The E.W. Scripps Company (NASDAQ:SSP) Q3 2023 Earnings Call Transcript

The E.W. Scripps Company (NASDAQ:SSP) Q3 2023 Earnings Call Transcript November 3, 2023

The E.W. Scripps Company beats earnings expectations. Reported EPS is $-0.04327, expectations were $-0.14.

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. Later, there will be time for questions. [Operator Instructions] As a reminder, this conference is being recorded. I’d now like to turn the conference over to our host, Carolyn Micheli. Please go ahead.

Carolyn Micheli: Thanks, Don. 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 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 this morning from Scripps’ President and CEO, Adam Symson; Chief Financial Officer, Jason Combs; and Scripps’ Chief Operating Officer, Lisa Knutson. Here’s Adam.

Adam Symson: Good morning, everybody. We’re pleased today to be reporting third quarter financial results across the company that met or exceeded expectations. Our local ad sales teams executed at a high level despite a soft advertising marketplace. On the network side, Connected TV revenue growth continues to be a bright spot, while the direct response and general market sales teams held their own. In addition, careful expense management supported by the continued pursuit of a more efficient cost structure led to a stronger-than-expected segment profit number. Alongside the rest of the advertising industry, we do face further macroeconomic headwinds as we wind down this year. As you know, the national advertising upfront season was weak across the industry.

But as we head into the fourth quarter, we have seen some green shoots in the scatter market. Local Media core advertising is coming into the quarter strong with our four top categories up year-over-year. Jason and Lisa will give more color on the full advertising environment in just a moment. Despite the macroeconomic conditions that we are all contending with, I really like the Scripps set up for free cash flow growth over the year ahead and here’s why. Number one, we have a robust new run rate for local media distribution dollars; number two, our local core and distribution revenue and national advertising revenue will benefit from continued disciplined expansion into sports rights, fueling organic growth; three, we are educating audiences about the appeal of free TV and making it easier than ever for people to watch it and for us to profit from it; fourth, we project double-digit growth in our networks connected TV advertising revenue; and fifth, we will benefit from the high-margin political ad revenue that broadcasters get as the primary beneficiaries of political ad spending, projected now at $10 billion for the coming presidential election year.

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Q&A Session

I’ll start with our outlook in the retransmission ecosystem. As we reported to the Street in October, we have now successfully completed distribution agreements, covering about 75% of our local media pay TV households without any blackouts. The net effect of these negotiations for 2023 is as we promised. Growth of 15% in revenue and more than 40% in net distribution dollars. Annualizing that growth next year gives us a strong tailwind. A lot has been said about the future of the MVPD and broadcaster relationship, especially after the Disney Charter dispute. But our experience leads me to believe that investors’ fears are off base. The concessions charter negotiated, including SVOD services in the bundle and fitting out the lower view channels will benefit the pay TV consumer, benefit the ecosystem, and therefore benefit broadcasters, especially since our programming represents the very best of the channel lineup.

Our negotiations and new deals are a testament to the strength of the MVPD broadcaster proposition. Our renewals come as a result of both good negotiating and the strategic moves the company has been making over the last several years, because now in addition to capturing full market value on rates, we are creating new value by expanding the number of our stations that receive retrans. For example, in Las Vegas, we flipped an ION station to an independent carrying the Vegas Golden Knights as its anchor programming. The new station Vegas 34 joined our ABC affiliate there expanding our advertising opportunity and distribution fees significantly. So despite erosion in the nation’s pay TV landscape Scripps is now getting higher rates and getting paid on more stations than before, a key growth driver for us that comes as a direct result of the flexibility of our broadcast platform in service to our sports strategy.

Second, we’re creating material new value by tapping into the passion Americans feel for their favorite teams and athletes and their love of the game. This passion has an unparalleled ability to unify us as a community to bring this in front of the television and to do it in real-time. Linear television specifically broadcast TV is made for this. The leagues know it, the teams know it, the fans know it, and so the distributors and advertisers. And that’s the reason Scripps is leading the broadcast renaissance in live sports. On the local side, we now have broadcast partnerships with two National Hockey League team, the recent Stanley Cup Champion, Vegas Golden Knights and the Arizona Coyotes and Phoenix. We are broadcasting their games across a multi-state region to both teams large regional fan bases.

And we’re seeing tremendous growth in viewership now that every TV household in the markets can receive their games. In Las Vegas, the Golden Knights have more than doubled their local ratings so far this season compared to last. And in Phoenix, the Arizona Coyotes ratings have increased a whopping 900% of from their RSN distribution last year. The equation is simple. More audience reach generates higher ratings to deliver Scripps significant new revenue right now primarily through incremental and meaningful core advertising revenue growth and higher distribution revenue for the independent stations on which they air. On the core advertising side, I’m pleased to be able to quantify the value we have just begun to create through our sports rights deals.

Baked into our guide for the fourth quarter is an incremental lift to local media core of four percentage points driven by our two local sports deals. And for full year 2024, we’re projecting at least a three percentage point lift in core advertising for just those two local NHL deals. And on the distribution side, adding retrans to these new independent stations with live sports is both growing our top line revenue and expanding the portfolio’s distribution margins, because traditional and virtual MVPDs, know how important this programming is for their customers. With each new local rights agreement we signed, core advertising and distribution fees will grow, adding profit and generating free cash flow. Sports is a significant opportunity for us on the national level as well.