Q4 2022 E W Scripps Co Earnings Call

February 24, 2023

Okay.

Ladies and gentlemen, thank you for standing by welcome to the Q4 2022 E. W. Scripps Company earnings Conference call.

At this time your telephone lines are in a listen only mode. Later during the conference there will be an opportunity for questions and answers. If you would like to ask a question. Please press. One then zero on your telephone keypad, you may remove yourself from the queue by repeating the one then zero command.

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Now I'll turn the conference.

Today's call will begin with Carolyn Micheli head of Investor Relations. Please go ahead. Thanks.

Thanks Alan.

Everyone and.

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.

Minded 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 is a discussion of certain non-GAAP financial measures that are provided as supplements to assist management and the public in their analysis and valuation of the company. These metrics are not formulated in accordance with GAAP and are not meant to replace GAAP financial measures and may differ from other companies uses or formulations included in our earnings release are the reconciliations of non-GAAP .

<unk> measures to the GAAP measures reported in our financial statements.

We'll hear this morning from Chief Financial Officer, Jason Combes than scripts, Chief operating Officer, Lisa Knutson, and then Scripps President and CEO Adam Simpson.

As Jason Thanks Carolyn.

Morning, everyone and thank you for joining us I'm going to start today with a quick look back at the fourth quarter of 2022.

Guidance for the first quarter at the division level and guidance on a few items for the full year, including our expectations for dish distribution revenue, which includes retransmission revenue.

I'll conclude with a deeper look at our recently announced reorganization and how much we expect to save for.

For the fourth quarter scripts delivered $681 million in revenue up 9% from Q4 of 2021 and $204 million in segment profit up 21%.

The quarter included $112 million of total company political advertising revenue to capped a record year for our mid term election of $208 million. We are pleased that the local broadcast industry. Once again dominated election spending with a 55% share of political ad dollars.

Local media revenue was up 24% driven by political advertising as well as distribution revenue.

Core advertising revenue was down 11% in line with our guidance, primarily due to political ad displacement.

Distribution revenue was up 5% to $160 million.

Local media expenses increased less than 5% from the year ago quarter, and excluding programming costs expenses were up less than 1%.

Local media segment profit was $152 million.

Turning to the Scripps networks Division revenues for the fourth quarter of 2022 was $248 million that was down about 9% from the from the prior year quarter, reflecting softness in the national advertising marketplace.

Networks segment expenses were $168 million in line with the prior year quarter.

As our fourth quarter, we've cycled through investments, we made to launch three networks over the year.

Segment profit for the networks was $80 million.

In other we reported a loss of $6 million, which includes the spend for our national marketing campaigns from our consumer digital television antenna use.

Shared services and corporate expenses came in at 21.

The company realized Q4 income from operations of <unk> 84 per share.

As of year end cash and cash equivalents totaled $18 million.

Our net debt at quarter end was $2 9 billion and our net leverage was four seven times per the calculations in our credit agreements.

During 2022, we redeemed a total of $171 $5 million of the outstanding principal on our senior notes and made principal payments on our term loan totaling $100 million.

In addition, we made mandatory principal payment of $18 6 million on our term loans. So our total reduction in gross debt in 2022 was $290 million and in the two years since the <unk> acquisition, we have paid down nearly $900 million in debt.

Now looking ahead I'd like to give guidance for the first quarter of 2023.

We expect total local media revenue to decrease in the mid single digit percent.

We expect local core AD revenue to be down high single digit percent range.

Excluding the impact of the Olympics and Super Bowl Q1 core revenue is expected to be downwardly mid single digits year over year.

We expect local media expenses to be flat either by divisional expense controls as well as the moderation in network programming cost.

And Scripps networks Division, we expect revenue to be down high single digits and expenses to be up high single digits, driven by higher distribution and programming fees.

First quarter shared services costs are expected to be about $24 million.

We expect we expect about a $3 $5 million operating loss and other in Q1 inclusive of the cost of our free TV campaign.

I'll conclude the guidance with a few full year items.

We expect our gross distribution revenue to grow in the low teens percent range for the full year of 2023, as we renegotiate fees for about 75% of our cable and satellite television households.

We expect net distribution dollars to grow more than 30% this year.

We expect capital expenditures of 75% to $85 million that is higher than our normal run rate because it includes onetime cost to build out a new facility in Denver, where we divested of the prior building.

We expect cash interest this year of between $180 million to $190 million cash taxes of $40 million to $50 million and depreciation and amortization of $155 million to $165 million.

We do not have any required pension contributions this year.

Given the ongoing uncertainty in the macroeconomic climate as well as the implementation of our reorganization plan, we will not be giving a full year free cash flow guide or leverage outlook I do want to reiterate however that our top capital allocation priority remains debt paydown.

On January 5th the company announced plans to reorganize with tools to centralized roles and departments across the organization, while preserving our commitment to serving our audiences with quality journalism and programming and to create better ability to deploy our resources across the enterprise. So that we can both build and respond quickly to growth opportunities.

At this time, we expect to realize at least $40 million in annual savings from the reorganization.

We expect those savings to be mostly operationalized in the first half of 2024, we expect to record restructuring charges. This year as we begin to implement those savings.

Former Scripps Networks' President Lisa can Newsome was appointed Chief operating officer and is leading our reorganization efforts. She is also now responsible for overseeing both of our operating divisions.

Turn it over to her to share highlights from local media and Scripps networks operations, and then Adam will discuss our strategies around the reorganization.

Thanks, Jason and good morning, everyone. It's my pleasure to be here in my new capacity as COO I've held many roles at Scripps, including Networks', President and Chief Financial Officer, and Chief Strategy Officer, I led the organizational design work to spinoff of Scripps networks Interactive in 2008 and to spin off our newspaper group in 2000.

15.

And I led the integration of ion that launched our very profitable Scripps networks Division.

Spent the majority of my career focused on helping to ensure that script succeeds and perpetuates.

And that always evolving consumer media ecosystem and I'm committed to executing this new transformation for the benefit of all scripts stakeholders.

I am focusing my comments today on highlights from the current quarter advertising environment for both local media and Scripps networks.

The current macroeconomic climate continues to put pressure on television advertising and Youll see that reflected in our outlook. The first quarter already tends to be the lowest revenue quarter of the year and the pressure on the AD market didn't start until the end of first quarter last year.

In addition in our local media segment, we have a tougher comp in core advertising because our first quarter of last year included nearly $9 million and Winter Olympics advertising as well as the Super Bowl and our 11 NBC stations.

This year with no Olympics and the Super Bowl on four Fox stations, we missed out on about $7 million in revenue, excluding the impact of the Olympics and the Super Bowl Q1, 'twenty three core revenue is expected to be down mid single digits year over year.

Our top local media core advertising categories by total dollars for the first quarter look to be services automotive retail home improvement and gambling only two of the five automotive and home improvement were up in January .

Our local media distribution revenue picture is exceedingly strong for this year as you know we are renewing at about 75% of our legacy pay TV households.

And we expect growth distribution revenue to grow in the low teens percent range this year and net distributions to grow more than 30%.

Our third local media line political we expect to be on par this year with the last two off cycle election years.

Actual elections, and a Wisconsin state Supreme Court rates are driving the first quarter activity and the back half will pick up with what we expect to be competitive statewide elections in Kentucky, Louisiana and Virginia.

Now, let's turn to Descript networks segment revenue picture for the first quarter, we continue to feel pressure in the direct response marketplace, which has historically been resilient and makes up about 40% of our total AD revenue. The direct response AD market is sensitive to inflation because it causes consumers to tighten their discretionary spending so the event.

Easing of inflation pressures will help us there the scatter market also has been soft and we're seeing the advertisers buy ads closer and closer to air date. However, we are confident that our strong portfolio of network brands are broad distributions on every viewing platform and our full nationwide audience reach.

<unk> as well to capitalize when the national AD market rebound.

And despite the macroeconomic challenges our connected television revenue remains a bright spot for US we continue to aggressively launch our network brands across all the big CTV platforms, including Samsung TV, plus Roku Bubo TV Pluto Freebie video watch free and <unk>. These launches drove our revenue.

Run rate going into 2023 of more than $100 million and we are projecting connected television revenue in 2023 to increase.

45% over 2022.

In addition, we continue to realize significant opportunity.

Our networks have with the growth of virtual Mvpds during this quarter ion Scripps news and balanced joined court TV and being available.

To the full Youtube TV subscriber base and we are planning to launch additional free AD supported or fast channels in the coming months.

We are very pleased that we've been able to parlay, our acquisitions of ion and keeps networks into a thriving portfolio of news and entertainment brands owning those broadcast networks has allowed us to optimize the monetization of our spectrum, while at the same time capitalizing on the burgeoning connected TV ecosystem. These.

These network brands are now easily found on any viewing platform and they are delivering a range of demographics that are attractive to advertisers.

We now.

I would now like to share a few programming highlights for the division our Nashville television station TBS News channel five recently won a prestigious National Dupont Journalism Award for an investigation of Tennessee's state Legislative proceedings, we are very proud of the work to shine a light on a secretive process where lawmakers we're doing.

The bidding of well financed special interest as a result of our investigation the Tennessee State House has created a system to make amendments publicly available before votes.

At Scripps networks total prime time viewership for the total portfolio was up 8% in 2022 versus 2021.

<unk> continues to be a top five broadcast network and a top 10 ranked network among all Nielsen measured television networks.

And even in the face of declining linear viewing ion has actually moved up in rankings from 2021 in fact, all of the Scripps networks that were Nielsen measured in 2021 moved up and rankings in 2022.

On balance our dramedy Johnson continues to draw strong ratings and critical acclaim, we're bringing back the shelf for a third season. This summer and we're very excited to be launching a new comedy on balance called actor age, which premieres on March 4th.

The show starts well known actresses Tim Whitley, Tisha Campbell, and divert Nicole Brown, and it's already receiving terrific media reviews.

I'd like to end my remarks, with a comment on our mission and social responsibility scripts believes Americans want and need news and information coming from journalists, who strive to base their reporting on facts and not perspective or opinion.

Every day, our local and National news teams are out in their communities covering the issues that matter most to their audiences with an even hand. So we're very proud that newsy now called Scripps News has been recognized by news guard for serving news consumers and advertisers with objectivity, providing a trusted news.

Source for audiences in a brand safe place for advertisers is good business for us and central to our mission and now here's Adam.

Thanks, Lisa and good morning, everybody.

Before I discuss our company transformation I would like to address the horrific tragedy. This week in Orlando, where our TV news reporter was shot and killed in its photographer critically injured during the shooting spree. These.

These journalists were shot while sitting in their car at the scene of a crime covering their local community.

I Hope all Americans can appreciate the efforts journalists make everyday to keep them informed sometimes this involves putting themselves at risk and I assure you. This script takes great precautions to keep our people safe, including continually reviewing our safety measures and guidelines for field staff.

Our Hearts go out to the families and coworkers of these journalists as well as all of the other reporters who were on the scene and we thank them for their service to the public and the first amendment.

In the last five years scripts has undergone two major transformations. The first in 2017 drove more than $30 million in cost savings through restructuring, we exited radio and created a platform of scale and local television.

Two years ago came after we exited digital audio and podcast thing for tremendous returns and bought ion media and acquisition that catalyzed the creation of our profitable portfolio of National News and entertainment networks and opened up tremendous future opportunity to monetize spectrum in new ways.

<unk> had three guiding principles for both transformation.

The first to improve our near term operating performance.

Second to set the company on a path of continued growth in the media marketplace.

And finally to perpetuate our mission of journalism and stewardship and service to the American people.

Last month, we announced the start of a third transformation and today I'd like to walk you through the significance of that initiative to improve our margins fueled our growth and best leverage the strength of our platform to serve Americans. The critical journalism they need the live sports they crave and the premium entertainment they want to.

Effortlessly enjoy.

Unlike the layoffs and downsizing you're currently seeing in the tech and media space driven by the soft economy and over commitment to subscription streaming and the pull forward of revenue from the pandemic, we are not cutting costs reactively quite.

Quite the opposite what is driving us as a proactive plan that recognizes the power of our distribution platform and Scripps is commitment to capitalize on the chaos in the media marketplace to drive greater profit from the disruption again in support of our mission to serve the American people.

As Jason said, we expect to take $40 million of costs out of the organization over the coming year or so.

We will start by reorganizing the company to reduce redundancy across the operating businesses as well as centralizing roles and consolidating management, yes that will absolutely improve our operating profile.

But more importantly, the new leadership structure will allow us to more effectively focus our resources across the enterprise to execute against our strategic objectives and to grow enterprise value.

With local TV stations that stretch coast to coast and the collection of broadcast cable and streaming networks that reach every American on any distribution platform. Our two operating segments are far more alike than dissimilar.

We are already realizing new ways to create value across the enterprise by leveraging the strength of our assets under this new alignment with Scripps News original programming advertising sales and soon live sports.

The transformation will continue from there as we better leverage cloud based technology to improve the efficiency and efficacy of our products for audiences and advertisers that will include inside our newsrooms local and national as we commit to better more relevant and higher quality journalism enabled through better <unk>.

<unk>.

As youll begin to see clearly these moves are about positioning us for the future.

As investors will know linear television is under pressure pay TV subscriber counts continue their decline the American audience is so fragmented that no one platform or service can capture the majority of them and Wall Street is a week to the reality that <unk> services are never going to generate the margins that mainstream.

<unk> has delivered.

Linear television is evolving and this is where scripts sees our opportunity in linear TV as the most powerful TV reach platform connecting the biggest audiences around news live sports and entertainment often now free to the consumer.

Several quarters ago I told you that we were operating with and all of the above strategy resolve to pursue the growth of our over the air broadcast distribute further and wider on connected TV and of course benefit from the incumbency of pay TV.

All three of the distribution platforms of linear TV.

And it's in that all of the above strategy, where we see opportunity for Scripps is platform in live sports and I got to say as we sit here today witnessing the implosion of the Rss business model. It's also why Scripps sports has been getting a very warm reception in that marketplace.

Our ubiquitous over the year pay TV and connected TV reach through ion in the Scripps networks has immense appeal for leagues looking to build new and consistent franchise viewing events across our national footprint.

For us we see the right live sports as an unparalleled opportunity to drive the value of our linear TV streams, even higher.

Locally live sports will draw young new audiences to our brand as fervent fans and deploy digital antennas to watch their favorite local teams for free again.

And if direct to consumer revenue was to be a material part of the future for leagues and teams.

They realize that they will need a partner like Scripps with broad audience reach.

Like live Sports News is also a critical content genre that defines linear viewing.

News by its very nature is watched with urgency and timeliness not on demand.

Our recently rebranded National Network Scripps News is the nations only $24 seven news network over the year, while also being fully deployed on connected TV services.

But thats just the beginning for Scripps news.

We are reaffirming our commitment to local journalism and expect to further integrate Scripps news content and brand within our local stations in order to support our local newsrooms and their responsibilities to the communities they serve.

Over the years, you've asked me are there natural synergies between your National news products and local stations and under our reorganization plan. The answer is a resounding, yes, and it will bring along better local and national journalism.

So you see the company restructuring is a means to an end to become leaner more agile and more focused we are realigning the way we see our collection of assets not just as to healthy businesses that is one enormously powerful distribution platform the largest holding a broadcast spectrum.

<unk> to deliver local market depth and maximum national reach and drive new enterprise value in today's ever changing media ecosystem.

I've been very fortunate to work with a team that knows how to deliver results and all along we have done what we have said we would do.

Now as we embarked on this latest transformation, we will do so again, improving the company's operating performance realigning to capture greater opportunity and drive growth.

And all the while keeping our mission of service to the American people at the center of what we do.

And now operator, we're ready for questions.

Thank you and once again, ladies and gentlemen, if you do have questions. Please press one then zero on your telephone keypad.

Youll hear an indication you've been placed into queue and you may remove yourself from the queue by repeating the <unk> zero command.

You are using a speaker phone, we ask you to please pickup your handset and make sure. Your phone is on mute it before pressing any buttons.

Our first question will come from Michael Kaplinsky with Noble capital markets go ahead. Thank.

Thank you for taking the questions and good morning.

In terms of the $40 million in savings, Adam, which division will see the largest impact of those savings I was just wondering if you could just give us some color on how that will fall.

Yes. So at this time, we're not providing any breakdown between the various segments, but what I will tell you is the savings will come across a variety of buckets, including external spend technology, a surfer and employee cost and I think that will as we move on to Peter earning call be able to provide a little bit more detail there but it.

This time, we're not giving that out okay.

Okay. Thanks, Jason.

Terms of the script network expense in the first quarter I thought we were going to see some margin improvement in this division beginning in the fourth quarter, which we did see.

Due to the distribution and programming fees largely hit the first quarter.

You kind of give me some color on the expense increases in the first quarter and the outlook for the expenses for the balance of the year and whether you might expect margin improvement for the division for the year, Yes, Mike It's Lisa so.

We we do have some distribution expenses hitting in the first quarter.

As we announced we've been launching across multiple CTV platforms and virtual mvpds. So that is definitely and it takes a little bit of time to ramp up the revenue once you've launched those those.

Across those platforms I would say second first quarter, we do have a couple of programming items, including and as I mentioned in my prepared remarks.

Launching a new comedy in March there is some marketing expenses associated with that as well. So those are strategic investments that we've.

Certainly have been a part of our strategy and continue.

Continue to.

I do think Youll see us get back to margin improvement as the economy improves and.

Related to both the ramp up of our CTV and virtual but also.

And hopefully here in the latter half of the year.

Got you and then in terms of.

You gave us in your first quarter guidance and I appreciate that but can you kind of give us a sense of whether or not you see advertising building.

Still seeing softness as we head into the second quarter.

Yeah.

Q1 revenue.

It is largely facing the same pressures that we've been talking about for the last few quarters and certainly that our peers are talking about.

I would say.

Direct response advertising is probably taking a bit harder hit than the general market, our scatter market, we do and despite the economic climate.

Sort of bright spot is that our <unk> are growing so I think as.

As advertisers return and continue to spend.

We think hopefully in the latter half of the year.

Our rates are growing which is.

Bodes well for improvement as the economy improved great.

Great. Thank you that's all I have thank you.

We will go next to the line of Craig Huber with Huber Research Partners go ahead.

Yes, hi, Thank you just a few questions if I could please.

Broad question for you guys on the economic front given all the market you guys are going around the country. So what is your sense on how the U S. Economy is do we know that the trends are getting worse in your mind versus say, how you were feeling three months ago. As you look at your operations or talk to your.

Advertisers et cetera, how are you still in the economy right now.

Craig It's Lisa I would categorize it more from a national marketplace in a local marketplace.

I do think the national AD climate is more under pressure than our local markets certainly our local businesses on the local media side make up about two thirds of our core advertising and they've held up much better.

Then our national advertising spend.

I would say.

Yes.

With inflationary pressures geopolitical those sorts of things those those are the types of pressures that are on the national business, whether that's been.

Sold in our local markets.

At Scripps networks.

And then just how should we have a similar question.

Before Europe for your costs your strip networks up high single digits year over year in the first quarter.

I assume youre, not seeing youre expecting that sort of rate of increase of costs for the remainder of these rights. How do you think about that.

No Craig.

Don't anticipate that to be the trend for the full year.

Okay and then my other question.

Your subscribers your Retrans subs, you've been saying that were down mid single digits, I believe and with recent quarters year over year net of OTT benefit how did that track in the fourth quarter. Please yes. So similar to what we said last quarter, we are still tracking down mid single digits on a net basis.

Which aligns with both past modeling and our future modeling.

Okay, Great and then my last question if I could.

On trying to bring in some more.

<unk>.

And here in the coming quarters.

How are you feeling thats going to fit into your portfolio in terms of where it's going to slot in that some of that going to be in the primetime schedules. So you lose out on a point in time you are you allowed to do that with how your contracts are written here or you can try to slot. It in as for the CW stations that you have just walk us through the strategy, you're still you're sort of thinking about that please.

Sports are you Doug.

Trying to go after really really good ones.

Sure.

From it depends on what where they were talking about league or team. If we're talking about team, we're mostly talking about the use of our independent stations or second stations in.

In our remarks in order to accommodate I would say the teams.

Transition the moment of transition, they're all experiencing as we witness the implosion of the RF end model. So that's that's really not an issue of a big four local station. It's much more an issue of an independent opportunity. If we're talking about leaks remember that the interesting thing about ion is we not.

Only control all of the programming decisions. We also control all of the affiliates and so we have the ability to bring sports onto our platform.

On the weekend.

In prime in whatever way, we think makes sense for both the leaf benefit and for our benefit and so youll see us use our distribution and this is sort of what I was getting at in my prepared remarks use our distribution to reach large audiences for the benefit of the leagues.

And for the benefit of the economics of our company.

Great. Thank you guys.

Thanks, Craig.

We will go next to Steven Cahall with Wells Fargo go ahead.

Thanks, maybe first Adam just to continue on that line of questioning.

See this opportunity to pursue more sports and particularly sports at the National level can you just talk about how you think about the cost model of that I think I've kind of picked up that youre not looking to just underwrite sports the way media companies have traditionally so is there scope out there with leagues and teams for revenue sharing arrangements or what.

Some of the business model here, where you can bring ion into this but also kind of keep risk well.

Yes, I mean look both from a local and national perspective, we believe that we brought our model to the marketplace that allows both the leagues and teams to mitigate the risks they are looking to do as well as to take advantage of our distribution. The new model is a little bit like the marketing funnel model.

Where in order for you to create the most value at the bottom of the funnel whether that bottom of the funnel component includes.

Sports betting ticket sales merchandise and need to see the top of the funnel requires immense reach and thats exactly what we deliver and that's exactly why we're getting such a good reception in the marketplace because the league's realize that going to a D to C only strategy isn't.

<unk> fairly going to serve them well over the long haul it's interesting because I think a lot of.

Sort of investors or maybe even the uninitiated have worried that this marks some sort of chasing of sports for us from an economics perspective. It is not at all of that right I think.

What we're really talking about is that live sports is the most valuable content genre. When it comes to drawing in and retaining the largest audiences to live linear TV. That's why it makes so much sense for us and in turn live sports don't forget accounts for more than its fair share of the marketplaces AD dollars per programming are reviewed.

And what I think is important to realize is that what we are bringing to the market is a new model that the leagues and teams.

Can get behind because they understand it's about balancing both the revenue that they bring in as well as the reach in order for them to create greater value at the bottom of the funnel.

Great and then I've got just two more so maybe next just just for Jason.

23, net Retrans guide is up 30% or low 30 net distribution dollars is that the same as net retrans or is there any difference there and that seems like.

Pretty low year for reverse comp so just wondering how you're thinking about that.

Yes. So yes. It is it is that retrans as we've talked about in the past on these calls from our local media perspective.

We do we've talked for a while about the distribution margin net retrans margin and the timing of that really driving are being driven by the timing of network and pay TV households, and this year it definitely.

It comes up very much in our favor we do have 75% around 10, 5% of our pay to the households, renewing and we locked in all of our affiliate agreements last year at what we would say is very moderated increases versus what we've seen historically, so that all of that leads into that growth in that distribution Bart or dollars.

Which as you would assume also drive a significant improvement in that distribution margin.

Yeah. Thanks, and then just lastly, you mentioned carriage on Youtube TV.

Does scripps have the ability to negotiate it's local stations as well directly with the Mvpds. I think you are broadcast peers do not and thats problematic for them with Paramount potentially renewing Youtube in may after the <unk> deal. So I'm just wondering if your national networks give you a different.

Our relationship with <unk> and some of your peers. Thank you, yes, I think they certainly do give us the opportunity to have a different relationship we've chosen thus far to continue negotiating.

With the networks look I mean first of all food those are pretty immaterial virtual MVP PV distributor.

I would say the negotiation between the networks and the affiliate boards are all about ensuring that the affiliates receive the proper the proper value for the local signal and there is no question that the virtual mvpds and their customers want the local feeds.

So we just need to receive fair compensation.

I would just remind investors that these are not existential issues or existential negotiations and I would think investors would be pleased that we are really.

Seeking fair value, but this is an example of where the regulatory framework needs to catch up to reality, the virtual mvpds need to be considered mvpds, just like cable and satellite because I mean, what's the difference.

Whether it's weather whether the programming comes in over IP or cable or satellite or coax or fiber. It's essentially the same business and broadcast affiliates should have the wherewithal to negotiate directly with the virtual mvpds for the distribution of our signal with the networks out of the way.

Great. Thank you.

Thanks Steven.

And next will be going to the line of Nick <unk> with Stephens go ahead.

Yeah, Hey, guys just following up on that last note on Pluto TV.

Can the business model will continue to operate.

As it is so long as the Retrans fee I guess that you get from the networks are satisfactory to you or is this impasse that's going on right. Now is this part of just a hard push this shift the models that you do negotiate directly with the Mvpds going forward just how do you see this this impasse kind of playing out.

As <unk> continued to grow their subs.

That's a shrewd question to which I have no comment.

I mean look I mean again, we expect fair value in the distribution of our signals, whether they're two traditional mvpds or virtual mvpds.

Got it got it Okay, and then I did if you don't mind I wanted to be a little bit more granular I guess on some of the trends that youre seeing in the AD market just kind of across our checks. If you look at the last few months.

What we've seen is a very weak December .

Soft start to January but then.

Maybe that mid January period onward checks have kind of suggested that week after week after week.

AD spend continues to be improving and so.

I guess, Mike My pulse would kind of be a sequential improvement coming out of what could it be a trough period in late December and January just curious if that hyper granular level. You would you would agree or if you're seeing anything different or if theres anything to parse out on.

On the national versus local side, yes.

Yes, let me start with local and then I'll jump to Scripps networks. So I think as I mentioned certainly.

The local AD sales marketplace has been.

In our top five categories. We've seen some that are up and some that are that are down in fourth quarter end.

Continuing in January so a couple of bright spots that we I think talked about last year automotive was up in fourth quarter by 24%.

We also had a home improvement services were up.

In the 10% range and those two trends continued into January . So we were really pleased to see the resiliency there.

On the local side.

Yeah.

I would say some of the other categories that are maybe more impacted by inflationary pressures.

Things like services and retail sales have lagged a bit both in fourth quarter and what were seeing trending in first quarter.

I would also say.

We're definitely seeing different levels of momentum.

Certainly between categories going forward, but.

As the economic forecasts are looking better in the back half of the year, we do see dose improvements I would also say very similar to the national AD marketplace.

We are seeing ads placed closer to air date, and so that's <unk>.

Hampers visibility a bit into the first quarter, but.

Definitely see it coming in but again those buys are a little bit late.

I would say.

On the national side, so on the Scripps network side, some bright spots I talked about.

The CTV category and the growth that we're going to see this year in CTV growing 40, plus 40% versus 2022. So that is a bright spot for us and then I would say well the scatter market has been soft we are seeing some signs of improvement.

There is an uptick certainly in activity, what's in our pipeline and working business and we've had advertisers that have been sort of sitting on the sidelines come back in.

In January starting in January so those are some a little bit of green shoots in some bright spots that we're seeing certainly on the national side.

That's super helpful. We've heard that two sitting on the sidelines coming back in January .

Last one for me.

Your perspective on <unk>.

You guys mentioned it is this model just headed for extinction is it broken why doesn't it work and just in your view high level, what is the best solution for local sports content distribution.

Yes, I mean, the model is headed for extinction.

There are likely to still be survivors in the largest of large market potentially.

Where there is a co ownership model.

But fundamentally even if.

Things were economically different for the RSM and we werent talking about the current situation that youre reading about in the news. The fact is that these teams and leagues need more distribution than just pay TV.

And they need more ways to continue to reach their audiences. So the artisan model is broken because <unk> had traditionally essentially been an arbitrage business sitting between and.

Mvpds and.

And a content creator or a sports.

Team owner.

And today with pay TV declines as they have the model just doesn't simply work theres just not enough subs to sustain the kind of revenue that the teams have gotten in the past the antidote for this the answer is this new model.

Thats potentially even non exclusive but that brings the best of what broadcast television can be which is over the air and pay TV and the potential for additional direct to consumer upside for these teams. So that's I mean to me the fundamental opportunity is for the team.

<unk> and leads to recognize that they can balance getting the reach they need to ensure that they are sports their teams there.

Our are well set up for the future with fans, while also generating the kind of audiences that will create the revenues that will support the infrastructure they need to have a competitive team.

Great stuff guys. Thank you I appreciate it.

Thanks, Nick.

Yes.

We'll go next to the line of Dan <unk> with Benchmark Company go ahead.

Thanks, Good morning, Adam this is going to be such a sports call.

I do want to stick with that for a second.

Maybe it helps frame the conversation around how many markets you have sort of prime sports markets, where you have multi stack that you could just scale up and obviously, we've kind of skirted around it but I'll, just say DSD skipped the payment right, so but like us.

Few weeks away from.

Spring training here and it feels like.

MLP in particular.

Little bit panicky.

Anarchy.

Your phone might start to ring, a little bit more so like how much does it matter.

Obviously, the right situation.

Being a little bit more complex than it is in say NBA or NHL.

Just kind of framing up if you guys become part of that equation is there a way to get more involved on the DTC side or would you just be primarily on the distribution.

Reach side and they can figure out their own.

No look I mean, I think it depends on every deal is different and I think what we've learned about the RSA model is that the cookie cutter one one model for every market every team.

It simply doesn't work that way anymore.

I would tell you the phone has already been ringing off the hook.

On a variety of fronts.

From your question of which markets are we actually well set up to do this and the fact is there are the markets today that you see us already owning duopoly in or a second station and then there are the markets today, where we have additional optionality because of our ownership of <unk>.

Ion stick.

So I would not necessarily limit the opportunity for scripts to just the stations that today fit inside the portfolio of local media. So in my prepared remarks, I was really talking about how we're thinking about the best and highest use of our distribution or our broadcast spectrum looking at our <unk>.

Asset is one collection and what I'm talking about is the ability for us with the right circumstances to actually serve the needs of our local team even if today you don't see us having a local duopoly.

But we might have a second station already in the form of an ion stick and there are ways for us to preserve ions national reach and the very good margins and economics of the ion model, while standing up new revenue streams, new opportunities on the local side.

So yes.

With respect to the different teams look I think they are all working together I mean I don't mean, the teams are working together I mean, the leagues from what I see the leagues and the owners are working really well collaboratively together in order for them to identify ways to solve the problems that the team owners have it's in everybody's best.

Interest, including the American people and the fans that we don't allow live sports to become a pure D to C products. It won't be it won't work for the economics of leaks. It wont work for the economics of the teams and it definitely won't work with the economics of the American people.

Yes, that's what I was trying to phrase my question does not specifically duopoly for that reason that I'm just trying to get a sense of how many markets you have beyond just your local duopoly. So we can kind of follow up on that later.

All our whole lives.

[laughter].

But if you look at the footprint. If you look at ion footprint. Okay. You will recognize that in many markets. We have a tremendous amount of distribution real estate and that gives us tremendous optionality.

We're always looking at making sure we're using that distribution to create the greatest value for the company and for shareholders and that's what's behind this restructuring reorganization, it's not a cost cutting exercise it's truly a reorganization of the company to identify the way we see our assets instead as really the largest and most of you.

<unk> distribution platform that this country has.

Maybe I'll just follow up on networks.

Your your comp actually get a lot easier.

And I know that the macro is still.

Not like you're out of the woods.

I'm just trying to understand you gave us really good color on ETB in CTV Gras, you've got new launches you've got new carriage just trying to kind of piece all this together inbound.

Full year guidance.

It feels like there should be generic outperformance relative to the national framework because of some of those puts and takes and then even beyond that without.

Sports upside I'm, just trying to get a sense of how much kind of organically first incremental growth youre going to have this year relative to whatever the macro theme.

Yeah. So I do think the back half of the year. The economy improves I do think that we are well positioned for upside opportunity in the AD marketplace I mean, we with.

With the distribution that we have.

Virtual Mvpds CTV and certainly.

In my prepared remarks, I talked about the strength of ion as a top five broadcast network, but also.

A top 10 of all Nielsen rated.

Nielsen measured network.

We are really well positioned to capitalize on an improving economy.

And as I said ubiquitous ubiquitous distribution, which is driving some of what youre seeing certainly in the my remarks on CTV. So.

As the year unfolds, I think it's going to be.

First quarter is going to be.

Soft as we've indicated with our guide but improving.

As I mentioned before some of the green shoots around the scatter market and certainly.

What we're seeing in some of our.

General market.

People coming back into the marketplace, which is also a positive sign.

Got it that's helpful and just last I don't know.

Your Retrans guidance your gross guidance better than what.

Yes.

In 2003, so it sounds like.

Rate barring perhaps Mr. <unk> TV.

<unk> going to lay the newspaper uniqueness papers.

It's still on a very solid trajectory and on the flip side your Q4 programming.

We're <unk>.

Substantially below what we would have thought and decent commentary the outlook is.

It's got to be sort of implied that there is only modest growth year. So.

The virtual issue notwithstanding it feels like you guys I don't know what you have embedded in.

Therefore subs, but.

Is there any way to kind of view, what you think on a three or five year.

Sort of net growth looks like.

So I don't think were going to give anything out that goes out three years or five years. We are extremely pleased with the guide we gave for this year both on the growth side and the net side.

And beyond.

Beyond this year, obviously, we have a big reset this year, we do have.

A little over 20% renewing next year as well in the <unk>.

First at the end of the first quarter, so that will be another catalyst next year on top of as we said.

A different array.

Moderation in network programming expense, yes look it's a very different story than our peers.

Yes, Jason just can you just sorry on color can you just give us the cadence of the renewal for the 75 I'm sorry, yes.

Yes.

<unk>, 50% at the end of Q1.

About 30% at the end of Q2, and then the other 20% is kind of spread through.

In Q3 and Q4.

Okay. Thank you.

We have a follow up question from the line of Craig Huber with Huber Research Partners go ahead.

Yes, Hi, I'm just wondering.

Curious on the virtual Mvpds do they represent roughly 20% of your Retrans subs. That's my first question and my second one is for your local TV stations, what's the update on the percentage of the viewers.

Consume local content over the year. Please.

So on your first question, yes, they are around 20% of our sub base for the virtual <unk>.

Is it based on market to market. It really depends you have a market like Phoenix, which is our high OTA market.

Youre going to see a much greater percentage of the stations content being consumed OTI <unk> is continuing its.

It's impressive growth.

I mean I think.

At this point a third of homes are considered digital antenna homes that is that they use a digital antenna.

Exclusively or along with broadband.

That continues to grow it grew.

Last year, we have seen in the testing that we've been doing in the spend that we've been doing.

That demand for free TV has never been higher demand for digital antennas has hasn't been this high since.

Before cable and I think inflation has a lot to do with that I think the content glut in the <unk> universe has a lot to do with it and I think some of the work we're doing to continue to catalyze the growth of the OTA marketplace will continue to impact that.

That's great. Thank you.

Thanks, Craig.

We have no further speakers we have no further questions in queue at this time.

Terrific. Thank you Alan and thanks to everyone for joining us today on today's earnings call have a good day.

Ladies and gentlemen that will conclude your conference call for today. Thank you for your participation and for using AT&T event Teleconferencing you may now disconnect.

Yeah.

Okay.

Yeah.

Yes.

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

[music].

Ladies and gentlemen, thank you for standing by welcome to the Q4 2022 E. W. Scripps Company earnings Conference call. At this time your telephone lines are in a listen only mode. Later during the conference there will be an opportunity for questions and answers.

I would like to ask a question. Please press one then zero on your telephone keypad, you may remove yourself from the queue by repeating the one then zero command and.

And if you're using a speaker phone we ask you to please pick up your handset and to make certain your phone is on mute it before pressing any buttons I'll now turn the conference.

For today's call will begin with Carolyn Shelley head of Investor Relations. Please go ahead.

Thanks Alan.

Everyone.

Mind, you 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.

<unk> measures to the GAAP measures reported in our financial statements.

Here This morning from Chief Financial Officer, Jason Combes, then Scripps Chief operating Officer, Lisa Knutson, and then Scripps President and CEO Adam Simpson.

Jason Thanks, Carolyn and good morning, everyone and thank you for joining us.

To start today with a quick look back at the fourth quarter of 2022.

Our guidance for the first quarter at the division level and guidance on a few items for the full year, including our expectations for dish distribution revenue, which includes retransmission revenue.

Ill conclude with a deeper look at our recently announced reorganization and how much we expect to save.

For the fourth quarter scripts delivered $681 million in revenue up 9% from Q4 of 2021 and $204 million in segment profit up 21%.

The quarter included $112 million of total company political advertising revenue to capped a record year for our midterm election of $208 million. We are pleased that the local broadcast industry. Once again dominated election spending with a 55% share of political ad dollars.

Local media revenue was up 24% driven by political advertising as well as distribution revenue.

Core advertising revenue was down 11% in line with our guidance, primarily due to political ad displacement.

Distribution revenue was up 5% to $160 million.

Local media expenses increased less than 5% from the year ago quarter, and excluding programming costs expenses were up less than 1%.

Local media segment profit was $152 million.

Turning to the Scripps networks Division revenue for the fourth quarter of 2022 was $248 million that was down about 9% from the from the prior year quarter, reflecting softness in the national advertising marketplace.

Networks segment expenses were $168 million in line with the prior year quarter.

As our fourth quarter, we've cycled through investments, we made to launch three networks over the year.

Segment profit for the networks was $80 million.

In other we reported a loss of $6 million, which includes the spend for our national marketing campaign to promote consumer digital television antenna use.

Shared services and corporate expenses came in at 21.

The company realized Q4 income from operations of <unk> 84 per share.

As of year end cash and cash equivalents totaled $18 million.

Our net debt at quarter end was $2 9 billion and our net leverage was four seven times per the calculations in our credit agreements.

During 2022, we redeemed a total of $171 $5 million of the outstanding principal on our senior notes and made principal payments on our term loan totaling $100 million.

Now looking ahead I'd like to give guidance for the first quarter of 2023.

We expect total local media revenue to decrease in the mid single digit percent.

We expect local core AD revenue to be down in the high single digit percent range.

Excluding the impact of the Olympics and Super Bowl Q1 core revenue is expected to be down only mid single digits year over year.

We expect local media expenses to be flat either by divisional expense controls as well as the moderation in network programming cost.

And Scripps networks Division, we expect revenue to be down high single digits and expenses to be up high single digits, driven by higher distribution and programming fees.

First quarter shared services costs are expected to be about $24 million.

We expect we expect about a $3 $5 million operating loss and other in Q1 inclusive of the cost of our free TV campaign.

I'll conclude the guidance with a few full year items.

We expect our gross distribution revenue to grow in the low teens percent range for the full year of 2023, as we renegotiate fees for about 75% of our cable and satellite television households.

We expect net distribution dollars to grow more than 30% this year.

We expect cash interest this year of between $180 million to $190 million cash taxes of $40 million to $50 million and depreciation and amortization of $155 million to $165 million we.

We do not have any required pension contributions this year.

On January five the company announced plans to reorganize from two loads to centralized roles and departments across the organization, while preserving our commitment to serving our audiences with quality journalism and programming.

And to create better ability to deploy our resources across the enterprise. So that we can both build and respond quickly to growth opportunities.

At this time, we expect to realize at least $40 million in annual savings from the reorganization.

We expect those savings to be mostly operationalized in the first half of 2024, we expect to record restructuring charges. This year as we begin to implement those savings.

Former Scripps Networks' President Lisa Knutson was appointed Chief operating officer and is leading our reorganization efforts. She is also now responsible for overseeing both of our operating divisions I will turn it over to her to share highlights from local media and Scripps networks operations, and then Adam will discuss our strategies around the reorganization.

Thanks, Jason and good morning, everyone. It's my pleasure to be here in my new capacity as CFO I have held many roles at Scripps, including Networks' President Chief Financial Officer, and Chief Strategy Officer, I led the organizational design work to spinoff of Scripps networks Interactive in 2008 and to spin off our newspaper group and two.

15.

And I led the integration of ion that launched our very profitable Scripps networks Division.

<unk> spent the majority of my career focused on helping to ensure that script succeeds and perpetuate.

There are always evolving consumer media ecosystem and I am committed to executing this new transformation for the benefit of all scripts stakeholders.

I am focusing my comments today on highlights from the current quarter advertising environment for both local media and Scripps networks.

The current macroeconomic climate continues to put pressure on television advertising and you'll see that reflected in our outlook. The first quarter already tends to be the lowest revenue quarter of the year and the pressure on the AD market didn't start until the end of first quarter last year.

Our top local media core advertising categories by the total dollars for the first quarter look to be services automotive retail home improvement and gambling only two of the five automotive and home improvement were up in January .

Our local media distribution revenue picture is exceedingly strong for this year as you know we are renewing at about 75% of our legacy pay TV households.

And we expect growth distribution revenue to grow in the low teens percent range this year and net distribution to grow more than 30%.

Our third local media line political we expect to be on par this year with the last two off cycle election years spec.

Special elections, and a Wisconsin state Supreme Court rates are driving the first quarter activity and the back half will pick up with what we expect to be competitive statewide elections in Kentucky, Louisiana and Virginia.

Now, let's turn to the Scripps networks segment revenue picture for the first quarter, we continue to feel pressure in the direct response marketplace, which has historically been resilient and makes up about 40% of our total AD revenue. The direct response AD market is sensitive to inflation because it causes consumers to tighten their discretionary spending so the eventual ease.

<unk> of inflation pressures will help us there the scatter market also has been soft and we're seeing the advertisers buy ads closer and closer to air date. However, we are confident that our strong portfolio of network brands are broad distributions on every viewing platform and our full nationwide audience reach positions us.

Well to capitalize when the national AD market rebound.

And despite the macroeconomic challenges our connected television revenue remains a bright spot for US we continue to aggressively launch our network brands across all the big CTV platforms, including Samsung TV, plus Roku TV Pluto Freebie Vizio watch free and <unk>. These launches drove our revenue.

Run rate going into 2023 of more than $100 million and we are projecting connected television revenue in 2023 to increase about 45% over 2022.

In addition, we continue to realize significant opportunity.

Our networks have with the growth of virtual Mvpds during this quarter ion Scripps news and balanced joined court TV and being available to.

To the full Youtube TV subscriber base and we are planning to launch additional free AD supported or fast channels in the coming months.

We are very pleased that we've been able to parlay, our acquisitions of ion and <unk> networks into a thriving portfolio of news and entertainment brands owning those broadcast networks has allowed us to optimize the monetization of our spectrum, while at the same time capitalizing on the Virgin and connected TV ecosystem. These.

These network brands are now easily found on any viewing platform and they are delivering a range of demographics that are attractive to advertisers.

We now.

I would now like to share a few programming highlights for the division our Nashville television station W. TBS News channel five recently won a prestigious National Dupont Journalism Award for an investigation of Tennessee's state Legislative proceedings, we are very proud of the work to shine a light on a secretive process where lawmakers we're doing.

The bidding of well financed special interest.

As a result of our investigation the tenancy Statehouse has created a system to make amendments publicly available before votes.

At Scripps networks total prime time viewership for the total portfolio was up 8% in 2022 versus 2021.

Ion continues to be a top five broadcast network and a top 10 ranked network among all Nielsen measured television networks and.

And even in the face of declining linear viewing ion has actually moved up in rankings from 2021 in fact, all of the Scripps networks that were Nielsen measured in 2021 moved up and rankings in 2022.

The show starts well known actresses Kim Whitley, Tisha Campbell, and Youll that Nicole Brown, and it's already receiving terrific media reviews.

Source for audiences in a brand safe place for advertisers is good business for us and central to our mission and now here's Adam.

Thanks, Lisa and good morning, everybody.

These journalists were shot while sitting in their car at the scene of a crime covering their local community.

The second two years ago came after we exited digital audio in podcasting for tremendous returns and by ion media and acquisition that catalyzed the creation of our profitable portfolio of National News and entertainment networks and opened up tremendous future opportunity to monetize spectrum in new ways.

We've had three guiding principles for both transformations.

First to improve our near term operating performance.

To set the company on a path of continued growth in the media marketplace and finally to perpetuate our mission of journalism and stewardship and service to the American people.

To effortlessly enjoy.

Quite the opposite what is driving US is a proactive plan that recognizes the power of our distribution platform and Scripps is commitment to capitalize on the chaos in the media marketplace to drive greater profit from the disruption again in support of our mission to serve the American people.

As Jason said, we expect to take $40 million of costs out of the organization over the coming year or so.

With local TV stations that stretch coast to coast and the collection of broadcast cable and streaming networks that reached every American on Andy distribution platform.

Our two operating segments are far more alike than dissimilar.

Acknowledging.

As youll begin to see clearly these moves are about positioning us for the future.

As investors will know linear television is under pressure pay TV subscriber counts continue their decline the American audience is so fragmented that no one platform. Our service can capture the majority of them and Wall Street is a week to the reality that <unk> services are never going to generate the margins that mainstream.

<unk> has delivered Linda.

Linear television is evolving and this is where scripts six our opportunity in linear TV as the most powerful TV reach platform connecting the biggest audiences around news live sports and entertainment often now free to the consumer.

All three are the distribution platforms of linear TV.

For us we see the right live sports as an unparalleled opportunity to drive the value of our linear TV streams, even higher.

Locally live sports will draw young new audiences to our brands as fervent fans employee digital antennas to watch their favorite local teams for free again.

And if direct to consumer revenue was to be a material part of the future for leagues and teams.

They realize that they will need a partner like Scripps with broad audience reach.

<unk> live sports news is also a critical content genre that defines linear viewing.

Newswire by its very nature is watched with urgency and timeliness not on demand.

Our recently rebranded National Network Scripps News is the nations only $24 seven news network over the year, while also being fully deployed on connected TV services.

But that's just the beginning for Scripps news.

So you see the company restructuring is a means to an end to become leaner more agile and more focused we are realigning the way, we see our collection of assets not just as to healthy businesses, but as one enormously powerful distribution platform the largest holding a broadcast spectrum.

<unk> to deliver local market depth and maximum national reach and drive new enterprise value in today's ever changing media ecosystem.

I've been very fortunate to work with the team that knows how to deliver results and all along we have done what we have said we would do.

Now as we embarked on this latest transformation, we will do so again, improving the company's operating performance realigning to capture greater opportunity and drive growth and all the while keeping our mission of service to the American people at the center of what we do.

And now operator, we're ready for questions.

Thank you and once again, ladies and gentlemen, if you do have questions. Please press one then zero on your telephone keypad.

You'll hear an indication you've been placed into queue and you may remove yourself from the queue by repeating the one zero command if you.

You are using a speaker phone we ask could you. Please pickup your handset and make sure. Your phone is on mute it before pressing any buttons.

Our first question will come from Michael Kaplinsky with Noble capital markets go ahead. Thank.

Thank you for taking the questions and good morning in.

In terms of the $40 million in savings, Adam, which division will see the largest impact of those savings I was just wondering if you could just give us some color on how that will fall.

Yes. So at this time, we're not providing any breakdown between the various segments, but what I will tell you that the savings will come across a variety of buckets, including external spend technology restructure and employee costs.

I think that will as we move on to Peter earning call be able to provide a little bit more detail there, but at this time, we're not giving that out okay.

Okay. Thanks, Jason in terms of the script network expense in the first quarter I thought we were going to see some margin improvement in this division beginning in the fourth quarter, which we did see.

Due to the distribution and programming fees largely hit the first quarter.

<unk>.

We do have done this.

<unk> expenses hitting in first quarter.

As we announced we've been launching across multiple CTV platforms and virtual mvpds. So that is definitely and it takes a little bit of time to ramp up the revenue once you've launched those.

Those.

Across those platforms I would say second first quarter, we do have a couple of programming items, including and as I mentioned in my prepared remarks.

Launching a new comedy in March there is some marketing expenses associated with that as well. So those are strategic investments that we've.

Certainly have been a part of our strategy and continue.

We continue to.

I do think Youll see us get back to margin improvement as the economy improves and.

Related to both the ramp up of our CTV and virtual but also.

Hopefully here in the latter half of the year.

Gotcha, and then in terms of.

You gave us in your first quarter guidance and I appreciate that but can you kind of give us a sense of whether or not you see advertising building are you still seeing softness as we head into the second quarter.

Yes.

Q1 revenue.

It is largely facing the same pressures that we've been talking about for the last few quarters and certainly about our peers are talking about.

I would say.

Direct response advertising is probably taking a bit harder hit than the general market, our scatter market, we do on despite the economic climate.

Sort of bright spots is that our <unk> are growing so I think as.

As advertisers return and continue to spend.

We think hopefully in the latter half of the year.

Our rates are growing which is.

Bodes well for improvement as the economy improves.

Great. Thank you that's all I have thank you.

We will go next to line of Craig Huber with Huber Research Partners go ahead.

Yes, hi, Thank you just a few questions if I could please.

Broad question for you guys on the economic front given all the markets you guys are going around the country itself. What is your sense on how the U S. Economy is doing we know that the trends are getting worse in your mind versus say, how you were feeling three months ago as you look at your operations.

<unk> of <unk>.

Advertisers et cetera, how you feel on the economy right now.

Craig It's Lisa.

I would categorize it more from a national marketplace in a local marketplace.

Then our national advertising spend.

I would say.

Yes.

With inflationary pressures geopolitical those sorts of things those are the types of pressures that are on the national business, whether that's been.

Sold in our local markets at Scripps networks.

And then just how should we have a similar question.

Before Europe for your costs your strip networks up high single digits year over year in the first quarter.

I assume youre, not seeing youre expecting that sort of rate of increase of costs for the remainder of the year. How do you think about that.

No Craig.

Don't anticipate that to be the trend for the full year.

Okay and then my other question.

Which aligns with the past modeling and our future modeling.

Okay, Great and then my last question if I could.

On trying to bring in some more sports.

Program here in the coming quarters.

Yes.

How are you feeling thats going to fit into your portfolio in terms of where it's going to slot in that I mean is that going to be in the primetime schedules. So you lose out on the point of time are you are you allowed to do that with how your contracts are written here or you can try to slot. It in as for the CW stations that you have just walk us through the strategy, you're still you're sort of thinking about that please and also what sort of the sport.

So you.

Trying to go after really really good ones.

Sure.

From it depends on what were they were talking about league or team. If we're talking about team, we're mostly talking about the use of our independent stations or second stations.

In our markets in order to accommodate I would say the teams.

Transition the moment of transition, they're all experiencing as we witness the implosion of the Rss model. So that's that's really not an issue of a big four local station. It's much more an issue of an independent opportunity. If we're talking about leaks remember that the interesting thing about ion is we not.

Only control all of the programming decisions. We also control all of the affiliate and so we have the ability to bring sports onto our platform.

The weekend in prime.

Whatever way, we think makes sense for both the leaf benefit and for our benefit and so youll see us use our distribution and this is sort of what I was getting at in my prepared remarks use our distribution to reach large audiences for the benefit of the leagues and for the benefit of the economics of our company.

Great. Thank you guys.

Thanks, Craig.

We'll go next to Steven Cahall with Wells Fargo go ahead.

Thanks, maybe first Adam just to continue on that line of questioning.

As you see this opportunity to pursue more sports and particularly sports at the National level can you just talk about how you think about the cost model of that I think I've kind of picked up that youre not looking to just underwrite sports the way media companies have traditionally so is there scope out there with leagues and teams for revenue sharing arrangements.

Or what are some of the business model here, where you can bring ion into this but also kind of keep risk well, yes, I mean look both from a local and national perspective, we believe that we brought our model to the marketplace that allows both the leagues and teams to mitigate the risk they're looking to do as well as to take.

Advantage of our distribution the new model is a little bit like the marketing funnel model, where in order for you to create the most value at the bottom of the funnel whether that bottom of the funnel component includes.

Sports betting ticket sales merchandise and to see the top of the funnel requires immense reach and Thats exactly what we deliver and that's exactly why we're getting such a good reception in the marketplace because the league's realize that going to a D to C only strategy isn't.

Necessarily going to serve them well over the long haul it's interesting because I think a lot of.

Sort of investors or maybe even the uninitiated have worried that this marks some sort of chasing of sports for us from an economics perspective. It is not at all of that right I think.

What we're really talking about is that live sports is the most valuable content genre. When it comes to drawing in retaining the largest audiences to live linear TV. That's why it makes so much sense for us and in turn live sports don't forget accounts for more than its fair share of the marketplaces AD dollars per programming are reviewed.

And what I think is important to realize is that what we are bringing to the market is a new model that the leagues and teams.

Can get behind because they understand it's about balancing both the revenue that they bring in as well as the reach in order for them to create greater value at the bottom of the funnel.

Great and then I've got just two more so maybe next just just for Jason.

On the 23 net Retrans guide is up 30% or low thirties net distribution dollars is that the same as net retrans or is there any difference there and that seems like.

Pretty low year for reverse comp so just wondering how you're thinking about that.

Yes. So yes. It is it is that retrans as we've talked about in the past on these calls from our local media perspective.

We do we've talked for a while about the net distribution margin net retrans margin and the timing of that really driving are being driven by the timing of network and pay TV households, and this year it definitely.

It comes up very much in our favor we do have 75% around say, 5% of our pay to the households, renewing and we locked in all of our affiliate agreements last year at what we would say is very moderated increases versus what we've seen historically, so that all of that leads into that growth in that distribution merger $1.

Which as you would assume also drive a significant improvement in that distribution margin.

Yeah. Thanks, and then just lastly, you mentioned carrier John Youtube TV.

Our relationship with Bnb Pds and some of your peers. Thank you, yes, I think they certainly do give us the opportunity to have a different relationship we've chosen thus far to continue negotiating.

With the networks look I mean first of all <unk> is a pretty immaterial virtual MVP PD distributor.

I would just remind investors these.

Or not existential issues or existential negotiations and I would think investors will be pleased that we are really <unk>.

Seeking fair value, but this is an example of where the regulatory framework needs to catch up to reality, the virtual mvpds needs to be considered mvpds, just like cable and satellite because I mean, what's the difference.

Great. Thank you.

Thanks Steven.

And next we will be going to the line of Nick <unk> with Stephens go ahead.

Yeah, Hey, guys just following up on that last note on Pluto TV.

Can the business model continued to operate.

As it is so long as the Retrans fee I guess that you get from the networks are satisfactory to you or is this impasse that's going on right. Now is this part of just a hard push to shift the models that you do negotiate.

Correct Lee with the Mvpds going forward just how do you see this this impasse kind of playing out.

Via the PD has continued to grow their subs.

That's a shrewd question to which I have no comment.

Yeah.

I mean look I mean again, we expect fair value in the distribution of our signals, whether they're two traditional mvpds or virtual mvpds.

What we've seen is a very weak December .

A soft start to January but then.

From maybe that mid January period onward checks have kind of suggested that week after week after week.

AD spend continues to be improving and so I.

I guess my pulse would kind of be a sequential improvement coming out of what could it be a trough period in late December and January just curious if that hyper granular level. You would you would agree or if youre seeing anything different or if theres anything to parse out on.

On the national versus local side, yes.

Yes, let me start with local and then I'll jump to Scripps networks. So I think.

As I mentioned certainly.

The local AD sales marketplace has been.

Yeah.

Our top five categories. We've seen some that are up and some that are that are down in fourth quarter and and <unk>.

Continuing in January so a couple of bright spots that we I think talked about last year automotive was up in fourth quarter by 24%.

We also had a home improvement services were up in.

In the 10% range and those two trends continued into January . So we were really pleased to see the resiliency there.

On the local side.

Yeah.

I would say some of the other categories that are maybe more impacted by inflationary pressures things.

Things like services and retail sales have lagged a bit both in fourth quarter and what were seeing trending in first quarter.

I would also say.

We're definitely seeing different levels of momentum.

Between categories going forward, but as the economic forecasts are looking better in the back half of the year, we do see dose improvements I would also say very similar to the national AD marketplace.

We are seeing ads placed closer to air date and so that's.

Hampers visibility a bit into the first quarter, but.

Definitely see it coming in but again those buyers are a little bit late.

I would say.

On the national side, so on the scripts network side <unk>.

Spots I talked about.

CTV category and the growth that we're going to see this year.

CTV growing 40, plus 40% versus 2022, so that is a bright spot for us and then I would say well the scatter market has been soft we are seeing some signs of improvement.

There is an uptick certainly in activity, what's in our pipeline and working business and we've had advertisers that have been sort of sitting on the sidelines come back in.

In January starting in June so those are some a little bit of green shoots in some bright spots that we're seeing certainly on the national side.

No. That's super helpful. We've heard that two sitting on the sidelines coming back in January .

Last one for me.

Your perspective on <unk> you guys mentioned it is this model just headed for extinction is it broken why doesn't it work and just in your view high level, what is the best solution for local sports content distribution.

Yes, I mean, the model is headed for extinction.

There are likely to still be survivors in the largest of large market potentially.

Where there is a co ownership model.

But fundamentally even if.

Things were economically different for the RSM and we werent talking about.

The current situation that Youre reading about in the news. The fact is that these teams and leagues need more distribution than just pay TV.

And they need more ways to continue to reach their audiences. So the artisan model is broken because <unk> have traditionally essentially been an arbitrage business sitting between an MVP D and <unk>.

And a content creator or a sports team.

Team owner.

And today with pay TV declines as they have the model just doesn't simply work theres just not enough subs.

To sustain the kind of revenue that the teams have gotten in the past the antidote for this the answer is this new model that that's potentially even non exclusive but that brings the best of what broadcast television can be which is over the air and.

Pay TV and the potential for additional direct to consumer upside for these teams.

So that's I mean to me the fundamental opportunity is for these teams and leagues to recognize that they can balance getting the reach they need to ensure that there are sports their teams there.

Our are well set up for the future with fans, while also generating the kind of audiences that will create the revenues that will support the infrastructure they need to have a competitive team.

Great stuff guys. Thank you I appreciate it.

Thanks, Nick.

We'll go next to the line of.

Dan <unk> with benchmark company go ahead.

Thanks, Good morning, Adam this is going to be such a sports call.

I do want to stick with that for a second.

Like a few weeks.

So way from.

Spring training here and it feels like.

MLP in particular, it might get a little bit.

Panicky.

And your phone might start to rank a little bit more so like how much does it matter.

Obviously, the right situation.

<unk> being a little bit more complex than it is in say NBA or NHL.

And just kind of framing up if you guys become part of that equation is there a way to get more involved on the DTC side or would you just be primarily on the distribution.

Reach side and they can figure out their own decrease.

Look I mean, I think it depends on every deal is different and I think what we've learned about the <unk> model is that the cookie cutter. One one model for every market. Every team is simply doesn't work that way anymore. I would tell you. The phone has already been ringing off the hook.

On a variety of fronts.

And ion stick.

Our assets as one collection and what I'm talking about is the ability for us with the right circumstances to actually serve the needs of our local team. Even if today you don't see us having a local duopoly but.

But we might have a second station already in the form of an eye on stick and there are ways for us to preserve ions national reach and the very good margins and economics of the ion model, while standing up new revenue streams, new opportunities on the local side.

So yes.

<unk>, including the American people and the fans that we don't allow live sports to become a pure D to C.

Alex.

It won't be it won't work for the economics of leads it wont work for the economics of the teams and it definitely won't work for the economics of the American people.

Yes, that's what I mean.

I was trying to phrase my question does not specifically duopoly for that reason that im just trying to get a sense of how many markets you have beyond just your local duopoly. So we can kind of follow up on that later.

All our whole lives.

Okay.

If you look at the footprint. If you look at ion footprint. Okay. You will recognize that in many markets. We have a tremendous amount of distribution real estate and that gives us tremendous optionality.

Always looking at making sure we're using that distribution to create the greatest value for the company and for shareholders and that's what's behind this restructuring reorganization, it's not a cost cutting exercise it's truly a reorganization of the company to identify the way, we see our assets instead as really the largest and most ubiquitous.

This distribution platform that this country has.

Well, maybe I'll just follow up on networks.

Yeah.

Are your comp actually get a lot easier in <unk> and I know that the macro is still.

Not like you're out of the woods.

I'm just trying to understand you gave us really good color on <unk>, you've got new launches, you've got new carriage trying to kind of piece all this together inbounds.

Full year guidance.

It feels like there should be generic outperformance relative to the national framework because of some of those puts and takes and then even beyond that without any sports upside I'm just trying to get a sense of how much kind of organically first incremental growth youre going to have this year relative to whatever the math.

<unk>.

Yes, so I do think the back half of the year. The economy improves I do think that we are well positioned for upside opportunity and the AD marketplace I mean, we.

With the distribution that we have.

Virtual Mvpds CTV and certainly.

In my prepared remarks, I talked about the strength of ion as a top five broadcast network, but also.

A top 10 of all Nielsen rated.

Nielsen measured network.

We are really well positioned to capitalize on an improving economy.

And as I said ubiquitous ubiquitous distribution, which is driving some of what youre seeing certainly in the my remarks on CTV.

As the year unfolds, I think it's going to be.

First quarter is going to be.

<unk> as we've indicated with our guide but improving.

As I mentioned before some of the green shoots around the scatter market and certainly.

What we're seeing in some of our <unk>.

General market.

People coming back into the marketplace, which is also a positive sign.

Got it that's helpful and just last I don't know you.

Your Retrans guidance your gross guidance better I thought.

Yes.

In 2003, so it sounds like.

Right.

Perhaps Mr <unk> TV.

<unk> going to lay the newspaper newspapers.

It's still on a very solid trajectory and on the flip side your Q4 programming.

We're <unk>.

Substantially below what we would have thought and decent commentary the outlook is.

It's got to be sort of implied that there is only modest growth year. So.

The virtual issue notwithstanding it feels like you guys I don't know what you have.

Therefore subs, but.

Is there any way to kind of view, what you think on a three or five year sort.

Net growth looks like.

So I don't think were going to give anything out that goes out three to five years. We are extremely pleased with the guide we gave for this year both on the growth side and the net side.

And beyond this year, obviously, we have a big reset this year, we do have.

Little over 20% renewing next year as well.

In the first at the end of the first quarter. So that will be another catalyst next year on top of as we said.

A different era.

Moderation in network programming expense, yes look it's a very different story than our peers.

Yes, Jason just can you just sorry I'm color can you just give us the cadence of the renewal for the 75 into 'twenty.

Yes, it's about 50% at the end of Q1.

About 30% at the end of Q2, and then the other 20% is kind of spread through Q.

Q3 and Q4.

Okay. Thank you.

Yes.

We have a follow up question from the line of Craig Huber with Huber Research Partners go ahead.

Yes, Hi, I'm just wondering.

Consume local content.

Over the year please.

So on your first question, yes, they are around 20% of our sub base for the virtual <unk>.

It's based on market to market. It really depends if you have a market like Phoenix, which is our high OTA market.

Youre going to see a much greater percentage of the stations content being consumed hotelier.

OTI is continuing.

It's impressive growth.

I mean I think.

At this point a third of homes are considered digital antenna homes that is that they use a digital antenna.

Exclusively or along with broadband.

That continues to grow it grew last year, we have seen in the testing that we've been doing in and the spend that we've been doing.

That demand for free TV has never been higher I mean demand for digital antennas has hasn't been this high since.

That's great. Thank you.

Thanks, Craig.

We have no further speakers we have no further questions in queue at this time.

Terrific. Thank you Alan and thanks to everyone for joining us today on today's earnings call have a good day.

Ladies and gentlemen that will conclude your conference call for today. Thank you for your participation and for using AT&T event Teleconferencing you may now disconnect.

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