The E.W. Scripps Company (NASDAQ:SSP) Q1 2024 Earnings Call Transcript

The E.W. Scripps Company (NASDAQ:SSP) Q1 2024 Earnings Call Transcript May 10, 2024

The E.W. Scripps Company isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you, everyone, for standing by and welcome to the Scripps Q1 Earnings Conference Call. Now at this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. I will now turn the call over to your host, Head of Investor Relations, Carolyn Micheli. Please go ahead.

Carolyn Micheli: Thank you, Kevin. 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.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 filings. We do not intend to update any forward-looking statements we make today. Included on this call will be a discussion of certain non-GAAP financial measures that are provided as supplements to assist management and the public in their analysis and valuation of the company. These metrics are not formulated in accordance with GAAP and are not meant to replace GAAP financial measures and may differ from other companies’ uses or formulations.

Included in our earnings release are the reconciliations of non-GAAP financial measures to the GAAP measures reported in our financial statements. We’ll hear first this morning from Scripps’ Chief Financial Officer, Jason Combs, who will share financial results as well as color on the Scripps advertising marketplaces; then we’ll hear from President and CEO, Adam Symson. Now here’s Jason.

Jason Combs: Good morning, everyone, and thank you for joining us. We are pleased to be delivering first quarter 2024 operating results that beat profit estimates driven by tight cost controls. I will discuss both our Q1 results and guidance for Local Media first and then the results and guidance for Scripps Networks. Then I’ll touch on a few other guidance items. I’ll conclude with capital allocation and our debt picture. For the first quarter 2024, Local Media division revenue was up 13% from the year ago period due to year-over-year growth in political and distribution revenue. The political revenue, which was $15 million, saw strength from early U.S. Senate spending in 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 of 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 declines. Local Media expenses increased about 8% from the prior year quarter, inclusive of our new sports rights agreements.

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Q&A Session

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 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 million 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 products we began to sunset in the second quarter of 2023, Scripps Networks revenue 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 network’s 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 TV revenue to be about 30% above our 2023 revenue, again, backing out revenue from the programmatic product 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 has 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 $0.15 per share. Pretax cost for the quarter included $5 million in restructuring charges. We also reported an $18 million investment gain. Together, these two items decreased the loss attributable to shareholders by $0.12 per share. And a reminder that the preferred stock dividend 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 ION 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 top line revenue, proceeds from potential asset sales and prudent expense management. And now here’s Adam.

Adam Symson: Good morning, everybody, and thanks for being with us. 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 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. A 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 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 CPMs 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 on ION in mid-March, and those games have been drawing a younger and more affluent demographic to the network. More than half of the NWSL viewers are new to ION, so we’re pleased that they’re 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’re capturing average unit rates for NWSL games that are 65% higher than our AURs for non-sports ION prime time programming. Coming up on May 17, 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 Clark, Angel Reese and Kamilla Cardoso.