Thank you for standing by. Welcome to the Scripps Fourth Quarter 2023 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Executive Vice President of Investor Relations, Carolyn Micheli. Please go ahead.

Thanks, Rich. 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 first this morning from Scripps' Chief Financial Officer, Jason Combs; then from Scripps' Chief Operating Officer, Lisa Knutson; and finally, from President and CEO, Adam Symson. Here's Jason.

Thanks, Carolyn. Good morning, everyone, and thank you for joining us. Let's start today with a look at our strong finish to 2023. I want to review a few fourth quarter and year-end highlights. Then I'll give guidance for the first quarter and several full year items, and I'll conclude with capital allocation and our debt picture. We were very pleased to end 2023 by significantly exceeding our free cash flow expectations. On our last earnings call in November, we set a range of $50 million to $60 million in full year free cash flow, and we ended at about $77 million. The over performance was driven by our highest political advertising revenue for an off-cycle election year as well as stronger-than-expected ad revenue results in Scripps Networks. Also in 2023, we achieved $752 million in distribution revenue as we renewed 75% of our pay-TV households. That was up 15% over 2022, and those results drove net distribution dollars up more than 40%. We are pleased we were able to successfully avoid any blackouts with the cable and satellite providers throughout all of those negotiations. For the fourth quarter of 2023, we reported finance results that nearly all met or exceeded the expectations we set in November. We executed tight expense management, and our Scripps Networks revenue came in better than expected at down only 7%, driving Networks segment profit performance. Scripps Networks revenue for the fourth quarter was $230 million, exceeding our guidance because of better-than-expected revenue from all three key areas: general market, connected TV and direct response. Scripps Networks Q4 segment expenses were $166 million, down 1.2% from the prior year quarter. Segment profit in Networks was $64 million. In our Local Media division, total revenue was down 12% from the prior year quarter due to the…

Thanks, Jason, and good morning, everyone. I'm pleased to start by sharing that the advertising momentum we saw begin to build in the fourth quarter has continued as we move through the first quarter. That's true across both our operating segments from Local Media core advertising to several of our national network revenue streams. This morning, I will give you color on our local core advertising categories for Q4 and Q1 and then discuss the trends we are seeing in the in national advertising with Scripps Networks. Then I'd like to look ahead to this season's upfront, which will be upon us very quickly, and we'll wrap up with our political outlook. In Local Media for fourth quarter, we saw our top five categories end up higher year-over-year. The top performer was automotive, up 9%; followed by home improvement, up 8%; and the media and communications category, up 6%. Also notable with services, our largest category, which was up 3%. That is the first quarter services has finished up year-over-year in five quarters. Moving into the first quarter. The services category is up quarter-to-date as our automotive, home improvement and retail. We see continued momentum as we move through this quarter and are optimistic about a solid finish. Turning to Scripps Networks. The fourth quarter saw us begin to build back of some of the direct response advertising dollars that had declined as inflation spiked in recent quarters, and easing of inflation has brought back DR advertisers who are reliant on tapping consumers' discretionary income. Demand is up, and therefore, so our ad rates. As you know, the entire national advertising marketplace was challenged by last year's weak upfront, which was down 10%. For Scripps, the upfront typically lays in a nice foundation, 30% or so of first quarter dollars.…

Thanks, Lisa, and good morning, everyone. It's been a tumultuous several months in the U.S. media landscape. Last September, after a 10-day impasse, during which you would have thought we were witnessing the end of pay TV, Disney and Charter announced the landmark distribution agreement that reinforced the power of the cable bundle. Then just a few weeks ago, Disney, Fox and Warner Bros. Discovery announced the sports streaming partnership. And again, from the market's reaction, you would have thought it was literally the end of television. I completely understand why even the most seasoned media investors are struggling to sort through the chaos. I've been a part of this business for a while. And while it feels -- and it feels like the market is always ready to believe the worst about broadcast. As a journalist myself, leading a company with a journalism mission, I prefer to deal in facts and steer clear of rumor, innuendo and speculation. So I thought I'd start this morning with what we actually know about these changes to the marketplace and how they impact Scripps. To start, the yet-to-be-named sports-focused streaming joint venture will be yet another virtual MVPD in an already crowded and somewhat established marketplace. It will also be competing with and likely cannibalizing other streaming products from the very same companies that make up the partnership. At somewhere between $40 and $50 a month, it will be less expensive than most of its virtual MVPD competitors. And it will also be much less of a complete consumer proposition than the existing pay-TV bundles. If this is all about attracting the sports fanatic, it's hard to say it's a slam dunk. March Madness will be incomplete. The Olympics will be missing outright, and subscribers will get only half of the NFL,…

[Operator Instructions] We'll begin with the line of Dan Kurnos with the Benchmark Company. Please go ahead.

Thanks, good morning. Adam, maybe just to start with sports. Could you just give us your thoughts on the impact of maybe Diamond being allowed to survive, I guess, for another 18 months, given the cash inflow over there and what that might mean for your ability to go after incremental local sports rights? And then, look, obviously, you've been out there a lot on the JV, and I think most people believe that it's going to be deminimis to the marketplace, if it even gets off the ground. But there's obviously been a lot of commentary about sports just moving to streaming over time. And I know that broadcast is included in all of these packages, but just kind of your thoughts on being able to sustain negotiating power and leverage within the sports industry as more and more sports shift to streaming.

Yes, good morning Dan, thanks for the questions. On the Amazon investment into the RSN, I guess, near term, it means the teams are committed to the RSN contracts until either the RSN breaches those deals or in the event Diamond seeks some sort of discount that the teams decide to reject, which will then open up the opportunity for teams to move in a different direction. Longer term, nothing about this investment changes the reality that the RSNs can't deliver the reach that team owners need given the erosion we're seeing in pay TV. And that's why they continue to turn to broadcasters. So all of this to say, the RSN model is still in critical condition. I think you described it as sort of still thriving. This investment wasn't, in any way, a cure for what ails the RSN model, and I continue to expect that rights will move in the direction of local broadcast. And I continue to expect that Scripps will benefit from those moves. Relative to the joint venture, I don't know if there's more to say than what I already said in my prepared remarks, I guess I would say, I think, there is no math that supports the idea that local rights can move to streaming or move to a D2C product and support a team's need to field a good team and to win. We've modeled it every other way. And while streaming will continue to be an important part on the local end for incremental reach, these teams need broadcast reach, and that's the direction they're all moving in. So my enthusiasm for the opportunity for Scripps Sports has not dampened at all. On the national side, I will tell you, speaking to the leagues, the owners, I think it's safe to say that reach continues to be the primary component for all of these team deals. During the Super Bowl week, you heard Roger Good ell say that he expects at least 90% of all games for the NFL to be broadcast on broadcast television, again, demonstrating the important power of reach. I don't think any of these leagues want to impair their assets over the long term by completely going behind a paywall and being inaccessible to most Americans, especially as we continue to see that streaming landscape get more fragmented, not consolidated. So we believe there will be a continued opportunity for broadcast networks, new opportunity for networks like ION, and of course, we think the continued opportunity for our affiliates that are partnered with the big four networks.

Got it. For the record, Adam, I said survive, not thrive for the RSN. I think it's [Indiscernible] too, but that's a different story. Can you just -- or at least just quickly give us a thought on the shape of national for the year just given sort of a mix between general market and DR still kind of lagging a bit?

Yes. Part of my prepared comments, I talked about the fact that, obviously, across the marketplace, we had a lowered upfront. And so therefore, we're really being aggressive in making up that ground in the scatter marketplace but also in DR. I am seeing -- certainly, we saw it in fourth quarter, and we're seeing it again in first quarter, where CPMs in fourth quarter were up 4% over 2022, Q4. And this year, we're seeing CPMs continue to be up versus our upfront pricing. In January alone, they were up 35%. So I'm seeing good momentum, certainly in the general market space and the scatter marketplace, I think, the other really interesting story for Scripps. And I think in Adam's remarks, we're really, really well positioned to capture CTV revenue both from an upfront perspective as we go to market, but also continuing to drive organic growth, but also some of the new launches that I mentioned in my remarks.

Got it. Super helpful. Thank you both. Appreciate it.

Thanks Dan.

We'll now go to the line of Steven Cahall with Wells Fargo. Please go ahead.

Thanks. So three for me. So maybe first, Adam, I appreciate your comment about facts on the sports streaming JV rather than speculation. So I was wondering if you could just tell us what discussions you've had, especially with ABC and Fox as well and whether those discussions have confirmed that this will be classified as a vMVPD in the minds of those counterparties. I think that would be really constructive to the market. And then Lisa, just on national ads, maybe picking up on the last question. So a big sequential improvement in the Q1 guide. Does that turn positive by Q2? It sounds like there's a lot of potential for it to do so, especially with where scatter is. And then finally, just on the political guide. How do we think about how much of that versus your 2020 political is due to just a difference in races? I think there you just have fewer congressional races. And then how much of that is attributable to the comment you made about Trump's pack putting more towards legal and less towards ads? Thank you.

Well, Steve, I think I've said over and over, I've had direct conversations with executives at the top of Disney and with Fox, and they describe this as it is, the virtual MVPDs, and they describe the arrangement will be consistent with the arrangement affiliates have with other virtual MVPDs. That will be carried along because clearly, our broadcast networks or their broadcast networks are core to the offering, given how much of the NFL -- or really, the only NFL offering will come through the broadcast stations and that we will be compensated in exactly the same mechanism that we're compensated for other virtual MVPDs. So I don't know if we can make it any clearer. If, in fact, these -- and this is literally what was said to me on the day of the announcement. If these executives, as they say, are true to their word and will aggressively pursue cord cutters in order to bring them back to linear television, this stands to benefit Scripps in incremental distribution and incremental fees. Is that -- I mean, is that helpful?

It is, yes.

Okay. I mean this comes directly from ABC and Fox. And this is consistent with what all of the affiliates have been saying. This is just another virtual MVPD, and we will be compensated for the carriage of our affiliates through this virtual MVPD.

So Steven, we are seeing positive momentum that started, I think, in -- certainly in our performance in fourth quarter, and moving into first quarter with our guide, we are optimistic as we continue to see the strength in scatter and in DR rates. Both rates are up year-over-year and year-to-date and first quarter compared to 2023. So we're really aggressively pursuing that -- I think we mentioned in our guide coming in potentially flat to last year, which I think is just probably certainly best in peer performance, and we expect that momentum to continue throughout the year. As for political, there are differences, and I mentioned some of those differences in my prepared remarks. After redistricting, there were certainly less competitive house races than we saw in 2020. Some of the presidential toss-up states have changed. Florida was always squarely a swing state, and with sort of migration into Florida over the last several years, that has changed. And so we're seeing some of those changes affect and give a little bit of less visibility into where the money will actually be spent given the top races this year. I think I mentioned the competitive races for the Senate, which is really where we're very, very strong this year. And we expect and are already seeing really great spending in Montana early this year and also in the back half of the year already laying in a good foundation for the year.

Thank you.

We'll now go to the line of Craig Huber with Huber Research Partners. Please go ahead.

Yes, hi, thank you. My first question, if I could, let's focus on cost, if we could, please. Maybe Jason or somebody. How are you feeling about your cost base this year? I mean you've obviously talked to this $40 million plus cost savings plan that should be, I guess, fully in the numbers by the middle of the year. Are you expecting that you're going to have to step up further on the cost-cutting front? Are you guys -- or are you guys pretty comfortable where your costs are at right now as you kind of think about where your ad revenue trends are, etcetera?

I think that from a cost perspective, we have been aggressive with the restructure. We will have more than $40 million in sort of run rate annualized savings by the middle of this year. And I think the focal area will be just continuing to manage things as efficiently as possible. We have things this year when you talk about political, when you talk about some of the green shoots that Lisa is talking about in terms of the national ad marketplace that should be great benefits to the bottom line in addition to our tight expense management. But I think you'll see us continue to manage things really tightly throughout the rest of the year.

And Jason, a housekeeping question, please. Your retrans subs, what was the decline year-over-year that goes into your retrans revenue number that you had in the fourth quarter, please?

We were down mid-single digits, which is consistent with where we've been for a while. It actually was a slight improvement versus the prior quarter but still in that mid-single digits net percent range.

Okay. Good. And then your other revenue line in the EBITDA there, can you maybe, Jason, help us how should we think about that line EBITDA and revenue for the full year? Have you -- what are you budgeting there, please?

Yes. And so that other roll-up includes a bunch of different things, including Tablo, which Adam talked about, where we're continuing to invest as we launched that. So we guided to a loss of about $7 million in the first quarter. I would say, in general, that will likely be somewhere between $7 million to $10 million each quarter this year, revenue growing as the year moves forward.

Okay, very good. That’s all I have for right now. Thank you.

[Operator Instructions] We'll now go to the line of Jeff Peskind with Phoenix. Please go ahead.

Yes, thank you for your time here. Just one quick question. It sounds like you're going to defer the Berkshire preferred payout. What's the plans for reducing the bank debt and pushing those out? And is there a plan for also going out past 2027?

Yes. So the decision to defer the Berkshire dividend, that's a decision that we make sort of on a quarterly basis. We did elect this quarter to defer that payment to really allow us to focus on maximizing the paydown of our traditional bank debt. And it really gives us more perspective, more flexibility in terms of debt paydown and refinancing our upcoming maturities. We also are very focused on the fact that we do have a maturity coming up in 2026 that we're keeping a very close eye on the debt markets right now, which have improved over the last couple of months to determine at what point in time we want to go ahead and take action and look to refinance that debt, which the goal would be to have that refinanced at least 18 months in advance of maturity.

Great. Thank you.

Thanks, Jeff.

We'll go to the line of Michael Kupinski with NOBLE Capital Markets. Please go ahead.

Thank you. Thanks for taking my question. Just a quick one. It seems like the Network business, the OTA business is getting more competition. A couple of your peers have indicated that they're crossing certain hurdles in terms of distribution across the country. And I know that you're seeing some improving trends there. But I was just wondering if you can kind of give us a taste of what advertisers are seeing in terms of maybe shifting some dollars to some of the competition that's out there and whether or not you're hearing anything like that and if you could just kind of give us a state of just the business in general for the OTA market.

Yes. Mike, it's Lisa. We're not seeing really any competition from, I think, the expanding OTA multicast networks. In fact, we're seeing strength in our DR ad rates. We're also seeing strength in demand for DR advertising. Typically, when those other networks are launching OTA, they're primarily DR advertising, and it's very sort of bottom-of-the-barrel advertising. And we really -- our networks are premium programming, and we're competing in both really the hybrid DR and the premium DR ad rates. So we're not seeing any -- or worried about any of that competition.

Got you. And in terms -- in general, in terms of core advertising on the local level, I mean, are you seeing much variance between local and national and the core level outside of political, of course?

Yes. I think some of the trends that we're seeing both on the local level, which I included in my prepared remarks, sort of the categories that are up year-over-year, we have different categories, certainly in the national ad marketplace and the local marketplace. But I would say the -- certainly, the momentum is equal across both segments.

Got you. Okay, that’s all I had. Thank you.

Thank you. We will return to the line of Craig Huber with Huber Research Partners. Please go ahead.

Thank you. For auto advertising, I'd be curious to hear your updated thoughts there, both on a national level and local for auto advertising outlook there, please, for the full year.

Yes, I will give you a little bit of fourth quarter and then full year and then some remarks that take us into Q1. So fourth quarter, auto was up, as we said, 9% versus Q4 of 2022. The full year 2023 auto was up 10%, which is really strong. This marks really the sixth consecutive quarter of growth, and we saw -- really, each quarter last year was -- we saw great growth. Q1 of 2024, so far in January, we finished up 3% and pacing to be up -- potentially up to 7% in February. And it's just a little too early to say about March. So we're seeing that momentum continue. Domestic dealer auto groups were up year-over-year last year. Foreign dealer groups were up, but it was really barely up. It was 1%. And we're continuing to see where things are lagging as manufacturers, from a domestic perspective, were down year-over-year last year by 9% and foreign manufacturers were up about 24%. So again, automotive, last year, a great story and continuing really that momentum into 2024.

Then also, Jason, how you calculate it or your banks, your net debt-to-EBITDA ratio at trailing 8-quarter basis, what was that at the end of the year we just finished? And what do you project it to be at the end of this year, please?

Yes. So it was 5.7 at the end of last year. We're focused -- as I said in my prepared remarks, really focused on paying down debt and delevering. We're not giving a year-end leverage target right now because of sort of the wide range of outcomes when you talk about, for example, the political guide we gave, which can really swing that number as well as some uncertainty in the timing of the advertising rebound, which again can really move that number as well. So we're not giving a specific guide. But as I said, we're focused on delevering this year and using the cash flow we're going to get through the political cycle, through growth -- continued growth in connected TV and the benefits of our expense restructuring to pay down the maximum amount of debt possible.

My final question, if I could ask, on the CapEx side, you mentioned a onetime project or two. If you take that out, what would your underlying CapEx be for the year, please? More the maintenance-type level trying to get to.

It would be around $60 million. We're guiding for $70 million to $80 million.

And with that, we have no further questions in queue at this time. Please continue.

Thank you very much, Rich. Thanks to everyone for joining us today. Have a great day.

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