to cannibalize the pay TV ecosystem, but in a way that's going to be additive that is going to show people, who have already cut the cord that if their subscription video on demand consumers.
They should right now plug in a digital antenna so that they can get access to the entire buffet of premium content and the over the air marketplace, including for example, all of our lives sports that's on the Big four broadcast networks.
Thank you.
Thank you. Our next question will come from Dan Carnose with the benchmark company. Please go ahead.
Thanks.
Let me pursue the networks side, just a little bit more I guess I'll start Adam obviously, it's more than just a play on viewing trends.
It's also quality it seems like you are.
Meaning not just because of the next year, but you are winning eyeball share across the broader portfolio.
In the landscape that has increasing proliferation of Avon com.
Content. So just maybe some incremental thoughts on that we'll start there and then I've got some questions really Brian yeah.
Yeah, I mean, absolutely I think one has to be reminded of the fact that.
The top streaming shows in the <unk> marketplace are actually today available for free on our premium networks and while they're not on demand and while Theyre served up with advertising free is an incredibly compelling consumer proposition at this moment of high inflation.
And as far as the <unk> fatigue, and we're taking advantage of that you can see it in the share of audience that we're growing compared to our peers, whose portfolio shares and ratings have been down our portfolio's rating share has actually been up.
And that is I think a testament to our good programming strategy premium quality programming and a growth marketplace over the air lease or you want to add anything to that.
I would also say our portfolio.
<unk>.
Taking a portfolio approach and having really genre that appeals to rely on those data. The marathon. It certainly is also a competitive advantage for us.
So as each network is in its own life stage of growth. There are some that are growing significantly and like we talked about with bounce this year.
In the first quarter growing 54% from core TV growing over 20%. So I think it's also that having that portfolio.
And that appeals to a different genre of audiences also and certainly something that we and we see as a competitive advantage.
Lisa just you made some comments just around the optimization of inventory obviously, Dr was strong now it's probably not as strong.
Hey, how are you thinking about you know further inventory optimization as you head into <unk>.
New fronts, Upfronts and then into kind of the next TV season, and B do you think all of your networks will be rated by the end of the year.
And I'll start with the last question, so probably not all of our networks will be rated by the end of the year.
And really three and startup mode. We are.
Switching that very very carefully so we turn on those ratings when we see the opportunity to monetize in the.
Our print and general market marketplace.
So that's the that's.
The one question in terms of.
We really do continue daily to optimize and it's all about taking the highest rate you know as I said in my comments a few moments ago, you know may the scatter market and May is.
Up compared to April and so we're seeing that as signs of you know so those are the dollars, we're writing and when we're seeing our scatter rates, 30% to 40% higher than our upfront right. So and when we're seeing the opportunity to shift that inventory into Dr. We are absolutely doing that.
And we saw that really pay off for us in first quarter up eight 5% a lot of that it was really that that inventory optimization between general market and Dr. I do think with the launch of ion and the rest of our fast networks, that's going to be even.
A better story for us certainly in the Upfronts were selling them.
Both linear and CTV inventory and so that that's really helped our I think our story in the upfront along with our strong and viewing and share numbers.
Got it that's helpful and last one Brian .
I know you mentioned it in your prepared remarks, but I don't know that <unk> got enough coverage to the political consortium that you guys have especially on the CTV.
That partner with 90 night and all of this it feels like an expansionary potentially I think super interesting level. You guys are doing there just would love to hear some more granularity of how we should be thinking about how that evolves over time.
Yeah, Hey, Dan.
Look we saw an opportunity let.
Let me just step back you know our history you know.
The bold steps, we started taking a decade ago to carve out our place in our our leadership and political creating an infrastructure Washington office, we've controlled our own political now for more than a decade, we've continued to advance that and offer new products and a data driven products to the candidates and to the agencies.
We built great relationships with them and so we continue to I think be a leader in and forward thinking in this space and we saw an opportunity where you know like other categories. There was going to be a fair amount of money moved Laura available in the CTV space.
And we saw an opportunity to not just you know put scripts out there, but really to create a marketplace that would be interesting and easy to use for media buyers.
In the political space and so with a couple of peers and others. We've put together assorted a consortium just launched in April . So it's early and I don't have any numbers to share with you at this point.
But I think we're seeing acceptance we are booking orders those orders are getting placed in and out of our markets.
And.
I think we're going to have an opportunity to play on dollars and roll that space up where these are not our linear channels and so it's an all additive revenue stream.
Got it that's super helpful. Thanks for all the color guys I appreciate it.
Thanks, Dan.
Thank you. Our next question comes from Michael Pinsky with Noble capital markets. Please go ahead.
Congratulations on your quarter by the way first of all I'm going to go back to the network quite soon.
Particularly up vital systems in the direct response business that on your networks.
Obviously during COVID-19, whether that business seem to do quite well and I was just wondering in this environment.
Or are you starting to see.
Yes in terms of national advertising.
First is direct response.
A little bit about the percentage of direct response.
Total advertising and how that might look versus where we were.
Maybe during the pandemic.
Yeah, So Mike you know.
Direct response in the first quarter. It was a strong performer you know despite the macroeconomic trends and suddenly certainly put pressure in some cases in the latter part of the quarter on a rate that's the strength.
And that's just a minute ago of our portfolio and our ability to optimize that and Dr or general market is really sort of our secret sauce, so to speak and are poor and the portfolio approach that I mentioned and remember each of our networks it sort of it in a different.
Mix, so to speak and.
Some of our.
Over the air network like a grid or am I on midstream may have make me have a revenue mix of D. R.
Heavier versus eye on which is more general market focus, but continually looking at the best rate possible and that's that's why we've invested in Nielsen ratings to be able to share or to be able to sell each of our networks. Both in the upfront and also and the general market space. So hopefully that.
Answers your question in terms of each network is then it's different life stage in terms of the split I think last year. We were at 50 about 50 50 50.
<unk>, 50% general market and 50% Dr. Overall for the network Division, but obviously, that's made up of lots of different.
As you know each network being in a different stage.
And Lisa what is the percentage now.
And it is it hasn't moved it it's about the same at this point in time.
But it but youre not Colorado increased interest from direct response been like we did when the Covid period like a heightened level of interest.
Like.
I'm just trying to understand the tone of the market place like we are.
Yeah, I would say as the scatter market you know I mentioned this last quarter, you know the visibility and the buys that are coming in sort of late later and theyre, placing buys closer to knowing whether or not they have inventory and so where we're able to then shift some of those dollars that aren't written in scatter to two <unk>.
Dr. But you're also starting to see I think a N D R.
There is a probably more inventory at this point in time out there because other national networks are certainly moving some of the you know where theyre not getting them dollars written in scatter or theyre moving them to Dr. So there is a bit more demand from an advertising perspective there is.
Lee more inventory available and.
Out there.
That's it in your earlier comments you mentioned newsy. So I think it's fair to ask a question about movie.
Seems like the news and information category is very crowded and it would be a hard hard to get a voice in this space, especially you know a lot of the other networks have.
Reporters on the ground in Ukraine, you mentioned Ukraine.
Your milestones in terms of delivering upon your expectations and are you still in investment mode. There or are you trying to my earlier investments I'm, just curious about where you're at with that with novel Yeah. Thanks, Mike. So newsy is just a little over six months and two its newest.
Revision of Newsy with Andina in over the Air Network and remember new these strange prior Q and making this change last year was also wanted to CTV side.
And so we're not Nielsen rated at this point in time, so I can't share with you.
Those kinds of viewer trends, but what I can share with you is.
I'll, let CTV side, which we're well established in our viewing on CTV is up 40% versus prior year annuities. So we see that as really great engagement in some of the on the work that we've done to really improve the product is coming through and I would say the investments that we've made where to your point we're real.
<unk> now mining to make sure that we are taking advantage of those investments so.
The investment trend on Newsy has moderated.
In the first half of the year, where we're lapping those expenses will be.
In the second half of the year, Mike if I could add.
The news the news space, depending on how you defined it is as it was.
Potentially crowded, but the space for our quality objective journalism on television in our opinion is not crowded and what we saw happen across the street with CNN pulling the plug on C. N N plus is a validation of our strategy that America is.
Very interested in quality objective journalism, particularly if it's delivered for free and our reach across America with both CTV and OTT a makes newsy are unique.
A unique proposition at this moment and we're really beginning again without Nielsen ratings really beginning to see.
That that resonate.
So I you know I'm I you know for US it's very much stay the course continue to build the brand continue to expose more Americans to the quality objective reporting that's coming out of our team at Newsy and monetize it.
Thanks, Adam and one last question for Brian .
In terms of our local media I was just wondering if you can give us.
Cone of the advertising, particularly our local advertising.
Advertisers shifting.
Crimson booking their advertising may be closer to her time I'm just wondering in terms of how much visibility you have.
Getting in terms of the pacing data as we go forward and if there has been a shift towards Africa.
Advertising being booked.
Uh huh.
Hey, Michael later, Yep, Hey, Mike It's Brian .
Yeah, I think you're spot on there that you know.
I think.
First of all just reported that five of our top seven categories were up in Q1, and if you take out sports betting in auto.
All of our core was plus 11, so it was a pretty significant numbers.
But that said, yes, there has been a change to the pace of how people are booking business clients that would normally book at a quarter at a time or even month to month are definitely holding back end booking.
Two weeks out or a week out and they're really waiting due to supply chain issues to determine if theyre going to have enough product to sell and then they've also got to look at do they have the employees to think of the service category or do I have enough employees to go install a fence or put on a roof or deliver a hot tub and do I have that up or are there.
<unk> ordered so all of those things are factors now, but I can tell you in first quarter as we got to March we were seeing bookings month or week to week to week that was building through the.
The month as people are identifying okay, I got the product and I got the staff I can move forward, but it is we have less visibility than we've had in the past as were working week to week now.
Gotcha alright, thank you very much appreciate that.
Thank you. Our next question comes from the line of Craig Huber with Huber Research partners. Please go ahead.
Yeah, Brian on your net Retrans outlook for this year I think you guys said last call you thought would be flattish for the year what are you thinking right now.
Hey, Greg it's Jason yet so we continue to look at it as being flattish. If you recall, we only have about 20% of our subscriber base renewing this year and some contractual network comp step ups. So flattish this year, but as you look forward to next year, 75% of our sub base renewing we are we're really optimistic about some nice net retrans growth.
In 2023.
Okay got it thanks for the update there.
Other thing.
The services category, Brian in your television stations in the first quarter what percent of the total was that and maybe just talk about the.
With specific pieces underneath the surface is really really strong in your mind, what you saw there.
Yeah, Hey, Greg a third of our core advertising looseness in the services category and it's been that way now for a couple of quarters. So it's a big material part of our success and you know when we talk about developing a thousand plus new advertisers a lot of that is in the service area and inside of services.
Medical financial legal educational so there's a lot there, but a lot of that is local and a lot of that is our focus of our sellers you know, we're not going to sit around and just you know.
Except that auto's down we're going to do something about it and work actively to replace it and this is a category that you know.
Decisions can be made by local owners and we can take advantage of that and so.
It's about a third of our business it was up double digits as a set of 11%.
Inside that medical was up almost 30% and spending so that's a big subcategory inside their financial segment was up the legal segment was up so banks insurance raw part of financial and they're healthy.
A lot of different segments, there, but very healthy.
That's great.
That's all I have Oh sure Joe one more thing on the Scripps networks side did you see a material.
Slowdown in your in your AD revenue there soon after the invasion of if your crane back on February 24th cause a material slowdown soon after that and it's sort of stabilized several weeks later.
How was the cadence I'm curious.
I would not say a material slowdown I think after the Ukraine invasion. It was probably later in the quarter towards the end of March that we started to.
Good to see you know as as large advertisers were pulling out of Russia is probably the timing of that.
And as she mentioned a moment before Craig May feels like you know if not stability, maybe even an uptick.
To the benefit of the advertising marketplace.
Great. That's all I had thank you.
Sure.
Thank you. Our next question comes from the line of Jennifer level with principal global investors. Please go ahead.
Good morning, Thanks for taking the question as it relates to your free cash flow guidance. I was wondering if you can provide us with a capital allocation priority.
Well in the near term our capital allocation priority is consistently been saying since the iron transaction, it's paying down debt.
We've made a lot of progress since the deal closed we paid down nearly $700 million.
And that and we're on the path to getting to four times levered by the end of the quarter and backing everybody sorry by the end of the year and then into the threes next year. So that that's our number one priority.
Yeah.
And.
It does leverage targets are they are they net leverage target our gross leverage target.
That's our that's our net as defined by our by our bank covenants.
Okay, Great and one other question as it relates to sports betting do you have any geographies that have newly launched here in the second quarter or half a.
Pending launches this summer.
Yeah, Hey, Jennifer it's Brian .
Nothing in the second quarter, we do have a couple that launched in the first quarter, New York, Louisiana started in the first quarter as I mentioned earlier, Arizona at the end of the year. So they are still in their first cycle I think the ones that will be up next will be Ohio and Kansas.
And we expect both of those to come online in the fall hopefully in time for the NFL season.
Thank you.
Thank you there are no questions remaining in the queue. Please continue.
Thank you Tani, that's the conclusion of this call.
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