E.W. SCRIPPS Co Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Political advertising revenue is record - breaking. Full - year total Local Media political ad revenue is expected to be over $340 million, almost 30% above the 2020 presidential year. The record level of political ad spending drove record third - quarter company revenue, and combined with tight expense management, significantly exceeded third - quarter company EBITDA expectations. The leverage ratio has been reduced from 6x at the end of Q2 to 5.1x at the end of Q3, and is expected to continue to deleveraging to the high 4x range by year - end. The process of divesting the Bounce network is moving forward, although a deal was not reached this time and is expected to be completed in 2025. There are letters of intent for about $60 million in real estate transactions. $115 million of debt was paid down in the third quarter, and nearly $300 million is expected to be applied to debt paydown by the end of this year. Scripps News will continue to produce high - quality journalism for its connected TV audience with a lower cost structure. In sports, the Scripps network sales team performed well in upfront negotiations, and live sports programming, such as WNBA games, drove revenue growth, with connected TV upfront revenue up 164% year - over - year.

Segment Performance

• Local Media division: Third - quarter revenue was up 26% year - over - year, driven by a record $125 million in third - quarter political advertising revenue. Local distribution revenue was down 6% year - over - year with mid - single - digit subscriber base decline. Local core advertising revenue was down about 9% year - over - year. Local Media expenses were up only 2% year - over - year. Local Media segment profit was $161 million, more than double the year - ago period. For the fourth quarter, Local Media division revenue is expected to be up in the low to mid - 30% range, local core ad revenue is expected to be down in the low - double - digit percent range, and Local Media expenses are expected to be up in the mid - single - digit percent range.
• Scripps Networks division: Third - quarter revenue was $202 million, down 6% year - over - year. Connected TV revenue was flat after backing out the programmatic advertising product shut down. Third - quarter Scripps Networks division expenses decreased by nearly 4% mainly because of lower programming costs. Network segment profit was $42 million. For the fourth quarter, Scripps Networks division revenue is expected to be down in the mid - single - digit percent range, and Networks expenses are expected to be down in the high - single - digit percent range in Q4. It is expected that Scripps Networks margins will have a meaningful 400 to 600 basis point improvement in 2025.
• Other segment: In the third quarter, a loss of $7.7 million was reported. Shared services and corporate expenses for Q3 were $21 million. For the fourth quarter, expenses are expected to be about $25 million.

Guidance

• Local Media division: Fourth - quarter revenue is expected to be up in the low to mid - 30% range, local core ad revenue is expected to be down in the low - double - digit percent range, and local Media expenses are expected to be up in the mid - single - digit percent range.
• Scripps Networks division: Fourth - quarter revenue is expected to be down in the mid - single - digit percent range, and Networks expenses are expected to be down in the high - single - digit percent range in Q4. It is expected that Scripps Networks margins will have a 400 to 600 basis point improvement in 2025. The leverage ratio is expected to continue to deleveraging to the high 4x range by year - end, and nearly $300 million is expected to be applied to debt paydown by the end of this year.

Risks

• The process of divesting the Bounce network may be affected by potential buyers' pricing, leading to a delay in the transaction. Real estate transactions are subject to uncertainty. The advertising market is affected by macro - economic environment, such as national advertisers' investment during elections. The instability of RSNs may affect sports - related business development.

Question and Answer

Q: About Bounce, it sounds like it was close but didn't get over the goal line. What are the next steps? Any more color about the level of engagement around Bounce?

A: The process of divesting Bounce is moving forward well. Although a deal was not reached this time due to the actions of one of the bidders, interest in Bounce remains strong and it is expected to be sold in 2025 with proceeds used to drive down debt and leverage ratio.

Q: As you look to local core in 2025, can you help us just with what some of the puts and takes are for the type of growth we could see there?

A: In Q4, we are seeing sequential improvement over Q3 because of the end of displacement, but it's too early to guide to 2025. We are expecting to end the quarter strong coming out of the political season.

Q: If we do see a more deregulatory FCC in the future, what's your appetite to be a seller of certain stations in order to additionally provide some deleveraging to E.W. Scripps?

A: Regardless of the election outcome, we would absolutely transact on other non - strategic brands, on local stations, on real estate assets, in pursuit of making our business better performing and more economically durable. We could take advantage of further consolidation opportunities in the broadcast industry if it occurs.

Q: What did those markets (Arizona, Michigan, Montana, Ohio, Nevada, and Wisconsin) account for in terms of the percent of political, total political?

A: Those states' markets constitute close to 1/3 of our total markets in terms of total core revenue in that quarter.

Q: Can you go through again all these costs that you're taking out of Scripps Networks? I'm curious, can you give us a rough sense of what percentage of the costs are coming out from just the news part in particular?

A: Starting from 2025, the scaled - back Scripps News operation is expected to generate annualized net savings of about $35 million, but the 400 to 600 basis point improvement in margins includes savings from other aspects as well.

Q: When you talk about 400 to 600 basis point improvement next year, is that assuming what, flat revenues next year? What are you assuming there?

A: We are not providing revenue guidance for 2025 at this time. A large chunk of the improvement is from the cost side, and we have already seen Network segment expenses decrease in Q4.

Q: How are you feeling about the U.S. economy right now from all the different markets you're in, your national exposure for advertising?

A: The economic situation is about the same as it was 6 months ago. There is some cyclicality, with national advertisers starting to come back, and the economy generally trending in a positive direction.

Q: How are those core advertising pacings tracking year - over - year post the election?

A: We are seeing sequential improvement in Q4 over Q3, but due to political displacement, it's unlikely to have year - over - year growth, but there will be sequential improvement as we get back to business.