Ladies and gentlemen, thank you for standing by and welcome to the Scripps Third Quarter Earnings Call. 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. [Operator Instructions] As reminder, today's call is being recorded. I'll now turn the call over to your host, VP for Investor Relations, Carolyn Micheli. Please go ahead.

Thanks, Kevin. Good morning, everyone. Thanks for joining us for a discussion of The E. W. Scripps Company's third 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. You also can sign up to receive emails anytime we disclose financial information, and you can listen to an audio replay of this call there. We'll hear this morning from Chief Financial Officer, Lisa Knutson; Local Media President, Brian Lawlor; National Media SVP, Laura Tomlin; and Scripps' President and Chief Executive Officer, Adam Symson. Also in the room is Controller and Treasurer, Doug Lyons. Now, here's Lisa.

Good morning, everyone. Since our last meeting, we've broken a lot of news. We've announced three significant strategic acquisitions, we're nearly closed on our radio divestitures, and we realized record mid-term political advertising revenue, and we delivered terrific results for the third quarter. We also completed a pension annuity purchase plan and an accelerated share repurchase plan. Let's start by reviewing those acquisitions. Early in the quarter, we announced our plans to buy TV stations in two strategic markets from Raycom and Gray for $55 million. On October 17th, we announced the purchase of Triton, the leader in digital audio audience measurement and infrastructure services for $150 million. Few weeks after that, we announced the acquisition of 15 high-ranking local television stations from Cordillera Communications for $521 million. These acquisitions are separate by complementary building blocks and our strategy is to create long-term shareholder value, while high-growth -- with high-growth businesses, while remaining focused on improving our short-term broadcast portfolio performance. On the acquisition front, it's been a busy few weeks and we certainly believe we're not done yet. At the same time, we've been adding assets to our portfolio. We have closed on three of our four planned radio divestiture. The remaining sale is the smallest with Lotus Communications for about $8 million. The final transaction is expected to close in mid-December. As a reminder, the total proceeds are $83.5 million, all of which is being collected in the fourth quarter. Turning to our financial results, we concluded the 2018 political season on Tuesday with a $140 million in political advertising revenue. That was by far, a record level for a mid-term election and 86% above 2014. Brian will give you more color on the Scripps' political results in a moment. And now I'll discuss our third quarter 2018…

Thanks, Lisa. Good morning, everybody. In just a few months, we'll be looking at a Scripps' television station portfolio that's very different than the one we own today. Looking back only five years, Scripps owned 13 TV stations. When we closed on our recent acquisitions, bought 51 stations in 36 markets stretching across the country, we're acquiring 15 television stations from Cordillera Communications and two Raycom stations. The addition of these stations is consistent with our long-term plan to emerge from this period of repositioning with a stronger and more durable station portfolio. We will own the Number 1 rank station in a third of our markets. We will increase the number of markets where we operate two stations and we will diversify our network affiliations. The new Scripps portfolio will consist of 18 ABC stations, 11 NBC stations, seven CBS stations and our two existing FOX stations, as well as nine CW affiliations. And for the first time, we'll operate in the states of Kentucky, Louisiana, Montana and Texas with very strong local brands. And Texas will own a station Corpus Christi and the ABC affiliate in Waco giving us a nice start on a footprint in this politically important state. In Colorado, we will pick up the Number 1 station in the fast-growing community of Colorado Springs, not far from our ABC affiliate in Denver. We'll be deeper in California and also Florida with the addition of the ABC station in Tallahassee. With Tallahassee, we will reach 50% of all the households in Florida, further bolstering our already strong political footprint. And speaking of political, the Cordillera stations brought in more than $45 million of political ad revenue this year. The new stations will be an important addition to our political advertising performance benefiting from the guidance of…

Thanks, Brian. Good morning, everyone. As we expand our local television station portfolio and improve our operating margins, we are simultaneously growing revenue significantly and diversifying the Company through the National Media division. As a reminder, this division is focused on operating businesses that scale, while capitalizing on growth in emerging marketplaces. These growth businesses will drive near-term and long-term value for the Company. Our newest acquisition, Triton, fits perfectly into that strategy, along with our other national businesses Katz, Stitcher and Newsy. Triton is the leader in digital audio audience measurement and infrastructure services. It is capitalizing on the -- changing the way media consumers listen to music and spoken-word programming. In United States alone, 64% of Americans are listening to digital audio monthly. To be clear, Triton is not still advertising itself, rather it has recurring revenue streams tied to long-term contracts from audio publishers. Triton charges fees for its infrastructure and measurement services to many of the major audio publishers, including iHeart, NPR, Spotify and Pandora. The Triton business will contribute significantly to the profitability of our National Media segment and brings very good operating margins, which we plan to maintain. We expect to close on the acquisition of Triton before the end of this year. Turning to our third quarter financial results. In addition to the strong revenue growth at Katz, we sell 90% year-over-year growth at Stitcher and more than a 115% growth in Newsy. These businesses have continued to exceed our expectations throughout the year and their strong performance has contributed to the division's overall revenue growth and increased profitability. At Stitcher, we underwent a rebranding of the business during the third quarter. In case you missed the press release, the name Stitcher is now the umbrella brand for the entirety of our podcast…

Thanks, Laura, good morning everybody. A year ago, we told you we recognized the work needed to be done here at Scripps and it needed to be done with urgency. We laid out a plan to create a stronger and higher performing company by improving our short-term operating performance and local media margin profile, while also refocusing for long-term growth. And since then, well, it's been -- we've been pretty busy doing just that. To set the table for the changes, we reorganized the Company to be more effective and more efficient, which included some necessary Companywide cost cutting. As you just heard, we annuitize the portion of our pension plan and earlier this year, we refinanced our existing term loan B at better rates. Following an intensive review of the fit and purpose of all of our assets, we moved to exit the radio business and committed to adding more depth and scale to our local television business. And we subsequently announced acquisitions that will expand our local media portfolio to 51 television stations covering 36 markets. I'll say it until I'm blue in the face. We are as committed to improving our near-term performance as we are to our long-term value creation, and so we've continued our investments in our fast-growing national segment, while expanding into new markets, first, with the addition of the Katz Networks and most recently through the announced acquisition of Triton. We expect our National segment to generate more than $500 million of revenue by 2021 with continued margin expansion. All of these moves are now paying dividends. And speaking of dividends, earlier this year, we initiated that regular quarterly dividend and executed an accelerated share repurchase program to bring greater consistency to our return of capital policies. Even as we're realizing tangible results, I expect there is more work to be done on our path to be a stronger, more relevant and better-performing journalism and media company. If there's one thing to take away from all of this, my hope is you'll see that we do what we say we're going to do. And now, operator, we're ready for questions.

Thank you. [Operator Instructions] First question is from the line of Craig Huber, Huber Research. Please go ahead.

Yes, good morning. I missed a few minutes of the earlier part of the call, but can you just update us, Brian, on your thoughts on auto. I know it's tough with the crowding out here, I guess, particularly it would be curious to hear. I think it's trending after the election here and also how your TV advertising pay themes are doing after the election as well?

Hey, good morning, Craig. It's Brian. Third quarter obviously, reporting $40 million of political advertising and then talking about our fourth quarter performance over $80 million, obviously, it had a major impact on all of our categories. So it's really hard to do any kind of apples-to-apples analysis. Third quarter was kind of consistent with what we've seen in the past, so I guess, considering all the crowding out, maybe that's not so bad. And then for fourth quarter, still a lot of points to write, but what we see is good quarter building. So obviously, October was heavily influenced by political, so auto was down a good bit there. But it's down less in November and down less than that in December. So we see the quarter building. And I think that's really consistent with the overall TV pacing for fourth quarter. Again $80 million in five weeks of political means, we had really significant displacement, but of course, we seize the opportunity to maximize that. But we were ready for mid-day Tuesday as soon as those last political ads ended to get right back on pace with our regular advertisers, and we see that building. So again, it's early in the quarter, we still have a lot of business to write, especially as we work with auto and other categories, as we work toward year-end deals and so forth. But I see a quarter that's building, and hopefully, come December, we will look to be healthy.

Do you think on the overall advertising, Brian, like as you look at the TV advertising bookings for December, is it flat, up, down versus a year ago?

I think it's kind of in line with where it was a year ago. Craig, I think they're coming off of election two years ago, and then relatively soft fourth quarter last year. So again, it's probably a little bit behind just because of the political, but I think the trends are telling us that we should be able to be in line or even surpass that.

And then also Brian, while we'll have you here, what're your updated thoughts on the timing of the FCC potentially change the ownership cap and deal with this 50% UHF discount?

Yes, I think that's a good question. I wish I knew the answer. My understanding was that prior to the court ruling, that didn't change the UHF discount that the FCC was getting ready to rule on increasing the national cap at that point. Once that ruling happened, I think that changed a little bit, and it gave the FCC some time to go back and take a look. I'm not sure that it happens this year, I'm not sure that there is rush, I do think it's important to the FCC that they do rule on this and my belief is they are going to, probably settle in somewhere 60%, 70% something like that. I think they're looking hard at it, but I don't -- I don't really know on the timing. Every month like you, I wait to see what the FCC docket on their meeting agenda is going to be to see if it's out there.

Okay. And then also, you guys have obviously picked up the cost -- take the cost cutting at your Company here, do you think is a lot more to go here? I mean, the prior management -- I mean it wasn't much of a focus maybe for you guys for doing right now and stuff. I mean do you feel there's a lot more to go here on the stuff that you can't control?

Craig, and I obviously I can speak to the Local Media part. We went through a very aggressive period these last two years taking out $20 million of costs out of our operation. That included a lot of helping people, standardization of rule, centralization of other functions. So we have surpassed our expectations on that, which I'm certainly pleased with and I think that's allowing for improved efficiency and effectiveness as it drops to the margins. Obviously, we're about to bring in Waco in Tallahassee and other stations and I think all of them will benefit from our more streamlined operation. But I think you see a management team here that are committed to making sure that our resources are put to generating revenue and creating excellent content, and so we'll look at all other costs that don't support that.

I think my final question is, just updates us on the percent of the re-trans subs up for renewal in 2018, 2019, 2020.

Yes, so we're about done. We've got a couple of subs left this year, but I think you've seen most of that step up, but if I were just to guide you guys out now for the next three years. Craig, 2019, we should have great step-ups on about 42% of our subs. In 2020, we're just -- over 50% of our subs will be up for rate step-ups and then mid-single digits in '21.

And just a reminder that the 2019 step-ups include the Comcast subs, which really hit in 2020.

Yes, maybe half of the '19s are in the middle of the year and the other half are at the end of the year.

Roughly 42%, just over 50% in mid-single digits I think you said.

That's correct. Yes.

And the next question is from the line of Marci Ryvicker, Wolfe Research. Please go ahead.

Can -- you have so many moving pieces, can we focus a minute on 2019 in the National segment, and maybe talk about your initiatives going in and the spend with and without Triton, and then also maybe how we should be thinking about margins in that segment next year, both with and without Triton?

Marci, it's Adam. We haven't provided guidance. I know what we've said in the past is that we continue to -- we continue to pursue margin expansion organically and now you layer on top of that the Triton acquisition. The other thing I would add is we recently shared. I think during the Triton acquisition, that we expect the station, the collection of businesses in the National segment, including Triton, organically to be able to generate north of $500 million by 2021. And we expect that to be consistent with our strategies for margin expansion.

And then, Adam, I think on the last conference call, not earnings, but you had a couple since then, you said not to count you out in additional transactions. So the question, I've gotten, post that comment is, are you willing to then use equity if something opportunistic were to come along?

Yes. So I think what we've said is then, certainly don't count us out. We think that we have the ability to continue to flex our balance sheet a little bit more, as well as using a variety of tools. Certainly equity would be one of those that we might be willing to employ.

Okay and then my last question, outside of anything opportunistic, you are levered at 4.8 times. How do you think about the balance sheet especially going into 2019?

Marci, it's Lisa. We feel good about where we are. You know we expect to close Triton or Cordillera in early 2019, and we look on a blended basis and see a path to de-lever, we have the Comcast step-ups coming in 2020. And so, we really did -- and political in 2020, so we see a clear path to de-lever from really what would be some of that -- the high number in early 2019.

Our next question is from the line of Kyle Evans from Stephens. Please go ahead.

Thank you for taking my questions. Maybe we could start with that $500 million organic revenue gauntlet that you just threw down for 2021, any reason to think that you couldn't get the margins on the National business in line with where Local is today over that time period?

Look, I mean, obviously, we are pursuing margin expansion, as I think I said on an earlier call. For us right now, a couple of those businesses are in a high-growth mode that requires the support of that growth through continued investment. Obviously, the goal, there is to continue to see revenue growth outpace, outpace any expense growth that happens and that's what we're doing on a quarter-by-quarter basis and an annual basis. Where we can get to from a margin perspective, I think it merits a deeper investigation. Obviously, we expect to run a segment that contributes handsomely eventually to the bottom line. What we're doing right now in these earlier stages is really fostering the fast revenue growth.

On Katz, the 23% growth rate, the release details audience ad rates and expansion of distribution as drivers. Could you kind of tease out the 23% growth rate and kind of talk about the independent contribution of those three variables?

Kyle, it's Brian, it's kind of all of them working together. So in terms of distribution, each one of the networks is now over 90% of U.S. households. Laff is the highest at 93%, Escape 92% and then Grit and Bounce are both at 90%. They have grown 3% to 5% a year. So there's some opportunity to lift there. In addition to that, there is some opportunity for some duplicative distribution on cable and satellite and things like that, which would just give it further visibility. Ratings continue to have a nice lift. So and we double-digit ratings, I think the biggest would be Laff. Laff is -- here is a strong statement, Laff is the fastest growing network on television, its ratings were up 15% this year compared to last year. Adults 25 to 54, 18 to 49 -- adults 18 to 34, we've got a real hit on our hands with that. And then just in terms of revenue growth, you see significant growth that obviously rolls up to the portfolio being up 23% but all of the network is performing very well. We just came off at the up fronts where we finished the broadcast upfront. We had double-digit growth over prior year. We're in the calendar up fronts now. And we continue to really grow the quality of programming. We have -- Laff launched Home Improvement in the last quarter. It's the most-watched program on the network. Bounce, next week launches Scandal, which we had acquired from Disney ABC distribution. So we're in the SVOD space with Brown Sugar and that launched on all the Comcast X1 boxes in September. There's a lot of really good things happening, but there's not one thing that's driving that growth, it's kind of everything working together and it's really a fine-tuned engine that they've built there.

I know it's early innings, but the longer-term goal of transitioning direct response to ads to more general market, how has that progressed since you acquired the business?

Again, that is -- that's part of the equation and continues to successfully move every one of the networks in the upfront, continue to gain a larger share of that ad high from traditional blue-chip advertisers, as we've talked about in the past, Bounce has got a four-year runway on any other of the networks, and so that one's out there way ahead. But Laff, Grit and Escape -- and really Grit is more built as a DR model network, but Laff and Escape are ones that will benefit from general market advertising. Laff has -- I talked about the energy around the distribution around the audience, the revenue, Laff really has a lot of momentum behind it. So that's driving a lot of that as well.

And is 100% distribution the goal or are you -- you've just kind of reached markets that are too small to matter?

Yes, look, I don't think you ever get to a 100% distribution. There's -- but I think you know mid '90s, again, our revenue upside and significant double-digit increases don't stop with if we hit -- if we kind of plateau at 95% or 97%, because of exactly what you just said, increased ratings, increased revenue moving to general market advertising. There are so many things that drive revenue, but we've been able to get to where we're at, because of the fact that we are deployed over 90% of the country now, so.

If you -- if that continues, and let's just call it 20% plus growth rates over the next three years to five years, what the -- where are you taking dollars from in your mind?

Well, we're in a competitive marketplace against network cable, against national TV, against national syndication, so all of these dollars are coming from the National Media space, none of them are coming out of Local, and so it's a very different advertising bucket for us where we're tapping into new dollars that we don't realize anywhere else within the Local segment. But that's who we're competing against the national networks, national cable, syndication all those buckets of money.

[Operator Instructions] We have no further questions at this time.

Thank you very much, Kevin. You can provide the call back info.