Q1 2024 The E.W. Scripps Co Earnings Call
Yeah.
[music].
Yeah.
Yeah.
[noise].
Yeah.
Thank you everyone for standing by and welcome to the Scripps Q1 earnings.
This call now at this time all participants are in a listen only mode. Later, we will conduct a question answer session and instructions will be given at that time.
I will now turn the call over to your host head of Investor Relations Carolyn Ms. Shelly. Please go ahead.
Thank you, Kevin 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 that actual results may differ factors that may cause them to differ are outlined in our SEC filing.
We do not intend to update any forward looking statements we make today.
Included on this call will be a discussion of certain non-GAAP financial measures that are provided as supplements to assist management and the public in their analysis and valuation of the company. These metrics are not formulated in accordance with GAAP and are not meant to replace GAAP financial measures and may differ from other companies uses or formulations included in our earnings release or the reconciliation.
A non-GAAP financial measures to the GAAP measures reported in our financial statements.
We'll hear first this morning from Scripps Chief Financial Officer, Jason Combes, who will share our financial results as well as color on the scripts advertising marketplaces, then we'll hear from President and CEO, Adam Simpson now here it is Jason.
Everyone and thank you for joining us we.
We are pleased to be delivering first quarter 2024 operating results that beat profit estimates driven by tight cost controls.
I'll discuss both our Q1 results and guidance for local media first and then the results and guidance for Scripps networks that I'll touch on a few other guidance items I will.
Conclude with capital allocation and our debt picture.
For the first quarter of 2024 local media Division revenue was up 13% from the year ago period due to year over year growth in political and distribution revenue.
Political revenue, which was $15 million. So all strength from early U S Senate spending, Montana and Ohio.
Local distribution revenue was up more than 20% again this quarter fueled by 2023 renewals of our cable and satellite agreements.
We also saw positive performance in our subscriber numbers, our total pay TV subscriber count was up nearly 1% in the most recent quarter data, we've received and on a trailing 12 month basis, our pay TV subscriber count is down mid single digits in line with the trend we've experienced the last several years.
First quarter local core advertising revenue was down about 3% from the prior year period.
Strong categories included automotive up 6% and home improvement up 5%.
Services ended the quarter down slightly but ended April up by double digits.
Overall core revenue from local businesses was up slightly for the quarter, while national advertising was down largely due to sports betting decline.
Local media expenses increased about 8% from the prior year quarter inclusive of our new sports rights agreements. So we came in better than the guidance. We gave in February of up 10%.
Local media segment profit was $66 million.
For the second quarter, we expect local media division revenue to be up in the low <unk> low to mid single digit percent range.
We expect local core AD revenue to be down low to mid single digits.
We expect Q2 local media expenses to be up in the low to mid single digit percent range.
Turning to the full year, we now expect our local political advertising revenue to come in between 240 and $270 million that is a significant raise from our earlier guidance of $210 million to $250 million.
And the high end of that range is above our 2020 presidential year revenue of $265 million.
Adam will give more color on political in a moment.
Also for the full year, we expect our distribution revenue growth to be up in the low single digit range. Despite the fact that we renewed only 5% of our pay TV households, this year.
Now I'd like to discuss the Scripps networks Division first quarter results and second quarter guidance.
In the first quarter Scripps networks revenue was $209 million down about 3% from the year ago quarter.
Excluding the impact of the low margin programmatic product, we began to sunset in the second quarter of 2023, Scripps Networks' revenues decreased by less than 1% year over year.
The direct response marketplace continues to make a comeback in terms of both inventory demand and advertising rates. It was up for the quarter for the first time in two years and it accounted for more than 40% of our networks AD revenue.
Scatter pricing was a good story in the first quarter as well up nearly 40% from the pricing we were getting in last season's upfront.
Connected TV was up 22% in the first quarter, if you back out the programmatic advertising product we shut down.
For the full year, we expect connected television revenue to be about 30% above our 2023 revenue again backing out revenue from the programmatic products for both periods.
First quarter Scripps networks expenses were $160 million, that's down more than 3% and reflects the end of the programmatic advertising product, which we began to sunset in Q2 of last year as well as close management of expenses.
Segment profit was $49 7 million.
For the second quarter, we expect Scripps networks division revenue to be down in the mid single digit range from last Q2, and we expect networks' expenses to be up in the low single digit range.
Turning to the segment labeled other in the first quarter, we reported a loss of $6 $4 million. We now expect the other segment to run at a $7 million to $8 million loss each of the remaining quarters of 2024, which is improved from our previous guidance.
Shared services and corporate expenses for Q1 were $21 6 million.
For the second quarter, we expect that expense will again fall in the $22 million range.
For the first quarter the loss attributable to shareholders of Scripps was $12 8 million or <unk> 15 per share pre.
Pretax cost for the quarter included 5 million of restructuring charges.
We also reported an $18 million investment gain.
Together. These two items decreased the loss attributable to shareholders by <unk> <unk> per share and a reminder, that the preferred stock dividends still has a negative impact on earnings per share even if we don't pay it.
At March 31, cash and cash equivalents totaled $30 million.
Our net debt at quarter end was $2 9 billion.
Scripps total debt at the start of 2021, when we acquired Io media was about $4 billion. So we brought down our total debt by about 25% over those three years.
In the first quarter of this year, we made $40 million in discretionary debt paydown.
We expect 2024 to be another year of significant debt reduction due to the robust political advertising cycle incremental cash flow from other topline revenue proceeds from potential asset sales and prudent expense management and now here's Adam.
Good morning, everybody and thanks for being with Us and as Jason shared we're off to a pretty good start for the year, we see green shoots in the national advertising marketplace, and an improved political revenue outlook and the moves we've made to be a more efficient organization are helping us drive profit.
Our top priority this year is reducing debt and optimizing the company's capital structure to move us further down to a level of leverage we're all more accustomed to at Scripps we.
We are executing a strategy driven by both operating levers and non operating levers and that strategy gives me the confidence to know we're on the right track.
Key part of that strategy is improving our operating performance.
That includes a sharp focus on four key areas local and national advertising revenue political advertising revenue careful expense management.
And realizing a strong return on our investment from assets we've acquired.
First as a result of the actions, we're taking and improvement in the marketplace. We expect strong operating performance. This year, just as we executed in the first quarter as.
As we move through the second quarter, we are seeing encouraging signs of improvement in national advertising at our networks in both direct response and scatter marketplaces.
Our direct response business is higher year over year for the first time in two years and we expect that trend to continue in second quarter.
Also scatter market Cpm's are now nearly 40% over last year's upfront.
We continue to build value from our leadership position in the women's professional sports movement, we launched the National Women's Soccer League an eye on in mid March and those games have been drawing a younger and more affluent demographic to the network.
More than half of the NWS sell viewers are new to ion. So we're pleased that they are finding us and staying week to week.
That's opened up the door for new to Scripps Blue chip advertisers, including ally financial Gatorade and meta.
In addition, we are capturing average unit rates for NWS sell games that are 65% higher than our <unk> for non sports ion Prime time programming.
Coming up on May 17th we tip off our second season of WNBA basketball certainly the most highly anticipated season in league history due to the league's rookie class, including of course, Caitlin Clarke Angel Reese and Camila Cardoso.
We're pleased to state farm as back as our title sponsor in sales for the games have been strong.
We're also creating new opportunities for advertisers by introducing dedicated studio shows this year.
Our commitment to women's sports through the WNBA in NWS L featured prominently in our network's recent upfront presentations in New York, Chicago and Los Angeles.
Our team set a whole new tone this year punctuated by a more aggressive chest forward sales and marketing approach.
Now looking ahead on political advertising revenue our second area of focus we're pleased to raise our guide for the year after seeing Senate races, heat up in Montana, and Ohio, and Florida place abortion on its ballot.
Our new guide of $240 million to $270 million now includes the impact of the Florida ballot measure.
Arizona is likely also to add a similar high spend referendum to the ballot.
And that issue gets if that issue gets cleared onto the ballots in the script states of Colorado, Missouri, Montana in Nevada, we could see even more upside in our political revenue performance.
The presidential election, typically makes up about 20% of our total and while we're seeing less spending there than we have traditionally we do expect to benefit in the swing states of Arizona, Michigan, Nevada and Wisconsin.
And we're seeing strong political spending in Montana, and Ohio, where Republican Senate candidates and their packs are looking to unseat longtime incumbent Democrats.
These are two states, where Scripps has a big footprint.
While most of the political revenue will come in the third and fourth quarters. We now have enough visibility to confidently say that we expect to exit the first half of this year, having generated more political revenue than we did during the first half of 2020.
Our third area of focus is prudent expense management.
Im optimistic we are beginning to see some rebound in advertising on the top line. We will also continue to pursue generating higher EBITDA through expense management.
This ongoing expense management is above and beyond the $40 million in savings we are realizing from the reorganization of the company we initiated last year.
Finally, another important deleveraging and debt reduction strategy is realizing the strong return on our investment from assets we have acquired.
We announced in mid April that a process was underway to explore the sale of the balanced TV network prompted by increasingly strong inbound interest from qualified potential buyers.
Selling balance is entirely consistent with Scripps has long history of buying and creating businesses growing the assets value and then divesting at the right time for a strong ROI.
In recent years. Examples of this includes our sale of podcasting businesses, Stitcher, and mineral and digital audio business Triton.
Since acquiring.
<unk> balance in 2017 as part of the case networks, we have significantly increased the audience doubled the revenue and increased its profit contribution.
Under our stewardship balance has become a more important brand in the black communities.
In entertainment outlet that tells the complete story of the Black American experience from original shows like Johnson to beloved musical mute to 11 movies and syndicated programming.
We want to make sure our balances and are positioned for that to grow and we anticipate that new owners could unlock even more value we.
We expect to have an update on that process for you later this summer.
Adding to the opportunity to generate proceeds to delever.
Also exploring the sale of some smaller non strategic real estate assets.
Scripps has been here, serving American audiences and advertisers for more than a 145 years. There are many reasons for the company's longevity and track record of success, creating value in the dynamic media landscape time and time again.
From our clarity of mission and our values to our risk tolerance and willingness to focus on the long term, but especially salient today is the long held view inside scripts that businesses operate in seasons.
Today during the season, we're in right now our management team is focused on executing against the plan I have shared with you that will lead us to pay down debt and improve the balance sheet for the benefit of our company our employees our mission and the partnership we have with shareholders that creates value.
And now Kevin we're ready for your questions.
Kevin: Thank you.
Have not already done so and you wish to ask a question. Please press one then zero on your telephone keypad at this time.
Once again our questions. Please press one followed by zero.
And we'll go to the line of Dan <unk>.
Benchmark. Please go ahead.
Okay.
Adam I know you said, you'll update us this summer or is there any way to get metrics around balance I mean, we know kind of directionally from when you bought it.
Part of the case, a while ago, but just curious if.
If you can help us think about that <unk>.
The real estate just sizing wise.
Yes, I mean look the inbound interest that we've had has been strong it was strong before the news of the sale process when public and it's really only gotten more robust.
I have a lot of confidence that will identify the right next home for the network and I expect it to be an excellent return for shareholders, obviously a deleveraging.
Event with proceeds used to pay down debt.
And a very good outcome for the company.
Relative to metrics I think there have been some press reports out there.
That we would expect proceeds to be in the hundreds and hundreds of millions of dollars.
Relative to the asset sales.
I would think.
Sure.
No.
Those are a lot less material than the sale of balance.
We've also said in the past.
We're sort of always in are in the process of optimizing our portfolio and would certainly be open to.
Looking at other assets as well.
Perfect and then.
Just maybe to touch on your expense comments it sounds like you have.
Identified line of sight on more costs, I guess, either for you or Jason probably early to size those but.
Just kind of curious how youre thinking about how much leverage you still have on the bottom line and the cost side.
So it probably is early to size those but what I would say is we think we have the ability as we move through the rest of this year to manage things really tightly.
Whether that is pushing out discretionary spend we're identifying continued process efficiencies that drive drive savings for us and so I'm optimistic those are things that.
Beyond revenue growth items, we talked about in the script beyond the asset sale I think expense management is another lever that we are going to pull that's going to drive deleveraging by the end of this year.
Great.
Core can you just talk through I mean.
You said services I think you said up double digits in April we continue to hear that <unk> is better than <unk> and there are some suggestions that core could actually be pretty strong in the back half of the year I know you guys have.
A different footprint and so you might be more exposed to crowd out, but just how should we think about your expectations around core both in <unk> in the back half of the year.
Hey, Dan its lead the Canadian sorry, I'll take that question. So we are you know.
Definitely seeing some improvement and categories as you know as we've said automotive was up in Q1.
In 2023, I think was up 10% for the full year.
In terms of other categories services.
And April was down slightly but certainly in first quarter, we continued to see.
And improvement there as well as home improvement, which again was up in Q1, and we're seeing it up in April I think crowd out we anticipate crowd out in Q3 and Q4 because of political advertising so and remember those are high margin dollars and we will take those.
Certainly we work with advertisers to make sure that they're at.
Yes.
Finding alternatives for them in terms of the crowd out that definitely with political numbers that we just guided to we expect to see that.
Probably starting in Q3 and definitely in the first part of Q4.
Dan It's Adam I think the general theme, you're seeing is that as part of core local is hanging in there pretty nicely.
Doing well.
And there is still some softness in core associated with national and for US. It's it's been really the comps around sports betting that has driven I think that performance on the national side.
Got it that's super helpful. All right I want to hog the call I'll get back in the queue and see if my other questions are asked thanks, guys. Thanks, Dan.
And we'll go to the next line of Steven Cahall Wells Fargo. Please go ahead.
Yeah.
Thank you.
I'm, having a little trouble understanding the network's revenue guide for Q2.
Adam I think you said the direct response in scatter pacing up quarter to quarter or sorry year on year in the second quarter and then the guidance is for networks revenue down mid single digits. So just wanted to understand what I might be missing there.
Kevin: And then Jason your first sentence mentioned tight cost controls I think some of that is going to come up in the <unk>.
<unk> services or other line in your segment profit, but can you just detail what youre doing differently and maybe any run rate savings that youre looking to achieve through these initiatives and then finally.
I think you've got a free cash flow guide out there right now so just wondering if we think about free cash flow that you think you can use to pay down debt. This year, if theres any range of numbers you might be able to guide us through thank you.
So Steven Thanks for the question.
We are seeing some.
Nice I would say rebound momentum in direct response and in the scatter market, but we also still have to contend with the upfront from last year, which laid in.
A fair bit of inventory at lower rates. So the good news is scatter rates today are 40% above those rates.
And direct response makes up a very big chunk of our inventory, but we still we still are dealing with the impact I would I would expect if the rebound continues on track that what we would see by the fourth quarter would be indicative of the strength of this year's upfront and hopefully hopefully consistent with the.
<unk>, we're seeing in scatter and direct response.
Yes, I think from an expense standpoint, I mean, I think there are a variety of places we're looking which you saw we did.
In Q1, and we are doing in Q2 as well around whether it's employee costs.
Trying to.
Manage open positions trying to identify areas of opportunity with another thing you heard on the call today with I I updated our guide for the other segment, which had previously been a loss of $7 million to $10 million, we tighten up to $7 million to $8 million, that's really tied to a little bit of a slowdown in the rollout of tableau, because we're looking to direct more of more.
Kevin: Larry cash towards debt Paydown in the short term and specific to.
Free cash flow guide, we're not giving out any kind of specific number for the year. There are still a lot of variables, including a wide political range we gave.
And in a variety of other factors in there, but what I would say is.
We believe we have the opportunity through political through a rebounding advertising marketplace through things like the asset sales, we've talked about to make it to generate a significant amount of cash this year and direct all of that to debt pay down as we've done in the last couple of years and make a meaningful improvement in leverage by year end.
Just a little bit more color on tableau first quarter tableau hit our plan on consumer sales, but this is a new business for us and the change you're seeing in the other segment reflects essentially expenses moderating because we're able to lower our average our average customer acquisition cost and spending.
Yes.
Great. Thank you.
Thanks, Steven Thanks, Steven.
And we will go to the next line.
Michael Kaplinsky Noble capital markets. Please go ahead.
The questions and good morning.
Michael A. Kupinski: I know in the past you've been reticent to raise expectations for political I know you have a person dedicated to political semi offer you some.
It's there and you've identified some hot races, and valid issues, but I'm wondering are you seeing political being booked into the second half already I'm just wondering how.
How much visibility you actually have into the second half.
Hey, Mike, It's Lisa and I I think that's why we were comfortable with increasing our guide.
Now its because were seeing those bookings.
Into third and fourth quarter, and so that gave us the confidence.
Adam mentioned and I think Jason mentioned in the prepared remarks.
Michael A. Kupinski: Senate races, in Montana, and Ohio as well as.
The abortion issue in Florida remember in Florida, we cover 85% of the eyeballs to households in Florida. So that's another reason we were able to increase guide and then I think there are a number of things in the back mid year and that we're keeping an eye on in terms of other issues.
Certainly abortion issues.
Michael A. Kupinski: And other states, where we do business that we are.
And anticipating will also be.
Good money in the back half of the year, so to speak I think the.
The Senate races in terms of.
And obviously, I said, Ohio, and Montana, but there are certainly other states that we expect to see spending in starting midyear and into the fourth quarter and really ramp up there as well.
We are booking for sure and have great visibility into the back half of the year.
Including I think CTV, which is going to be a really great story for US which is included in that guidance. Just one other point just to reiterate we expect our first half of this year to be better than our first half of 2020, which I think is a pretty significant statement. So we are seeing the bookings for <unk>.
First and second quarter obviously.
We have the confidence enough to raise the guide based on what we're seeing in the third and fourth quarter.
Just one other sort of point I'd make about the ballot referendums.
Conventional wisdom that abortion on the ballot is likely to motivate the electorate in a way that potentially.
And even the Democratic electorate that potentially biting on the ballot does not and so there is some notion that abortion has the opportunity to even create a more competitive environment for additional down ballot races opening up the opportunity for additional spending on those down ballot races that might have otherwise been.
Too wide or too far apart, but if abortion motivates the democratic electorate to come out.
There is some.
Some view that that has the potential to obviously impact the broader the broader races.
That should change we hope will change the spending picture as well. So that's I think part of the enthusiasm we're reflecting in our guide change.
Speaker Change: That's a good point, Adam and I hope that you can exceed your expectations or raise it again another question I have.
Typically advertisers buy across platforms and you may sell some of your weaker networks with some of your stronger ones that Im just wondering in terms of the prospect of selling balance do you have a sense of how much of an impact you might have on the sale of balance on advertising on your other networks.
Yes.
Look I think you're pointing out.
<unk> point about our sales strategy I would say.
That's one element of it the other element of it has been an omnichannel approach in which we've been focused on selling.
Selling across platforms not just across networks and then finally I'd say ion is by far the biggest driver.
In general.
And ion itself does very well in a multi multiple multicultural audiences and the moves we've made with spores have diversified audience ions audience. Even further when we've looked at the WNBA from last year for example, the WNBA audience was.
With significantly more diverse island was already a diverse audience and the WNBA audience opened up additional opportunities for us to sell younger audiences and more multicultural audiences. So I'm not particularly concerned about the bundling effect are losing the bundling effect because its generally ion that drives that and we're now looking in the upfront.
As well as the scatter market to use that to drive also additional direct sales value for CTV.
Got you, Okay, well, that's all I have good luck. Thanks.
Thanks, Mike.
Okay. Our next question will be from the line of Craig Huber Huber Research partners now before going to Mr. Hubert I would mind other participants to press London Zero. If you have a question at this time.
And we will now go to Craig Huber. Please go ahead Sir.
Let's take them one at a time if I could I think you said scatter was up 40% versus the upfront a year ago can you talk about how that 40% number comparison.
Craig Anthony Huber: The year before something where was tracking affordable, but also what is scatter versus scatter pricing it and how is that tracking right now, yes, just to clarify.
Our scatter pricing is up 40% over upfront pricing from last year.
It's not yet scatter is up 40% over a year ago.
Speaker Change: Good okay.
Speaker Change: So can.
Can you.
What was that a year ago, what was the scattered at that point versus the prior upfront is that trend pretty similar which also had a better trend.
I would say, it's a slightly better trend than last year.
Speaker Change: In terms of because we have seen certainly in the upfronts over the last two years.
They have been weaker and so that this trend is.
Is slightly better than than last year.
Speaker Change: And then how much.
Better and getting better I would say that because on the national side because of sports.
Speaker Change: Okay, and then also if I could ask what is scatter versus scatter so like versus like.
Speaker Change: How is that trending right now.
Speaker Change: Versus a year ago.
Speaker Change: Yes, I don't think Thats anything we've given out before so I don't think we are going to be giving out that number but I would just reiterate what Lisa said, we are seeing a stronger scatter market that now than what we've seen the last couple of years and look I mean, the scatter market is stronger and the Dr. Market is stronger as we said the Dr market is up.
Speaker Change: For the first time.
Speaker Change: Two years, so I think you sort of put those things together and you recognize that pricing in general demand is higher in pricing is better than it was last year and maybe to put a finer point on the R&D. Dr was up for the first time in two years in Q1 and is pacing up even more in second quarter.
And then how about how about the other 60% on the Scripps networks.
Speaker Change: Trending here the brand side of things.
Speaker Change: That is all inclusive.
Speaker Change: So when we're talking about scatter, we're talking about across the networks and when we were talking about the yards across the networks like for example down to 50%. Dr. Grid is 100% Dr. So what we're seeing that strength flow through to all of the networks Pro rata based on sort of how their inventory is split I would say Craig the one thing we haven't talked about.
So we've talked about in the scatter piece, we've talked about Dr.
Repaired remarks, we also talked about the upfront, which is really the other piece and we as you heard in our comments, we were really pleased with the reception so far from the upfront presentations that we did over the last month that will take a couple of months to kind of play out in terms of what gets booked but I would say I think the tie end with the.
The sports because we ended up at the end of its own WNBA I would say Evan has us pretty optimistic coming out of this and then look there's no question that the networks business is still contending with last year's upfront that's to Stephen's point, that's why we're seeing positive momentum and yet still have commitments from.
<unk> at last year right.
Yeah.
Jason if I could ask thank you for that changed if I could ask you your outlook for net Retrans for this year is still up about 1% to 2%.
Yes, both.
Gross and net net distribution are projected to be up in the low single digit range correct.
And I think the fact that we really only have 5% of our sub base renewing this year.
Okay cool thank you guys.
Yeah. Thanks, Craig.
Okay now at this time, we have no further questions in queue.
Thank you so much Kevin and thanks to everyone for joining us today have a good day.
And thank you ladies and gentlemen that does conclude your conference you may now disconnect.
Yeah.
Yeah.
Yeah.
Speaker Change: Okay.
We're sorry your conferences ending now please hang up.