The E.W. Scripps Company (SSP) Earnings Call Transcript

Good day, and thank you for standing by. Welcome to the Third Quarter 2026 E.W. Scripps Company Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Carolyn Micheli. Head of Investor Relations. Please go ahead.

Thanks, Didi. 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 replay of this call. A reminder that our conference call and webcast include forward-looking statements based on management's current outlook, and actual results may differ materially. 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 in 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. Reconciliations of these measures are included in our earnings release. We'll hear this morning first from Scripps Chief Financial Officer, Jason Combs, and then President and CEO, Adam Symson. Here's Jason?

Good morning, everyone, and thank you for joining us. We are now 3 days past the midterm election, and I'm pleased to report that we ended the cycle above even our guidance from last week and 44% above our record 2022 midterm political revenue level at $284 million. Cash from this year's political ad revenue will go towards paying down debt. In addition, we continue to make progress on our EBITDA improvement plan. As you know, our company transformation plan includes both expense reductions and revenue growth initiatives. We expect to generate between $125 million and $150 million in benefits to the bottom line. We're on track, as discussed last quarter, to deliver $100 million of that in run rate savings by year-end. We completed workforce reductions this year impacting about 20% of our employees. And just a reminder that while the majority of this impact will show up next year, you'll begin seeing the transformation run rate savings in the fourth quarter as reflected in the guidance I'll give you this morning. Now let's talk about the quarterly results. I will present our third quarter Local Media division results on a same station or adjusted combined basis, removing the third quarter 2025 results of the 2 TV stations we've now sold and reflecting the addition of our Lexington ABC affiliate. During the third quarter, our Local Media division revenue was $373 million, up 19% from the third quarter of 2025. Core advertising revenue decreased 13%, reflecting displacement from our large amount of political advertising revenue. Local Media political advertising revenue was $81 million, a record midterm third quarter for us. Local Media distribution revenue was flat from the prior year period at $178 million. Expenses for the division were down 3% year-over-year, driven by lower network affiliation fees and lower employee costs. Local Media segment profit was $118 million compared to $50 million in the year ago quarter. For the fourth quarter, on an adjusted combined or same-station basis, we expect Local Media division revenue to be up in the low to mid-40% range. We expect core advertising to be down high single digits driven primarily by crowd out from record midterm election revenue. And again, we can now say our full year Local Media political advertising revenue came in Tuesday at $284 million. That is 44% above the 2022 midterm when we took in $198 million. Adam will give more color on this in a moment. We expect fourth quarter local media distribution revenue to be up about 4%, driven by our recent contract renewals. We expect fourth quarter Local Media expenses to be about flat to the 2025 quarter excluding new cost tied to [indiscernible] contracts, Q4 expenses would be down mid- to high single digits. Now let's review the Scripps Networks division third quarter results and fourth quarter guidance. Once again, I'll be presenting the results on an adjusted combined basis, in this case, adjusting for the impact of the core TV sale in February. In the third quarter, Scripps Networks revenue was $173 million, down 11% from the prior year quarter. Our results include the benefit of Nielsen's September 1 ratings methodology changes as well as continued growth in Networks Connected TV revenue, up 37% for the quarter, but we also experienced pressure from low consumer confidence in the economy, especially in the direct response market. The division's third quarter expenses were up 0.9% year-over-year at $140 million. But if you factor out the first year impact of our new WNBA contract, networks expenses would be down year-over-year. For the fourth quarter, we expect to report divisions expenses that are down and will continue to trend down next year as transformation cost savings initiatives take effect. Scripps Networks Q3 segment profit was $33 million. For the fourth quarter, we expect Scripps Networks division revenue to be down in the high single-digit percent range, mainly because of the soft direct response advertising market. For the full year, we expect Networks connected TV revenue to be at least $155 million, 36% above 2025. We expect Scripps Networks Q4 expenses to be down in the low single digits. For the segment labeled Other in the third quarter, we reported a loss of $6.4 million. Shared services and corporate expenses were $25.9 million. For the fourth quarter, we expect that to be about $27 million. For the third quarter, the company is reporting income attributable to Scripps shareholders of $21 million or $0.21 per share. The current year quarter included $18.8 million in restructuring costs which decreased the income attributable to shareholders by $0.14 per share. In the prior year quarter, loss attributable to shareholders of Scripps was $49 million or $0.55 per share. In addition, the preferred stock dividend has a negative impact on earnings per share even when we don't pay it. This quarter, it reduced EPS by $0.17. We ended the third quarter with $83.4 million in cash and nothing drawn on our revolving credit facility. Net debt was $2.2 billion as defined in our credit agreement. We expect to pay down at least $150 million in debt during the fourth quarter. Net leverage at the end of the quarter was 5.2x, according to the terms of our credit agreement, which includes certain pro forma adjustments related to our transformation efforts. And now here's Adam.

Thanks, Jason, and good morning, everybody. We're very pleased to be reporting another election year where Scripps has set a record for midterm advertising revenue, finishing 44% above our last midterm cycle. And as Jason said, these high-margin dollars will go directly to reducing our quantum of debt. Ad impact tells us broadcasters are receiving more than half of all TV political ad spending. And this cycle, that half is even more significant because national political spending levels were a record not just for midterms but measured against presidential years as well. We're not surprised. Broadcast television is a trustworthy, reliable platform for candidates and campaigns to reach prospective voters. That's been true for decades, and it remains true today. And increasingly, it is true on our local and national streaming platforms as well. We expect that relationship with political advertisers to endure and deepen as we grow our streaming reach. Our performance came down to 2 factors. First, of course, is our footprint, which once again lined up exceptionally well with some of the most hotly contested races. You won't be surprised to hear that we saw strong spending in Ohio and Michigan, both of which were Red states in 2024 and but came back squarely into the top column for the [indiscernible] cycle, driving tremendous national party dollars there. We also saw strong results across Arizona, Florida, Tennessee, Wisconsin and Virginia. While our footprint ensured the revenue opportunity was in our markets, our sales strategy and execution are what really allowed us to take full advantage of this year's significant demand and outpace our past record performance. And one differentiator that is instructive for how you should model this company going forward is the way our political revenue yield was boosted by the Scripps Sports strategy. In many of our most competitive political markets, our sports inventory added meaningful value. For example, in Detroit, we leveraged the opening games of the pistons season to create inventory that we monetized at premium political rates. This is the sports strategy working exactly as designed. New, high-value local inventory that serves multiple categories of demand simultaneously, sports advertisers, political campaigns and local retail. And as we look ahead to 2028, we intend to build even more of that inventory in more of our markets. Last week was difficult to [indiscernible] Scripps. We notified 431 employees that their roles were being eliminated, bringing the total employees impacted in 2026 to approximately 850, nearly 20% of our employee count from the beginning of the year. I want to speak directly about this because 2026 has seen one of the most significant structural resets in this company's history. And it hasn't been easy. The people of Scripps who are navigating this transformation while simultaneously managing a frenetic record political cycle, new distribution agreements, new sports rights launches and measurement disruption at our networks, they deserve enormous credit. But here's what I want investors to truly understand. This transformation is not just a cost reduction story. It's the story about what we are building in place of the old model to drive growth with a setup for greater economic durability. Our local stations are changing along with the American consumer. To do this, we had to upend more than 50 years of legacy newsroom workflow. Now we are putting more journalists in the field to report more stories throughout the day for distribution across the broadcast, streaming, digital and social platforms where consumers are spending the most time. We are responsibly taking advantage of new technology, including AI, automation and centralization to care for some of the traditionally more labor-intensive elements of television news production. and put more journalists out in the community, developing relationships, gathering information and reporting the news. Local news is the most important product for this company both in terms of our mission and in terms of our financial viability. We're making decisions in service to our intent to thrive and fulfill our commitments to our country and to our shareholders. We are transforming into a faster, more agile and more deeply local company, one that can sustain the public interest work that has defined Scripps since 1878. The early results on streaming platforms are encouraging. Across stations, our new workflows are producing a truly local 24-hour stream, and we're seeing hours of viewing jump an average of 23% before we've even begun to market the product. Four of our first stations to launch are averaging nearly 70% growth in hours of viewing after just 8 weeks. And it's not at the expense of our linear TV performance. Traditional time period ratings have remained stable. It's very early, and the growth is off of a small base, but I'm encouraged by the consumer demand for local news. I expect that growth to turn into revenue and bottom line value as we mature the initiatives. And that's the point. There is opportunity ahead to serve new audiences on new platforms and has taken a bold commitment to change the way we do our work. Our local media streaming strategy draws directly from what has worked at Scripps Networks. We recognized early the value of streaming rights for our networks content. Shortly after forming the Networks division, we gathered the rights to run programming across streaming services, formed agreements with CTV distributors and built what is now our ubiquitous reach on that platform. That work has taken our network's CTV revenue from 0 to a projected $155 million for the full year 2026. That will be 36% above 2025. The scale and revenue potential of what we are building here is real and it's accelerating because our focus is on the consumer. Let me now address our Scripps Networks financial performance brought on by the challenges we saw earlier this year created by an inaccurate reflection of our viewership. Nielsen's sudden change to methodology last winter altered our measured audience supply overnight. We worked with Nielsen to address it, and I'm pleased to tell you that work is now bearing out in the numbers. As we wound down the third quarter, we began seeing the results and the data demonstrates what we always knew. Our audiences didn't go anywhere. The measurement framework introduced September 1 is now a much better reflection of our true ratings. The biggest driver for us in Nielsen's update is its larger antenna household universe. Antenna homes make up a sizable portion of our core audience, and getting that count right gave our networks a meaningful and deserved ratings lift. At ION, viewership among the key demographic of adults 25 to 54, grew 7% in September over the 2 months before the change. And all Scripps networks' viewing in that demo grew an average of 23%. That performance has been sustained into October, is now built into our forward-looking statements and as a tailwind as we head into 2027. During the third quarter, the Scripps Networks closed out a successful upfront buoyed by our Scripps Sports strategy that's made ION the home of women's sports. The team sold out more than 75% of our sports inventory, propelling Scripps to buck the industry trends and beat peer performance. Our networks team went into this year's upfront season with one of the most compelling sales story in the industry, and they delivered. The linchpin of that story is women's sports on ION and our network's unparalleled reach on every television platform. ION sports inventory is commanding advertising rates that are more than 2x its nonsports inventory. And we saw many new clients transition from scatter to the upfront concerned that our sports inventory would either sell out or command even more premium prices in scatter. We saw particularly high demand across the WNBA and the NWSL. We successfully sold key sponsored partnerships across many of our major opportunities, but we also strategically preserve several high-value assets and opportunities for the scatter marketplace. That represents meaningful upside in our pipeline as we move into 2027. One last note before I close out networks. Although we have faced secular challenges throughout 2026, what I will tell you is that Scripps is focused on the levers within our control, particularly as we shift to higher yield sports and CTV inventory, which provides us meaningful insulation from external factors. Let me close my remarks with the frame I want investors to carry into 2027. Scripps' transformation is necessary as are the hard decisions we made in 2026. Investors will see this work begin to flow through operating results in the fourth quarter and into next year. The EBITDA improvement plan was designed to enhance margins across the enterprise, improve the balance sheet and support durability. But it's very important for you to understand that cost cutting was never the destination. While we expect to continue the repositioning of the company, as we move into 2027, the teams at Scripps now turn more of our attention to growth. We are advancing dozens of initiatives to grow revenue with bottom line benefit yielding more dollars from businesses we run today as we do with Scripps Sports and pursuing adjacent opportunities that double down on our focus of creating connection in our local markets. And doing all of this is in service to building a solid foundation from which we can execute future M&A and transformation at this company. Ultimately, we are guided in this work by our vision of creating connection within our audiences and communities. The journalists we are investing in, the reporters we are adding back to the field, the community relationships we are deepening those build brand equity that make every other revenue line possible. This will benefit us in 2027 and be the setup for what I expect will be an outstanding 2028. We are ready for what comes next, and I look forward to showing you quarter-by-quarter exactly what that looks like in our results. Didi, we are now ready for questions.

[Operator Instructions] Our first question comes from Dan Kurnos of StoneX.

Adam, Jason, really appreciate all the incremental color. Just one housekeeping, Jason, because I think I just missed it. Did you say distribution up 4% in Q4?

That is correct. Yes.

Okay. Got it. Adam, I just want to kind of go off of the commentary that you provided. I know we always ask you sort of for more color on the growth initiatives. And I know you're not going to give us the exact playbook, clearly appreciate what you've done with sort of the push into sports, all the benefits that you're seeing there and the tailwinds that you're seeing from that. You talked about some adjacent opportunities. Is there any other kind of directional color areas that you could give us on sort of things that you think are either low-hanging fruit or attackable from a growth perspective as we head into '27?

Well, I think there's actually meaningful growth to be found inside the core business, both through some optimization of yield management and the way we approach sales execution in networks and local. From an adjacency perspective, I think there's a lot of opportunity for us to extend the value of the IP that we both own and that we partner with, including in the sports ecosystem, to create additional revenue in the local markets as well as in the networks. And beyond that, there's the work we're doing with EdgeBeam and the value of our spectrum along with some other, I think, really interesting ways we think we can we can create value through the use of our inventory that are a little nontraditional. And I'm sure as we move through 2027 and begin to see those materially impact results, we'll share more.

Got it. That's really helpful color. And then maybe just one for Jason. Look, obviously, you guys executed super well. Everyone's flush with political money, came in big. We all kind of think that this is the new normal now. So unfortunate for those of us trying to watch football on Sunday, but that's the way of the world. Great for all you guys. So as you think about the balance sheet going into next year, Jason, you've done a great job kind of managing the maturities here. We have to think about the press and all the rest of that stuff. You're in a pretty decent spot now given the end of the year and some of these initiatives that you've got going on. So just help us think through maybe your high-level thoughts going into next year from a balance sheet perspective.

Yes. So first, I would say is, given the guidance we gave on political and the expectation for fourth quarter, I think from a leverage perspective, I think you'll see leverage move down sequentially from Q3 to Q4. And we'll have a pretty material amount of cash that we'll be able to direct towards debt paydown at the end of the year. You kind of referenced there sort of maturity risk. And from our perspective, we're most focused on the near-term maturity risk. And so I would expect us to direct -- the cash flow we have through the remainder of the year towards our B2 term loan, which is our nearest term maturity that is set for -- or sorry, that comes due in 2028. And I think that will be the case as we move into the beginning of next year as well. The other question we do get asked a lot is whether we would consider buying back bonds, particularly 2031s, that are trading at a discount in the open market, as I mentioned, right now, we believe the highest and best use is to focus on those near-term maturities. We have sort of earned our way into having a bucket available that we could apply to the bonds. And I think as we move through next year, we'll continue to sort of weigh our options, consider whether a bond repurchases later next year makes sense and kind of just look sort of across the cap structure at our, I would say, our broader deleveraging priorities.

And our next question comes from Craig Huber of Huber Research Partners.

Great. A few questions. I'll just go one by one, make it easy for everyone. Talk a little bit further, if you would, please, in Scripps Networks about the ad revenue trends? I'm curious for the DR -- what is DR right now, I guess, last quarter as a percent of ad revenue within Scripps Networks? I mean how does that track? Anything give a little more granular on that? I appreciate that. I have some follow-ups.

Yes. So we don't disclose the specific breakdown between DR and general market. But what I can tell you is when you kind of look at the performance in Q3, the Q3 performance was largely driven off of the Nielsen change and impacts the general market, which, as Adam said in his prepared remarks, we did see some improvements upon the change on September 1, but at the beginning part of the quarter, certainly, that weighed pretty heavy on the revenue performance. From a direct -- as you kind of turn the page to Q4 and you look at the guide we gave for Q4, I would say we continue to be pleased with what we're seeing from a ratings perspective and how that is flowing through the general market. The guide that you're seeing for Q4 would be more indicative of the direct response marketplace and some of the challenges we see there tied to kind of the macro and the impact in terms of consumer confidence and how that's impacting the consumer [indiscernible].

Okay. My next question, on the local TV station front, what is news right now as a percentage of ad revenues for you guys right now?

We don't break that out either, but I would say it is by far the biggest bucket of core ad revenue.

Okay. And when you guys said that ratings within your local TV stations are stable, does that mean the trends are similar to what they've been in recent years?

Yes, exactly. I mean I think the comment was meant to certainly allay any concerns or fears that the work we're doing to incrementally create value on new platforms like streaming, social and digital would, in some way, negatively impact negatively impact linear ratings, and they have not at all.

And maybe just, Craig, to give just a little finer point on my comment on news. While we don't disclose a specific number, I mean, news is by far the biggest category of core revenue. Sports is growing and it's sort of the second biggest, and there's a significant gap in size between the size of the core ad revenue generated during news versus sports.