Thank you, everyone, for standing by and welcome to the Scripps Q1 Earnings Conference Call. [Operator Instructions] I will now turn the call over to your host, Head of Investor Relations, Carolyn Micheli. Please go ahead.

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.

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. 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…

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 nonoperating 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 4 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 2 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…

[Operator Instructions] And we'll go to the line of Dan Kurnos, Benchmark.

Adam, I know you said you'll update us this summer. Is there any way to get metrics around Bounce? I mean we know kind of directionally from when you bought it, part of Katz a while ago, but just curious if you can help us think about that and/or the real estate just sizing-wise.

Yes. I mean, look, the inbound interest that we've had has been strong. It was strong before the news of the sale process went public, and it's really only gotten more robust. I have a lot of confidence that we'll identify the right next home for the network, and I expect it to be an excellent return for shareholders. Obviously, a deleveraging event with proceeds used to pay down debt and a very good outcome for the company. Relative to metrics, I think there have been some press reports out there that we would expect proceeds to be in the hundreds and hundreds of millions of dollars. Relative to the asset sales, I would think those are a lot less material than the sale of Bounce. We've also said in the past that we're sort of always in the process of optimizing our portfolio and would certainly be open to looking at other assets as well.

Perfect. And then just maybe to touch on your expense comments. It sounds like you have identified line of sight on more costs. I guess either for you or Jason, probably early to size those. But just kind of curious how you're thinking about how much leverage you still have on the bottom line on the cost side.

Yes. So it probably is early to size those. But what I would say is we think we have the ability to move through the rest of this year to manage things really tightly, whether that is pushing out discretionary spend or identifying continued process efficiencies that drive savings for us. And so I'm optimistic those are things that beyond revenue growth, items we talked about in the script, beyond the asset sale. I think expense management is another lever that we are going to pull that's going to drive deleveraging by the end of this year.

Great. On core, can you just talk through -- I mean you said services, I think you said up double digits in April. We continue to hear that 2Q is better than 1Q, and there are some suggestions that core could actually be pretty strong in the back half of the year. I know you guys have a different footprint, and so you might be more exposed to crowd out. But just how should we think about your expectations around core both in 2Q and the back half of the year?

Dan, it's Lisa Knutson. Sorry, I'll take that question. So we are definitely seeing some improvement in categories. As we've said, automotive was up in Q1. It's -- in 2023, I think it was up 10% for the full year. In terms of other categories, services in April was down slightly. But certainly in first quarter, we continued to see improvement there as well as home improvement which, again, was up in Q1 and we're seeing it up in April. I think crowd out, we anticipate crowd out in Q3 and Q4 because of political advertising. So -- and remember, those are high-margin dollars, and we'll take those. Certainly, we work with advertisers to make sure that they're -- that we're finding alternatives for them in terms of the crowd out. But definitely with political numbers that we just guided to, we expect to see that probably starting in Q3 and definitely in the first part of Q4.

Dan, it's Adam. I think the general theme you're seeing is that as part of core, local is hanging in there pretty nicely, doing well. And there's still some softness in core associated with national. And for us, it's been really the comps around sports betting that has driven, I think, that performance on the national side.

And we'll go to the next line, Steven Cahall of Wells Fargo.

Lisa, I'm having a little trouble understanding the Networks revenue guide for Q2. Adam, I think you said that direct response and scatter are pacing up quarter-to-quarter -- or sorry, year-on-year in the second quarter. And then the guidance is for Networks revenue down mid-single digits. So I just want to understand what I might be missing there. And then Jason, your first sentence mentioned tight cost controls. I think some of that is going to come up in the shared services or Other line in your segment profit. But can you just detail what you're doing differently? And maybe any run rate savings that you're looking to achieve through these initiatives? And then finally, I don't think you've got a free cash flow guide out there right now. So just wondering if we think about free cash flow that you think you can use to pay down debt this year, if there's any range or numbers you might be able to guide us to.

So Steven, thanks for the question. Look, we are seeing some nice, I would say, rebound momentum in direct response and in the scatter market. But we also still have to contend with the upfront from last year, which laid in a fair bit of inventory at lower rates. So the good news is scatter rates today are 40% above those rates, and direct response makes up a very big chunk of our inventory, but we still are dealing with the impact. I would expect if the rebound continues on track, that what we would see by the fourth quarter would be indicative of the strength of this year's upfront and, hopefully, consistent with the rebound we're seeing in scatter and direct response.

Yes. I think from an expense standpoint, I mean, I think there are a variety of places we're looking, which you saw we did in Q1 and we're doing in Q2 as well around whether it's employee costs, trying to manage open positions, trying to identify areas of opportunity. But another thing you heard on the call today was I updated our guide for the Other segment, which had previously been a loss of $7 million to $10 million. We tightened that to $7 million to $8 million. That's really tied to a little bit of a slowdown in the rollout of Tablo because we're looking to direct more of -- more discretionary cash towards debt paydown in the short term. And specific to free cash flow guide, we're not giving out any kind of specific number for the year. There are still a lot of variables, including a wide political range we gave and a variety of other factors in there. But what I would say is we believe we have the opportunity through political, through a rebounding advertising marketplace, through things like the asset sales we talked about, to make -- to generate a significant amount of cash this year and direct all of that to debt paydown as we've done in the last couple of years and make a meaningful improvement in leverage by year-end.

Just a little bit more color on Tablo. First quarter, Tablo hit our plan on consumer sales. But this is a new business for us. And the change you're seeing in the Other segment reflects essentially expenses moderating because we're able to lower our average customer acquisition cost and spending.

And we'll go to the next line, Michael Kupinski, NOBLE Capital Markets.

I know in the past, you've been kind of reticent to raise expectations for political. I know you have a person dedicated to political, so -- who might offer you some insights there. And you have identified some hot races and ballot issues. But I'm wondering, are you seeing political being booked into the second half already? I'm just wondering how much visibility you actually have into the second half.

Mike, it's Lisa. I think that why we were comfortable with increasing our guide here now is because we're seeing those bookings into third and fourth quarter. And so that gave us the confidence. As Adam mentioned and I think Jason mentioned in the prepared remarks, the Senate races in Montana and Ohio as well as the abortion issue in Florida. Remember in Florida, we cover 85% of the eyeballs, the households in Florida. So that's another reason we were able to increase guide. And then I think there are a number of things in the back midyear that we're keeping an eye on in terms of other issues, certainly abortion issues in other states where we do business that we are anticipating will also be good money in the back half of the year, so to speak. I think the Senate races in terms of -- obviously, I said Ohio and Montana, but there are certainly other states that we expect to see spending starting midyear and into fourth quarter and really ramp up there as well. But we are booking for sure and have great visibility into the back half of the year, including, I think, CTV, which is going to be a real great story for us, which is included in that guide.

Just one other point, just to reiterate, we expect our first half of this year to be better than our first half of 2020, which I think is a pretty significant statement. So we are seeing the bookings for first and second quarter. Obviously, we have the confidence enough to raise the guide based on what we're seeing in the third and fourth quarter. Just one other sort of point I'd make about the ballot referendums, it's sort of conventional wisdom that abortion on the ballot is likely to motivate the electorate in a way that potentially -- and even the Democratic electorate that potentially Biden on the ballot does not. And so there's some notion that abortion has the opportunity to even create a more competitive environment for additional down-ballot races, opening up the opportunity for additional spending on those down-ballot races that might have otherwise been too wide or too far apart. But if abortion motivates the Democratic electorate to come out, there is some view that, that has the potential to obviously impact the broader races on -- and that should change -- we hope will change the spending picture as well. So that's, I think, part of the enthusiasm we're reflecting in our guide change.

That's a good point, Adam. And I hope that you can exceed your expectations or raise it again. Another question I have, typically, advertisers buy across platforms and you may sell some of your weaker networks with some of your stronger ones. And I'm just wondering in terms of the prospect of selling Bounce, do you have a sense of how much of an impact you might have on the sale of Bounce on advertising on your other networks?

Yes. I mean I -- look, I think you're pointing out an important point about our sales strategy. I would say that's one element of it. The other element of it has been an omnichannel approach in which we've been focused on selling across platforms, not just across networks. And then finally, I'd say, ION is by far the biggest driver in general. And ION itself does very well with the multicultural audiences. And the moves we've made with sports have diversified audience -- ION's audience even further. When we've looked at the WNBA from last year, for example, the WNBA audience was significantly more diverse. ION was already a diverse audience, and the WNBA audience opened up additional opportunities for us to sell younger audiences and more multicultural audiences. So I'm not particularly concerned about the bundling effect or losing the bundling effect because it's generally ION that drives that. And we're now looking in the upfront as well as the scatter market to use that to drive also additional direct sales value for CTV.

Our next question will be from the line of Craig Huber, Huber Research Partners. [Operator Instructions]

I'll just take them one at a time, if I could. I think you said scatter was up 40% versus the upfront a year ago. Can you maybe talk about how that 40% number compares to, let's say, the year before or something, where it was tracking at before [ it performed a little ]? And then also, what is scatter versus scatter the pricing? And how is that tracking right now?

Yes. Just to clarify, we were up -- our scatter pricing is up 40% over upfront pricing from last year. It's not that scatter is up 40% over a year ago.

Yes. Understood.

Okay. So what -- can you repeat...

What was that a year ago? What was the scatter at that point versus the prior upfront? Is that trend pretty similar? Or was that a better trend?

I would say it's a slightly better trend than last year in terms of -- because we've seen certainly the upfronts over the last 2 years have been weaker. And so this trend is slightly better than last year.

And then how much is scatter...

And getting better, I would say, because -- on the national side because of sports.

Okay. And then also, if I could ask, what is scatter versus scatter, so like versus like? And how is that trending right now versus a year ago?

Yes. I don't think that's anything we've given out before. So I don't think we're going to be giving out that number. But I would just reiterate what Lisa said, we are seeing a stronger scatter market now than what we've seen the last couple of years.

And look, I mean the scatter market is stronger and the DR market is stronger. As we said, the DR market is up for the first time in 2 years. So I think you sort of put those things together and you recognize that pricing, in general, demand is higher and pricing is better than it was last year.

And maybe to put a finer point on DR, DR was up for the first time in 2 years in Q1 and is pacing up even more in the second quarter.

How about the other 60% on the Scripps Networks? How is that trending here on the brand side of things?

That is all-inclusive.

Yes.

Yes.

So when we're talking about scatter, we're talking about across the networks. And when we're talking about DR, it's across the networks. Like for example, Bounce is 50% DR. Grit is 100% DR. So we're seeing that strength flow through to all of the networks pro rata based on sort of how their inventory is split.

I would say, Craig, the one thing we haven't talked about, so we've talked about the scatter piece, we've talked about DR. In our prepared remarks, we also talked about the upfront, which is really the Other piece. And we -- as you heard in our comments, we were really pleased with the reception so far from the upfront presentations that we did over the last month. That will take a couple of months to kind of play out in terms of what gets booked. But I would say, I think the tie-in with the sports, specifically the NWSL and WNBA, I would say has us pretty optimistic coming out of this.

Yes. And look, there's no question that the Networks business is still contending with last year's upfront. That's -- to Steven's point, that's why we're seeing positive momentum and yet still have commitments from advertisers at last year rates.

Jason, if I could ask you, your outlook for net retrans for this year, is still up about 1% to 2%?

Yes. Both. Yes, gross and net distribution are projected to be up in the low single-digit range, correct. And that's despite the fact that we really only have 5% of our sub base renewing this year.

Okay. Now at this time, we have no further questions in queue.

Great. Thank you so much, Kevin. Thanks to everyone for joining us today. Have a good day.

And thank you. Ladies and gentlemen, that does conclude your conference. You may now disconnect.