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

Welcome to The E.W. Scripps Company 2021 Annual Meeting of Shareholders. I would like to introduce Adam Symson, President and Chief Executive Officer.

Thanks. Good afternoon. It's my pleasure to welcome each of you to the Annual Meeting of Shareholders for the E.W. Scripps Company. We are pleased to be hosting our meeting virtually for the first time with shareholders via the web portal. In order to handle our business expeditiously and provide time for shareholder questions, we've established a few simple rules about the conduct of the meeting. The agenda and the guidelines for the conduct of the meeting were posted in the pre-meeting lobby. We ask that you cooperate in following these guidelines. We will conduct the business portion of our meeting first and answer your questions during our Q&A period at the end of the meeting. In keeping with the digital approach to this year's meeting, it is now 4 p.m. Eastern Time on Monday, May 3, 2021, and this meeting is officially called to order. Before proceeding to the business of the meeting, I'd like to introduce the following. Joining the meeting are some members of our senior management team, Jason Combs, Executive Vice President and Chief Financial Officer; Lisa Knutson, President, Scripps Networks; Brian Lawlor, President, Local Media; Laura Tomlin; Executive Vice President, Chief Administrative Officer; Bill Appleton, Executive Vice President and General Counsel; Doug Lyons, Senior Vice President, Financial Strategy; and Julie McGehee, Vice President, ESG and Corporate Secretary. Ms. McGehee will act as the Secretary of the meeting. Also attending are the nominees for election at today's meeting, Marcellus W. Alexander, Jr, Charles L. Barmonde, Kelly P. Conlin, Lauren Rich Fin, John W. Hayden, Anne M. La Dow, Wonya Y. Lucas, R. Michael Scagliotti, Kim Williams and myself as well as representatives of Deloitte & Touche, our auditors, and outgoing Board Chair, Rich Boehne. Ms. McGehee and Mr. Combs have been appointed to act as inspectors of election for this meeting. The voting results not including any votes cast at this meeting were confirmed with Broadridge Financial Solutions, the company's tabulator, immediately preceding the start of this meeting. I might also add that the meeting -- the minutes of last year's annual meeting are available and that any shareholder wishing to inspect the minutes should contact Ms. McGehee. Ms. McGehee will now report on the mailing of the materials for this meeting.

This year, we furnished proxy materials to our shareholders primarily via the Internet and the rules adopted by the U.S. Securities and Exchange Commission instead of mailing printed copies of these materials to each shareholder. Commencing on March 19, 2021, we mail to each shareholder a notice of Internet availability of proxy materials containing instructions of how to access our proxy materials including our proxy statement and our annual report to shareholders. This meeting is held pursuant to set notice mailed to each shareholder of record on March 8, 2021, who is entitled to vote. A list of shareholders entitled to vote at this meeting has been available at the company headquarters for the past 10 days and is available at this meeting for examination by any shareholder desiring to do so. All documents concerning the call and notice of the meeting will be filed with the records of the meeting. There were 70,343,522 Class A common shares and 11,932,722 common voting shares outstanding on March 8, 2021, the record date for shareholders entitled to vote at this meeting. The count of shares present immediately prior to the commencement of the meeting indicated that 58,341,666 Class A common shares are present in person or by proxy. This is 82.9% of the outstanding Class A common shares. Also, 11,130,722 common voting shares are present in person or by proxy. This is 93.3% of the outstanding common voting shares.

Thank you, Julie. Because holders of a majority of the shares entitled to vote at this meeting are present in proxy or by in person, I declare this meeting to be duly convened for the purpose of transacting such business as may properly come before it. On behalf of the company and our Board of Directors, I would like to express my appreciation to all shareholders who voted through the Internet or telephonically. Now Julie McGehee will present this year's proposals.

Holders of our common voting shares vote to elect 7 Directors. The Board of Directors has recommended that Marcellus W. Alexander, Jr., Charles L. Barmonde, Kelly P. Conlin, John W. Hayden, Anne M. La Dow, R. Michael Scagliotti, and Adam P. Symson be elected as Directors of the company to serve for a term expiring on the date of the annual meeting of the company in 2022. The Board recommends that you vote for the election of these company nominees based on their respective experiences, qualifications and skills. The holders of our Class A common shares vote to elect 3 Directors. The Board of Directors recommends that Lauren Rich Fine, Wonya Y. Lucas and Kim Williams be elected as Directors of the company to serve for the term expiring on the date of the annual meeting of the company in 2022. The Board recommends that you vote for the election of these company nominees based on their respective experiences, qualifications and skills. The holders of our common voting shares are entitled to vote to approve the ratification of Deloitte & Touche LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2021. The Board recommends you vote for this proposal. The holders of common voting shares are also entitled to an advisory nonbinding vote to approve the named executive officer compensation of the E.W. Scripps Company as such compensation is set forth in the company's proxy statement. The Board recommends you vote for this proposal. Lastly, the holders of our common voting shares are entitled to vote to approve an amendment to the E.W. Scripps 2010 long-term incentive plan and such amendment is set forth in the company's proxy statement. The Board recommends you vote for this proposal.

Thank you, Julie. The polls are now open. Any shareholder who hasn't yet voted or wishes to change their vote may do so by clicking the voting button on the web portal and following the instructions there. If you previously voted by proxy, voted by telephone or Internet, you do not need to vote today unless you wish to change your vote. [Voting]

All right. Now that everyone has had the opportunity to vote, I now declare the polls for the 2021 Annual Shareholders Meeting closed. Will the secretary please report on the preliminary voting results.

The ballots have been counted, and I am happy to announce that more than a majority of the outstanding common voting shares of the company has been voted for the election of the 7 Directors named in the proxy statement for a term expiring on the date of the annual meeting in 2022. More than a majority of the outstanding Class A common shares of the company has also been voted for the election of the 3 Directors named in the proxy statement for a term expiring on the date of the annual meeting in 2022. In addition, more than a majority of the outstanding common voting shares of the company has been voted for the ratification of Deloitte & Touche LLP as the company's independent registered accounting firm for fiscal year 2021. The approval on an advisory basis of the named executive officer compensation is outlined in the proxy statement and the amendment to the E.W. Scripps 2010 long-term incentive plan.

I hereby declare that each of the nominees for Director has been duly elected a Director of The E.W. Scripps Company for a term that lasts until the 2022 Annual Meeting of Shareholders, the ratification of Deloitte as the independent accounting firm for fiscal year 2021, the approval of the named executive officer compensation as well as the amendment to the E.W. Scripps 2010 long-term incentive plan. Now I'd like to provide a brief report on the business. If you have any questions during the presentation, please submit your questions through the portal. Just a reminder here, this presentation contains certain forward-looking statements related to the company's businesses that are based on management's current expectations. Forward-looking statements are subject to certain risks, trends and uncertainties, including changes in advertising demand and other economic conditions that could cause actual results to differ materially from the expectations expressed in forward-looking statements. You can read all about that and accounting reconciliations in our 10-K and filings on our website. Over the last 3 years, we've been busy remaking this company to be higher performing, more durable and better positioned for the longer term. We cut costs, restructured and reorganized twice, doubled the size of our local TV portfolio for national scale and added 8 duopolies for local market depth. These moves made us economically stronger, helping us to navigate the business disruption caused by the pandemic, and they set us up well for last year's retransmission rate negotiations. And of course, we bolstered our geographic footprint to bring in a record-setting level of political revenue, segment profit and free cash flow in 2020. Ahead of the pack, we got into podcasting and digital audio early, grew those businesses and then exited at the right time for very nice returns. And then more recently, we acquired ION Media to completely transform our national networks business, with more than $500 million in anticipated and mostly contractual synergies over the next several years. To what end? The company's total shareholder return over the last 3 years has been nearly 80%, outperforming the S&P and our TV sectors -- TV sector peers year-to-date. Prior to the pandemic, we met or exceeded guidance 9 quarters in a row. And as I promised we would, we took the pandemic as an opportunity to continue to remake the company, never playing defense but opting instead for an aggressive offense. And our recent business highlights validate the work we've been doing. Starting with the closing on the acquisition of ION Media and the subsequent combination with the Katz Networks and Newsy to create a fully scaled national television networks business. The new Scripps Networks are off to a good start with a strong upfront season and are on track for synergy expectations. On March 31, we completed our exit from digital audio and podcasting, selling Triton Digital to iHeart for $230 million, a 1.6x cash-on-cash return for a business we bought in 2018. The Scripps Networks are off to a good start with integration going smoothly and the upfront sales process going well, and our Local Media portfolio will benefit this year from the rebound in the economy and the strengthening local and national ad marketplace. And as a result of this, we're making progress on our leverage ratio already and announced on April 15, our plan to redeem all $400 million in aggregate principal of our outstanding 2025 senior notes, reiterating again that we do what we say we will do. This is true not just with respect to our financial performance, but it's also core to the kind of company that Scripps is, a company that has been focused on the elements of corporate social responsibility far before it was fashionable. For 142 years, we have been dedicated to the kind of quality objective journalism that America needs more of. As our motto says, give light and the people will find their own way. We consider ourselves stewards of the communities we serve. And when we talk about equity, diversity and inclusion, it rings true from our boardroom to our newsrooms. It is in our culture because it's the right thing to do that makes our product superior, a more inclusive workplace makes for a better product and better business results. Now I'd like to cover the strategy for the new Scripps Networks. The Scripps Networks are the largest portfolio of demographic targeted networks delivered to Americans on multiple platforms, but most importantly, available through the growth marketplace of free over-the-air broadcasting. 40% of U.S. households now have a digital antenna for TV. That's 50 million households using free ad support to television. More than 50% of those users are new over the last 3 years. And once they are plugging in that digital antenna, they discovered a new universe of premium programming channels dominated by the Scripps Networks. Each of the Scripps Networks have programming strategies carefully designed to attract specific audiences with demographics attractive to the advertisers in the national television advertising marketplace. Our networks are viewed by 78 million Americans monthly, significant reach and audience that is both demographically desirable and diverse. The 2020 adjusted combined revenue for the networks was $847 million with segment profit at $320 million. And we expect continued growth ahead of the Scripps Network based upon these 4 growth drivers: the continued expansion of the free over-the-air broadcasting marketplace; our continued push to expand the distribution of our networks over the year and on other platforms like over-the-top and pay TV. So they'll be available everywhere American consumers seek news and entertainment; growth of our portfolio is that we expand the number of networks we operate to extend our already significant leadership position; and finally, The continued enhancement of our advertising yield as we bring these networks together is a vital offering to the national advertising marketplace and employ proven yield management strategies. We expect the networks to grow more than 10% annually over the near term and maintain margins of about 40%. Now let's turn to our Local Media division. Our local television brands serve audiences on multiple platforms, coast-to-coast, from our 61 television stations in 41 local markets. Every day, we reach 25% of U.S. households. Core advertising, inclusive of the local, national and digital advertising we sell through our local TV stations has proven itself to be remarkably resilient, especially as we look today at the way the advertising marketplace has been bouncing back from the pandemic. 80% of all of our core advertising comes from 5 categories: services, auto, retail, home improvement and travel and leisure. We have also seen significant growth from our sales of over-the-top video advertising and a new driver, the rise of sports betting as a category in travel and leisure. Of course, no discussion of local TV advertising is complete without touching on political advertising. Last year, we did a record $265 million in political advertising. We expect the 2022 midterm elections to exceed the $9 billion total national spending mark of last year. As we always say, you have to have the right footprint in the right states to take advantage of the opportunity, and we think we do. In the last 2 cycles, we have benefited from many tight races in our key site states. We see the same opportunity in 2022 when Scripps stations will host 18 Senate races and 17 Governors races. With a 50-50 Senate and some redistributing following the 2020 census, we believe we're well positioned to grow beyond our 2020 political revenue number. Finally, I'd like to talk about retransmission revenue or the distribution fees we collect from the cable, satellite and virtual systems that retransmit our local signals. As you can see from the left side of the slide, the trajectory of the revenue growth we have seen over the last 5 years is steep. And the good news is we still have rate growth ahead as we continue to pursue our fair market value based on our programming and audience. It's not unusual to see moderate growth and then big step-ups. It's a matter of timing as to when your deals expire. Last year, we renewed 50% of our households, hence, the big step-up from '19 to '20. As you can see on the right side of this slide, in 2021, only 4% of our households renew. In 2022, 21% of our households will renew. But then, we will have another one of those big step-up years in 2023 when we negotiate new rates for 75% of our subscriber households. And just below that, you can see that all of our network renewals will come up by the end of 2022, giving us great visibility into the long-term value of the network relationship. Before we wrap up, I'll touch on some investment highlights and discuss our balance sheet. This is a company that has transformed itself to play a leading role in the future of television. We're a fully scaled television company with the operating leverage to thrive in local TV and with the strength of the local core advertising market, growth ahead in retrans and a terrific political footprint. And we operate a new national networks business with a significant leadership advantage in a growth ecosystem and full complete national scale. This is a simple slide that tells an important story about how we have used our balance sheet to transform the company. Scripps is traditionally a company that maintains a leverage ratio in the mid-3x, but also a company comfortable with acting opportunistically with M&A. And that's what you see here as we have flexed our balance sheet over the last several years to scale our Local Media portfolio and then again, to acquire ION and bring together the new Scripps Networks. These moves have been responsible for our accelerating our cash flow, production and growth trajectory. Now let's turn to a discussion on our current capital structure and key storylines that make us feel comfortable with the makeup of our current debt. As of the ION deal closed on January 7, we had total debt of $3.8 billion and cash of a little over $260 million, translating into a net debt of $3.5 billion. This does not include the $600 million in preferred equity issued to Berkshire Hathaway as a part of the funding for the ION deal close. The new combined entity will create significantly more cash flow and provide a pathway to swiftly pay down debt. In terms of our current debt, our roughly 50-50 mix of fixed and variable debt provides a natural hedge against interest rates and the balance of secured and unsecured debt leaves us a comfortable amount of room in our first lien leverage calculation. On the right-hand side of the slide, you see some of the key points regarding our overriding financial policies. We're committed to paying down debt and moving our leverage back in the direction of historical levels. Our first step in this paydown will be paying down the $400 million in debt in a few weeks. Lastly, on our distribution policy, the terms of the Berkshire preferred equity prohibit us from buying back stock or paying dividends while their preferred is outstanding. Before I take questions, I'd like to express my heartfelt thanks now to Rich Boehne, our outgoing Board chair and the man that preceded me as CEO, as he steps away from his duties at The E.W. Scripps Company after more than 30 years. Rich has had a hand nearly in every modern transformation of this company, from the company's IPO, to the creation of HGTV, navigating the Great Recession and our most recent transformations. All the while, he has been Chief Advocate and steward of this company's journalism mission. His leadership is responsible for tremendous shareholder value creation. And for me, personally, his mentorship and friendship have been transformational. On behalf of the employees of our company, Rich, thank you very much for everything you have given all of us. At this time, I'll be joined by Scripps' CFO, Jason Combs, and we'd be happy to answer any questions from shareholders. Please note, we will attempt to answer as many questions as time allows but only questions that are germane to the meeting will be addressed. We'll take questions submitted through the Q&A web portal. Okay. Does not look like we have any questions in the portal. If there is no other business, this concludes our meeting. I would again like to express my sincere appreciation to the shareholders who attended the meeting as well as those who voted prior to the commencement of this meeting but were not able to be present. This meeting is now adjourned.