Ladies and gentlemen, thank you for standing by and welcome to the Scripps First Quarter Earnings Call. For the conference all the participant lines are in a listen-only mode. There will be an opportunity for your questions, instructions will be given at that time. [Operator Instructions] As a reminder, today’s call is being recorded. I’ll turn the conference now over to Carolyn Micheli, Vice President for Corporate Communications and Investor Relations. Please go ahead.

Thanks, John. Good morning, everyone. Thanks for joining us for a discussion of The E. W. Scripps Company’s first quarter 2018 results. 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. You can visit scripps.com for more information, such as today’s release and financial tables as well as an investor presentation with new information that was posted last month. You also can sign up to receive e-mails anytime we disclose financial information, and you can listen to an audio replay of this call. A link to the replay will be up this afternoon and available for a week. We’ll hear first this morning from Chief Financial Officer, Lisa Knutson; then Local Media President, Brian Lawlor; and National Media SVP, Laura Tomlin and close with Scripps’ President and CEO, Adam Symson. Also in the room today is, Controller and Treasurer, Doug Lyons. Now, here’s CFO, Lisa Knutson.

Thanks, Carolyn and good morning, everyone. We are pleased to be presenting our strong financial results across both segments in the first quarter as we execute our strategic plan and begin to realize tangible results. I’ll start this morning with our first quarter financial highlights then discuss our cash position and our allocation of capital so far this year and end by touching on second quarter guidance. But first a quick reminder, this is our second quarter of reporting company results through our new reporting segment. Our press release today provides Q1 historical tables that have been adjusted to the new basis, so you have clean comparisons to this quarter. And our Local Media division first quarter revenue was up nearly 3% compared to the first quarter of last year. This increase was largely due to modest growth in core advertising, as well as a 7% increase in retransmission revenue. Retrans was a bit short of our expectations but for a specific reason. Retransmission revenue was impacted in the quarter by a one-time refund of $2.1 million to an MVPD that mistakenly overpaid us several quarters in 2016 and 2017 on out of market subscribers. To be clear, we remain on track to meet our full year retransmission revenue expectations Local media expenses were up about 3.5% mostly driven by higher network programming fees. Turning to the National Media division just a reminder that it includes the results of Katz broadcast networks, our national news network Newsy and our podcast business Midroll Media as well as a few other businesses with national reach. First quarter revenue for national media was $60.7 million that includes $42.7 million from the Katz networks, $11 million from Midroll and $3.7 million from Newsy. Division expenses were $58.7 million, the increase over Q1 of 2017…

Thanks Lisa and good morning, everybody. I’ll start with the results of our Local Media segment and I’ll talk more about the outlook for political advertising this year, more progress for Pickler & Ben in the Katz networks and what’s ahead this year with ATSC 3.0. Turning first to core advertising. It was a challenging quarter with a lot of moving pieces in putting this year’s Winter Olympics as well as the Super Bowl moving from CBS to NBC. Our five NBC stations certainly benefited from these two significant events it totaled about $8 million in revenue. But we do see some revenue decline at stations competing against the Olympics for those 17 days. Despite that we were able to squeak out year-to-year growth from our core advertising business in the first quarter, which was up just under 1%. Our growth came from several key categories services, retail and home improvement were each up in the 10% to 12% range, while auto showed a double digit decline from the first quarter of 2017. We kicked-off this political advertising year with early candidate spending and several key states including Tennessee, Indiana and Oklahoma as well as a special election in Arizona. Our first quarter political performance was in line with our performance to the first quarter of 2014, which was the last midterm election year. In second quarter we have primaries in five key states as well as one early ballot initiative in Tennessee, where our perennial number one CBS station in Nashville is well positioned for that race. Looking ahead, the bulk of our political revenues expected in the back half of the year. We’ve Senate races in the Indiana, Arizona, Ohio, Tennessee and Florida. Governor’s races in our Arizona, Ohio, Florida and Michigan also look to be very competitive.…

Thanks, Brian. Good morning everyone. In addition to Katz strong performance we saw expectational growth across our other national businesses. Let’s start by talking about Newsy, our highly regarded next-generation national news network. Newsy is widely deployed on most of the over-the-top-distribution services and the tripling of it’s revenue year-over-year was largely driven by advertising on these services. Newsy’s growth will continue to be accelerated by it’s expansion into cable and we are on track to sign contracts covering 40 million cable and satellite households by year end. As Newsy becomes more widely distributed we are growing our content and program offerings. In addition to our daily coverage, we are working with PolitiFact, a not-for-profit organization, to produce a weekly fact-check show. This is one of the many economically efficient, on-brand and journalistically sound partnerships that Newsy is forming. These partnerships allow us to expand the breadth of topics and formats Newsy can offer viewers. They support our mission of informing, not influencing, our audience. Turning to our podcast industry leader Midroll. We saw revenue grow nearly 70% in the first quarter driven by strong advertising demand. According to market research from Edison Research, the U.S. podcast market has grown to 73 million monthly listeners. Podcast listening has now surpassed satellite radio for [indiscernible] listening. For us, this increased audience has drawn greater demand from premium advertisers, including Gillett, and other Procter & Gamble brand, Microsoft, Haynes and Michelin, just to name a few. Midroll’s ongoing financial performance and Edison’s report reaffirmed the growing strength of this medium. In March, in partnership with Marvel Comics, we launch the groundbreaking podcast Wolverine inside our Stitcher Premium service. The X-Men franchise has a passionate followers, and we have seen that it’s loyal fan base will pay for premium content. In fact, this show has driven a significant number of new Stitcher subscriptions. And just a few weeks back, Midroll announced a new partnership with Freakonomics author Stephen Dubner to coproduce its popular long-running Freakonomics podcast and help them expand the brand with new shows on Stitcher. The National Media division has had a solid start to the year. We are pleased with the significant progress that these processes have made and the trajectory we’re on. As you know, we’ll continue to strategically invest in growing these businesses to capture attractive national audiences and premium advertisers. Our goal is to produce long-term revenue growth and ultimate profitability for each of them. And now, here is Adam.

Thanks, Laura. Good morning, everybody. I’d like to start today with a reminder about this company’s mission. We are a journalism company and our credibility, the promise we make to our audiences and advertisers is fundamental to our success. Our local and national audiences rely on us as their objective and independent source for news and information. For 140 years, Scripps has taken this role very seriously. And though we talk all the time about change and evolution, we will not waiver from this company’s commitment to independent journalism. We believe our reputation and, therefore our business depends on it. Looking out to the promising year ahead, we’re moving toward what we believe will be robust mid-term election spending. We also expect to continue to see growth in our over-the-top television subscribers on top of our steady MVPD subscriber base. And we certainly expect to see the continued, impressive rapid revenue growth at Katz, Newsy and Midroll combined with the profitability for the National segment. Against the backdrop of a solid quarterly performance, we continue to gain significant momentum with our company’s transformation strategy. We launched our plan in August. We’re now starting to see tangible results, and we believe we’re creating meaningful value for our shareholders in the near and long-term. In case you missed it, I’d like to point out that we recently announced margin improvement targets as an outcome of this plan. We expect cash flow from operations to grow more than 40% from 2016 levels to 2020. This growth will be largely driven by retransmission revenue increases and the continuing restructuring initiatives that we’ve shared. It does not yet account for the upside we would expect from our buy-sell swap television station acquisition strategy. We also expect this plan to deliver margin improvement of about 400 basis points from 2018 to 2020. In the Local Media division, we’re focused on creating a stronger portfolio through new operating philosophies meant to maximize broadcast cash flow and support growth. In the National Media division, we’re seizing the opportunities we see with the evolving habits of media consumers and again are reaping the rewards of these high revenue growth businesses. We’re returning cash to shareholders via the new regular dividend. Our Board’s decision to initiate the dividend reflects its confidence in the state of our business and our strategies for the future. And finally, this company remains committed to maintaining low debt in order to have the greatest financial flexibility. This company’s board and management are acting with a high level of urgency to create a stronger, more streamlined and a higher performing company. We bring equal energy and enthusiasm to delivering near-term improvement alongside our long-term value creation. We have the right plan in place and we’re confident in our ability to execute on all of these goals. And now operator, we’re ready for questions.

[Operator Instructions] And first from the line of John Janedis with Jefferies. Please go ahead.

Thanks. Good morning. Couple of questions from me. First, of course, thanks for the color on the OTT subs. But I was wondering, how does the 350,000 compare to our expectations? Are there any market or regional specific trends worth noting? And do you see a path to total sub declines trending to flattish as you look ahead?

Yes. Let me let Brian answer that John.

Hey, good morning, John this is Brian. The first part you asked about was geographic. I don’t think we see necessarily geographic changes relative to the transition from traditional MVPDs to some of these virtual ones. We do see changes more specific to company. And so I think there’s a few companies that we’re seeing greater declines with. We also see some of them are strategically looking to move some of their traditional MVPDs to the virtual space. So I don’t see anything geographic. Do I think we’re going to get to an even swap of one to one? No. I think at this point – I think it’s still early and we haven’t captured yet all of the losses that we had in traditional. But right now, we’re about 50% of the traditional MVPD declines, having them converted to OTT. I think that has an opportunity to attract may be another 10 or 15 points up. But I don’t think at the end of the day it’ll be a one for one.

Okay. That’s helpful, thanks. And then maybe separately just speaking with local. On the local media expense guidance, can you talk about the key areas of the incremental investments? And to what extent they will continue to be on the second quarter, meaning at in the high single-digit expense growth?

John, it’s Brian again. There is a little bit of noise there. We talked about some movement inside of some of the people costs where some stuff that you spend in the corporate line moved here as well. We also had payouts on the retrans. But in terms of other expenses, we’ve an investment programming with Pickler & Ben. Obviously our largest growing portion of our total expenses is our network affiliation fees, which continue to – it was up about 5% this quarter and we’ll continue to track up every quarter. The other stuff in terms of investments, it’s just running the business, music licenses, Nielsen our news coverage services, advertising taxes, things like that. So I think all of those are under control. Our total employee costs were up 1% in the quarter. But again, I think that’s because we’re moving some things off the corporate line. Had that not happened, our employee cost would have been down inside of local media. So hopefully, it was a little visibility there for you.

That’s helpful. Thanks guys.

Our next question is from Marci Ryvicker with Wells Fargo. Please go ahead.

Thanks. I have a short-term and a long-term one. So on the short-term subject, Brian, can you just talk about what is going on in core for the second quarter? If you’re seeing anything strengthen, weaken from the first quarter, which I know is kind of noisy? And then secondly, with your long-term goals, Adam, what kind of core ad growth are you incorporating to achieve your goals, i.e., is it flat, down low singles, GDP type? Thank you.

Hey, Marci, it’s Brian. Good morning. Let me just start with the question about second quarter. I would look at second quarter and say pretty steady right now. I think it actually, as we’re working our way through May, it’s got some nice legs to it. Obviously, we’re balancing core and political. Political is coming in as we had expected it would tracking kind of with Q2 of 2014. And if it tracks over, that may influence core a little bit. But I think our categories look a lot like they did in the first quarter, which I think performed very well minus automotive. And we’re seeing that same kind of trend move through second. So I would tell you that the combination of the political and the core, I would use the word steady for second quarter.

Good morning, Marci. To your second question, when we look at our long-term strategies and the models we’ve built relative to those numbers that we’ve shared, we really look at core as sort of GDP, GDP minus.

Thank you.

And next we go to Dan Kurnos with Benchmark Company. Please go ahead.

Thanks. Good morning. Brian, just a quick follow-up on Q2 core and your thoughts. I missed it – apologize, if I missed this. You have the Cavalier headwind or tailwind, I guess, I don’t know. Are you embedding that in your guide, especially now that they are up 3-0, and the Celtics are up 3-0, which looks pretty clean path to them to the finals?

No. But lord knows we’re all cheering for the Cavs here. It’s a couple of million bucks as we’ve talked about in prior years, and this will be the third year, I guess, in a row that we have the potential to capture that or more with the Cavs making the finals. Thankfully, they’re playing really well right now. That money is not in our projections. So if, in fact, the Cavs get through one more game and get through the next series, then you would see a good bump to our projection.

Hopefully, it didn’t jinx.

Hopefully not.

Yes, I did – play Celtics next round. I don’t think that’s really much of a jinx there. Okay. So then just higher level, maybe Adam, just on the M&A environment, now that we kind of at least have, theoretically anyway, some clarity on the elephant in the room, you did reiterate your buy-sell-swap strategy. Maybe you can just talk about what you’re seeing on in the M&A environments and whether or not it’s gotten a little bit more robust on deal flow or if it’s a little bit more tepid than you anticipated?

Dan, actually, I think it’s exactly what we expect right now. The Sinclair-Tribune deal and where it’s at has provided, I think, some much needed clarity into where the various regulatory sort of lines are, so to speak. And I think that helped inform the conversations we are having with our peers. Deal flow, frankly, I think in this case, the deal flow is sort of self-generated. We are having those conversations in order to execute our buy-sell-swap strategy. I remain incredibly optimistic that we’ll be able to emerge from this period with a portfolio that it performs better as a result of some of that in-market synergy. Obviously, I believe there’s a ticking clock for our ability to execute this plan, but we’re working with a high level of urgency to get after it.

Great. And just if I could squeeze one more in just on the National segments. Just kind of high level, again, I know Laura, you want to turn on this. But growth was obviously really strong right now. You’re still very much in either mode building or landgrab-type scenario. Can you just give us maybe a little bit longer-term projections on balance between cable revenues and advertising revenues? What kind of a growth rate sort of looks like three or five years out, if it goes your way? And when, Adam, how much of runway do you have to continue to spend, let’s just call it, breakeven for Newsy, for example, versus when you start to trend that profits [indiscernible]?

Dan, it’s Laura. Thanks. Look, I think with Newsy, like we had a great quarter. Our revenue growth for the quarter was just north of 200%, really driven by OTT. We’re just starting to expand in the cable this year. So it’s really about getting the signal live, having our viewers find us. So I think we’ll look for more cable revenue to come during the back half of the year. It’s hard to project three to five years out, but I would say that we strongly believe that this business has great growth for the future. We have dual revenue streams, both in advertising and carriage fees, complementing our already great OTT business. So I think we expect great growth to continue for quite a few years. And this segment was profitable the last two quarters, but it’s still very new. I would say we expect margin expansion as these businesses continue to grow. That being said, we’ll continue to balance our investment with the returns, both for the short and the long term.

Got it. Thanks for the color. Appreciate it.

Our next question is from Michael Kupinski with NOBLE Capital Markets. Please go ahead.

Thank you. I have a couple of questions here. Regarding the first quarter and looking at the programming expenses, were the ABC network contracts reflected in the full quarter in that quarter?

Yes, Mike they were.

Okay. And then in terms of like your expense growth in Local Media, I would have expected maybe that there wouldn’t be an acceleration in the rate of expense growth because of your cost reduction strategies and so forth. Can you – is that really being driven then by the program and program license line item?

Mike, it’s Lisa. As we’ve talked, the actual expense reductions that you’ll see in TV really hit later in the year and really will manifest themselves in 2019. Much of the restructuring charges and the cost reductions were at the corporate line and also a bit in National Media between the end of 2017 to beginning of 2018.

Mike, it’s Brian. Let me just provide a little bit more clarity. So we do have programming costs that are up in the teens. Most of that is really as a result of the network affiliate fees, a little bit is our investment in our locally produced show, which obviously we expect a pretty good return on. If you look at all of our other costs outside of programming, our employee costs were up 1%. But as I mentioned to John earlier, that’s really due to some corporate to local transfers. Had that not been the case, we would have been down several million dollars there. Outside of programming and employees costs, all other expenses were down almost 10%. So we’ve really done a very effective job of managing. So our total non-programing is including employee cost is down about 2.5%. So it’s really the programming that affects the most. But I feel like we’re doing a very effective job and delivering on the promise of cutting the expenses that we promised you all.

Got you. Thanks for the color. In the other line item in National Media segment, that was significantly higher than expected. What’s going on with that line item?

Mike, it’s Laura. So that line item includes some of our others smaller national businesses. And really just like the other larger businesses in this segment, they had a great quarter too. So advertising demand and they’re just smaller, but they had a good quarter. We expect that line item to continue to grow this year as well.

And Laura, if you back up the profit contribution from Katz in the National segment, it looks Midroll and Newsy lost money in the quarter. But if you kind of – I know that you’ve been investing in Midroll. Was Midroll profitable in the quarter?

Mike, we’re not breaking out profitability by business. But I would say we’re really pleased with the profit that we delivered this quarter, and we expect revenue growth to continue for each business throughout the year.

Okay. And final question, Brian, can you tell us what the percentage of general market advertising to total advertising was for Katz?

Again, I don’t think we’ve disclosed that, Mike.

We have a rough percentages.

For the general market? It’s in line with – I’m sorry. What I’ve kind of guided in the past is balance is roughly 50% of general market and 50% DR. The rest kind of trail below that as they are newer networks. And I’d say not a meaningful change there. Every one of the networks grew its general market advertising base. They were very successful last year in the upfronts, and we’re back into the upfront season right now. So we’re making incremental growth there. But I don’t think there’s anything that’s dramatically different than the guidance we’ve given you previously.

Okay, great. All right. Thanks for the color. Thank you.

Thanks, Mike.

Next we’ll go to Kyle Evans with Stephens. Please go ahead.

Good morning. Brian, do you might diving down into the double-digit decline on auto? Where do you think those dollars are going?

Kyle, I think there’s a lot of movement inside of auto. I think the biggest factor for us was a kind of change of strategy of Dodge. So they have booked first quarter. It was a robust ad spend across all of our stations. And then they wound up changing their strategy and pulling most of those dollars out. It was more than $1 million that got pulled off the books inside of the quarter for Dodge. And so I think had that not been the case, auto would have certainly looked much better. Individual dealers, domestic factory are probably the stronger parts of the category. But I think Dodge is probably the one thing that dramatically changes the outlook of auto.

Got you. Adam, high expectations on the buy-sell-swap, especially on the swap, given your station footprint. Does the political or the potential kind of jackpot for stations around political, does that hold up activity? Are people holding on to their stations to see if their markets light up? And do you think you can get something down on the swap front in 2018?

Yes. I mean, I think our belief is that we can get announcements done. Who knows when close would be, if that would in 2018 or shortly thereafter. So I really don’t think political is a factor. This is very different than a traditional sale process, so to speak. Because in this case, both sides of the table are recognizing the same benefits of synergy, both the top line and the expense side. And so when you’re talking about a swap, certainly you have to take into account a TV station or a market’s footprint, but both sides have to take into account. So I don’t expect that that’s really going to be a factor in holding any of these things back.

And then lastly maybe a little bit more detail and update or – and an update on the radio sale. As the restructuring Cumulus and iHeart pushing that time line out.

Yes. The radio sale, the process continues. We’ve made a decision in order to maximize the value of the assets to sell the division in several pieces instead of one big bang. I think that’s where we see the greatest value for the company and for shareholders. And so it’s just a little bit more complicated, I would say, than if it were just a singular transaction.

Great. And then just one last one. Lisa, I think you said below 3 times leverage by year-end. Is that…

Yes.

Okay. Does anybody there – would you or Adam want to wage a guess or projection on when you can get below that magical 2.75 times?

We haven’t necessarily said when throughout the year we would get. Certainly, by year-end. I think with the political advertising coming in, in third and fourth quarter, you certainly would see us delevering by year-end.

Okay. Thank you.

Our next question is from Craig Huber with Huber Research Partners. Please go ahead.

Good morning. My first two questions, please, on the National Media side. I’m curious what was the growth rate for Katz, if you had owned it a year ago, for revenues?

More than double digits, Craig.

You can’t be little more tighter on that when you say that number? I mean, it’s up 15.

It’s not 11.

We can get it. It will be in the queue. I can tell you, it was plus 16.

Okay. Thank you for that. And then if we took Katz out of the quarter here, what was the other pieces within National Media that you guys lose, like, say, $1 million or $2 million on the EBITDA line in National Media?

Yes, we’re not breaking out that. We’re not reporting the loss from other businesses minus Katz, sorry. Year-over-year growth was about 87% without Katz so – on the revenue side.

Okay. And then, Brian, you talked about auto being down double digits Was that – before that mean to be down high teens? What exactly was that number if you would, please?

Mid teens, Craig.

Okay. And then just a little further, how is auto tracking in the current quarter? Is it meaningfully better than that?

It’s not meaningfully better. I think it’s – hopefully, it will be a bit better than that. The Dodge issues that exist in the first quarter are playing themselves out, again in the second quarter. So that’s a big enough account that will have a similar impact on us. But to that end, I would say that the other categories that we’re pacing very strong in first quarter continue to pace very strong in second quarter and balance out the auto.

Okay. And then what’s your outlook, Brian, for retrans revenue and your net retrans for the full year?

I think what we’ve said is we expect annual revenue in the $300 million range.

And then what about net – the percent at the net retrans percent change for the year?

I don’t think we’ve disclosed that.

And then, Brian, would you talk about retail TV advertising in the second quarter? Is that tracking similar to what – I’m just referring the first quarter.

Yes, we had a nice quarter and first quarter. It was up 11% really driven the drug business inside of retail. It was huge, up 100%. Medicine was up double digits. Furniture, which is probably the biggest part of retail for us, was up mid-teens. And we saw positive results in April. So I think it’s tracking well into the second quarter as well.

And then also, Brian, I want to ask you just a little more color here from my end. Cord cutting, in the fourth quarter, let’s talk about that for a second, cord cutting with and without OTT, how much was that down year-over-year?

You said – in the fourth quarter, since September, we have not seen any additional sub losses.

So what is that – you were down, what, 2% to 3% then?

For the full year we were down, if you offset the losses of the traditionals with what we gained in the virtual OTT space, we were down a little over 2% for the full year.

And then what was it for the first quarter, please? I know there’s some true-up that coming all…

Yes, we don’t have it. Because it really lags about three months, Craig.

Okay, very good. Thank you.

[Operator Instructions] And next, we’ll go to Barry Lucas with Gabelli & Company. Please go ahead.

Thank you, and good morning. Brian, just, I think two for you. If we go back to the OTT economics, which most everyone would say we’re either flat to positive, on an early read with the number of subs you’ve gotten, could you address that issue?

Specifically, what you’re asking, Barry?

Well, are you are net positive in terms of dollars on the 350,000 subs versus any other – any equivalent MVPD?

Yes. So the deals that we have that we’ve negotiated, we buy ourselves with the networks wound up with a net economics as good and in a couple of cases even better than we would have with the traditional MVPDs.

Great. That’s what I was looking for. And second area you said Phoenix has lit up on a 3.0 basis. So what exactly does that mean? What milestones are you looking for? And what’s the business going to be?

Yes. So what that means is this is really the first market. There’s been one or two markets where individual stations have lit up a signal. This is the first market where broadcasters have worked together to consolidate multiple 3.0 signals on one tower. So you’ve got a market there where you have TEGNA, you have Nexstar, you’ve got Fox. And so as a result of that, we’ve all had to – Univision is a big partner in this, and we’re all working together sharing signals. So we’re onboarding signals onto one tower. We’re offboarding signals and then sharing. Everyone is distributing other people’s signals there so that we have full coverage. So I think what you would look at is, this is the first place where the technical structure is up running and working very well. And so it validates how broadcasters can work together, how we can share signals and bring everything into a lighthouse stick where everyone’s working from one place. So this is the beginning of, now we’ve got the structure in place. We’ve got the technical. It’s working. It’s lit up, and it gives us the opportunity now to work with other businesses to test various business models. We’ve talked about what all of those look like over time. Obviously, it’s an opportunity for advanced advertising to be able to do some tests. But beyond that whether it’s connected car or data casting, those kinds of businesses we now have a structural operational of market that we can begin testing those to – for those kinds of businesses to test out how they would work off of an ATSC signal.

Okay, thank you. Last one, maybe Lisa, as we looked at back of the year in some of the core savings falling through, where – what kind of – what line item would we see the needle start to move on course next?

I think you’ll start to see the line move certainly on corporate and shared services. And I think in the latter half of the year would be in the Local Media line. A combination between employee and I think other employee cost or other expenses. So those are the two areas.

Thanks for that.

And with no further questions in queue, I’ll turn it back to the company for any closing remarks.

Thanks, John. To summarize, we’re seeing the tangible impact of our strategic plan to improve our short-term performance and position the company for long-term growth. We’re well underway with our cost cutting initiatives. We’re exploring the potential television station swap opportunities, and we’re significantly growing our National Media brands. Our aggressive plan will drive meaningful margin and cash flow improvement, and we’re confident in our ability to execute those plans. Thank you so much for joining us. Have a great day.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.