The E.W. Scripps Company ($SSP)

Good day, and thank you for standing by. Welcome to the First 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, Becca McCarter, Senior Director, External Communications. Please go ahead.

Thank you, Didi, and 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 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 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. Reconciliations of these measures are included in our earnings release. We'll hear this morning from Chief Financial Officer, Jason Combs and then Scripps' President and CEO, Adam Symson. Here's Jason.

Good morning, everyone, and thank you for joining us. We are coming into this morning's call with strong momentum and good news about our financial performance and other activity. Here are a few of the highlights. We are progressing rapidly on executing our comprehensive transformation strategy, which has helped drive significant improvement in our first quarter net leverage to under 4x. Our Local Media division delivered a strong performance with industry-leading 7% core advertising revenue growth driven by our unique live sports strategy. We launched the Scripps Sports Network, a premium free streaming channel, we are entering a midterm election cycle with strategic market exposure in key battleground states, and we continue to optimize our portfolio through its strategic asset transactions, generating $123 million in gross proceeds from recent sales of 2 stations. We also continue to work towards the closing of our station swaps with Gray and pursue additional M&A activity to support debt reduction and enhanced operating performance. In addition to those recent highlights, we are pleased to have just successfully completed a new affiliation agreement with our largest network partner, ABC, covering 17 ABC affiliates. With that overview as a backdrop, I'd like to review our first quarter financial results, and then I'll discuss second quarter guidance, followed by details on our improving debt position. I'll conclude with a review of our EBITDA improvement plan. I will present our first quarter Local Media division results on a same station or adjusted combined basis, removing the Q1, 2025, results of the 2 TV stations that we've now sold and reflecting our addition of the Lexington ABC affiliate. During the first quarter, our Local Media division revenue was $331 million, up 5.8% from first quarter 2025. Core advertising increased 7%. Our services, automotive and gambling categories all grew in the quarter. Local core advertising year-over-year growth was largely driven by advertising sales tied to our National Hockey League telecast. We saw a strong contribution from the addition of our newest rights agreement with the Tampa Bay Lightning. And beyond this new partnership, we also saw strong growth in our existing NHL deals with the Vegas Golden Knights, Utah Mammoth and Florida Panthers. Our strategy is designed to drive year-over-year growth across both our existing deals and new partnerships. And last month, we announced a fifth full season NHL sports rights agreement with the Nashville Predators to start this fall. The Winter Olympics and the Super Bowl also contributed to our Q1 core advertising growth. Political advertising revenue was nearly $9 million as we begin what's expected to be a record-breaking spending cycle for the midterm elections. This year, we forecast strong spending in our markets due to U.S. Senate and gubernatorial races in Arizona, Colorado, Michigan, Nevada, Ohio and Wisconsin. We also are watching growing competitive situations in Florida and in Montana. Local Media distribution revenue increased 2%, again on a same-station basis. Expenses for the division increased about 2.4% year-over-year. Excluding the impact of our expenses tied to our new NHL team deal, expenses were flat. Local Media segment profit was $44 million compared to $32 million in Q1 2025. For the second quarter, we expect Local Media division revenue to be up low single digits. We expect core advertising to be down low single digits without the benefit of FLY Sports for most of the quarter. We expect Q2 Local Media gross distribution revenue to be impacted by our impasse with Comcast, which ran from March 31 to May 5. Based on that timing, we still expect full year gross distribution revenue to grow in the low single-digit range, but now expect net distribution revenue to grow in the low double-digit range, a slight change from our previous guidance. We expect second quarter Local Media expenses to be flat to Q2 of 2025. Now let's review the Scripps Networks division first quarter results and second quarter guidance. Once again, I'll be presenting results on an adjusted combined basis, in this case, adjusting for the impact of the Court TV sale. In the first quarter, Scripps Networks revenue was $174 million, down 9.5% from Q1 2025. Connected TV revenue was up 26% from the same quarter last year. The division's expenses for the quarter were $126 million, up 1%. The Scripps Networks segment profit was $47.5 million compared to $66.8 million in the year ago quarter. For the second quarter, we expect Scripps Networks division revenue to be down about 10%. The networks are facing a softer market from macroeconomic conditions impacting the direct response marketplace and external measurement pressure from Nielsen from recent Nielsen methodology changes. Adam will talk more about this in a moment. We expect Scripps Networks Q2 expenses to be up in the low single digits. Turning to the segment labeled other. In the first quarter, we reported a loss of $6 million. Shared services and corporate expenses were $26.6 million. For the second quarter, we again expect that line to be about $27 million. Higher medical claims and increased insurance premiums are causing that line to go higher than usual. For the first quarter, the company is reporting a loss of $0.20 per share. The loss included a $30 million gain on the sales of Court TV and 2 television stations, WFTX in Fort Myers, Florida and WRTV in Indianapolis. These sale transactions decreased the loss attributable to shareholders by $0.25 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 $0.18. We had $20 million outstanding on our revolving credit facility at the end of the quarter. On April 30, we entered into an agreement to extend the July 7, 2027, maturity date of our revolving credit facility to July 7, 2029, with commitments of $200 million. For the first quarter, cash and cash equivalents totaled $84 million. Net debt was $2.2 billion as defined in our credit agreement. Also during the quarter, we paid down $10.2 million on our B2 term loan. In addition, we paid down $20.4 million on our B3 term loan. Since the end of the quarter, we've paid down an additional $30 million on the B2 term loan for a total of just over $60 million in term loan paydown since the beginning of this year. Net leverage at the end of the quarter was 3.9x per the calculations in our credit agreement, which includes certain pro forma adjustments relating to our transformation efforts. As we announced in February, our company transformation plan includes growing enterprise EBITDA by $125 million to $150 million. Our EBITDA improvement plan balances rightsizing our current expense structure with implementing new ways to grow revenue and profitability. You'll start to see the financial benefits of our plan in the second half of this year. We expect total in-year EBITDA impact of $20 million to $30 million and an annualized run rate of about $75 million as we move into next year. And now here's Adam.

Thanks, Jason, and good morning, everybody. At Scripps, we're in the midst of executing a significant transformation, moving now from the detailed planning stage into execution, and I'm pleased to report that we're right on track. I'd like to say that this transformation is a refounding of the company where we're bringing the values, ethics and mission of our founder, Edward Willis Scripps, forward 150 years to set the company up in a way, I'd like to think he would were he here today. I've been doing a lot of research on our founder. EW was fiercely protective of his newsrooms journalism and editorial independence. He was entirely committed to serving the people in the communities where we operated. And he was well known, maybe even notorious for his dedication to operating with efficiency to ensure he would have the margin to carry out the mission. 150 years ago, EW focused on his consumers' problems and commercialized the solution. The assets that make up our company may be different today, but our transformation is grounded in the same customer-first focus. Here is an example of what this is looking like. In our newsrooms, we've already been changing the model. We're moving from a broadcast-centric operation that has historically served our audiences during defined time periods to news operations that leverage automation, AI and technology to serve consumers when and where they expect to get their local news, especially as they've moved to streaming. Leveraging technology has allowed us to deepen our commitment to local news, getting more of our teams out of the newsroom and into the community, putting more reporters in the field to live in the geographic areas where they cover. All of it in service to our vision, we create connection. This isn't incremental change. It's a complete realignment of our newsroom operations. Our business models and our culture around the opportunities we see clearly, streaming platforms, productivity-enabling technologies and our unrivaled ability to create connection for the people and the businesses in the communities we serve. This is just 1 example at Scipps of how we are up ending what needs to be changed, fueling the fire where we see the top line growth as we see in streaming and going farther and faster with what's working well, like our sports strategy. Let's talk about sports. In Local Media, our live sports helped Scipps deliver an industry-leading core advertising performance in the first quarter, up 7%. As Jason said, this came from new partnerships and from the organic growth in every one of the markets where we're executing this strategy, and we are far from done. Just a few weeks ago, we announced the new full season local broadcast agreement with the NHL's Nashville Predators, and I expect more core growth fueling opportunity to come. Now for the second quarter, the live sports action shifts to our Scripps Networks and the WNBA and the NWSL. The WNBA's preseason game between the Indiana Fever and the New York Liberty on April 25 was ION's most watched preseason game ever. Tonight, the WNBA regular season kicks off with a double header on ION, with tremendous excitement about the return of Catlin Clark and this year's class of exceptionally talented draft picks. Scripps Sports will once again broadcast the most WNBA games of any network bringing a WNBA double header every Friday night all season long to fans nationwide. Advertiser demand is high for women's basketball as well as for our full slate of women's sports. It's now clear that Scripps is the leader in women's sports, showcasing women's athletic achievement with rights for the WNBA, NWSL professional soccer, PWHL hockey MLV volleyball, Athlos Track College Basketball Pro Cheer and our newest partner, PBR's Premier Women's Rodeo, which we'll be bringing to our networks, Grit and ION. We recognized early that Americans were embracing the quality and professionalism of women's sports, and we're pleased to have become the go-to platform for the brands that want to connect with fans. Next week, the professional women's hockey leagues Walter Cup Finals will begin on ION. We're very pleased to bring this to national television for the first time and to have Amika serving as our presenting sponsor, and Discover as an additional sponsor. They are just 2 of the hundreds of blue chip advertisers we brought on to our platform through our sports strategy. In March, to capitalize on the marketplace growth and our success in Connected TV revenue, we launched the Scripps Sports Network, a new streaming channel that leverages our existing sports rights, some efficiently acquired new rights and sports themed programming. We're streaming more than 100 live games a year, along with original sports programming, documentaries and talk shows and we've secured broad distribution across the major streaming platforms, including Roku, LG and Samsung, making it easy for fans to find the sports, teams and players they love. Connected TV continues to be a growth driver for Scripps, up 26% in the first quarter, and I expect will continue to leverage our premium programming and live sports to make this a differentiator for us among our peers and competitors. While we expect to capitalize on live sports on ION in Q2, just as we have with our local division in Q1, we're navigating some external challenges with national advertising revenue. As Jason mentioned, we're seeing some market softness due to the volatile economy. Networks direct response ad spending, in particular, has been impacted as consumers feel the pain of higher prices, especially now at the pump. We've also been affected by a recent Nielsen audience measurement change that has artificially shifted household viewership waiting in favor of cable networks. Because all Scripps networks are distributed over the air, this change has negatively impacted audience delivery. Nielsen's new methodology is inexplicably resulting in frustratingly inaccurate reports of ratings declines for over-the-air viewing and streaming. This disproportionately impacts the measurement of our multicast networks viewers who are most vulnerable to affordability issues, including those in rural communities, people of color and older Americans. The fact is that we have seen no letup in the demand for our advertising products in the general market, and sales execution is on point, but Nielsen's overnight change suddenly impacted our supply of impressions. -- impacting our revenue. We began seeing a revenue impact from Nielsen's methodology change in March and since then, our team has been advocating aggressively for Nielsen to make a public disclosure outlining the magnitude of the discrepancy in their data. Of course, I can't end the discussion on advertising without at least a nod to what we expect to be this year's political revenue windfall as a result of our excellent station footprint. Our focus on sales execution and the record amount of money expected to be spent on the upcoming midterms. We're off to a good start and expect political to be a great story on top of this year's industry-leading core revenue performance we're putting up this year. I'd like to take a moment now to celebrate some important recognition of the work we do on behalf of our viewers and communities. Scripps has received recent awards and recognitions from 3 important national organizations. We were honored with 6 nominations for national news and documentary Emmy awards, including 5 for Scripps news and 1 for WEWS in Cleveland. Scripps News also is recognized with 3 prestigious National Headliner Awards including a Best in Show honor and 2 deadline club finalist nominations, while our local station, KNXV in Phoenix also received 3 National Headliner Awards and WTMJ in Milwaukee received wine. We're proud of the recognition of our commitment to journalism that improves the lives of those we serve, hold to the powerful accountable and upholds the tenets of our democracy. Serving our democracy is one of the things Scripps has done best for nearly 150 years. There's a lot of uncertainty in the world today from macroeconomic to the media sector. At Scripps, we're acting with urgency on what we can control by employing new technologies to create operational efficiencies, capitalizing on accessible growth areas such as sports and CTV and improving our balance sheet. This is the essence of our transformation plan, and you're beginning to see how this plan will carry us into the next mountable chapter of Scripps' long history. And now operator, we're ready for questions.

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

First and foremost, I guess, Jason, thanks for the recast, super helpful on that stuff. Just want to make sure, housekeeping question, the guide that you gave for Q2, that is relative to the as reported from 2Q last year, not the recast, correct?

So that is off of the adjusted combined recast that we provided.

Okay. All right. That is helpful. Adam, Scipps Sports Network, supersmart, you've been kind of leading the charge in CTV here. You had your upfront in late March. Obviously, you launched it before then. You've picked up PWHL, PBR, Women's PBR now, you've got a real stranglehold on kind of the women's side of the equation. Can you just give us thoughts, understand the DR markets soft, we all get the macro? But as we look ahead, commits what advertisers are saying, just help us think through the feedback you're getting, and you've been very clever with rights acquisition in an inexpensive manner. So sometimes there's a little bit of confusion between what you can show on streaming and what you can show on kind of on traditional broadcast. So just help us think through kind of that equation here.

Yes. First and foremost, Dan, well, I like to think that we have embraced women's sports, not put it into a strangle hold but I appreciate where you're getting at. We've been very intentional in the way we've been acquiring sports, both on the local side and the national side and see our opportunity as recognizing the value of the distribution we bring to the table. So whether it was with our initial deal with the WNBA, the NWSL or any of these other sports deals we've done, I think we've been looking for partners who recognize that we bring to the table the opportunity to showcase their league, their games, their athletes on the most ubiquitous platform available. Because ION is uniquely positioned to be available on OTA, on Pay TV and on streaming. The launch of Scripps Sports Network, I think, is a continuation of that strategy because it not only positions certain parts of our broadcast in additional new real estate in the streaming space through simulcasts, allowing us to take some of Ion's most premium time periods, and now simulcast them in a couple of different tiers on streaming platforms, essentially expanding the reach of those platforms or expanding the reach of those games and expanding the reach of our network. It also allows us to carefully and efficiently acquire new rights for insurgent or ascendant leagues looking at getting distribution for their games and allows us to test and learn. So as an example, right now, you can watch the -- many of the PWHL games on the Scipps streaming sports network, Major League Volleyball, and then the finals end up being broadcast on ION. And our move to put all of that on ION has been all about trying to really appease the advertising environment. We see significant demand from advertisers looking to invest behind women's sports. And so we went to the marketplace knowing that there was already demand for the assets we were acquiring. And I think that's going to benefit us both in linear and it's going to benefit us in the streaming space. And I think we'll continue to be really, really careful and efficient in the way we acquire rights but also really aggressive in the way we demonstrate the value of our distribution. Relative to the ad marketplace, there's been no letup in that demand for live sports. In fact, I would say, when you look at our performance relative to like general market cable and broadcast networks, you see the benefit of our sports strategy. And we're just now moving into the second quarter where we have that benefit going on into the summer time. We didn't see that in the first quarter. Nevertheless, there has been some softness in the national ad market. I think Jason can provide you a little bit more color on the national ad marketplace, the networks and even maybe a longer term or a midterm view of what we expect from Networks margins.

Yes. Thanks, Adam. So we did give a guide of down 10%, and that is really being driven by a couple of things. The ratings declines tied to changes in Nielsen methodology that Adam talked about in the script, as well as macroeconomic and geopolitical conditions that are driving uncertainty and has created a little bit of a weaker marketplace for national advertising. So on the ratings front, I think, Adam, did a pretty good job summarizing the changes that have happened there and how that is impacting networks at overindex on over-the-air carriage versus cable networks who are generally seeing significant ratings increases, and we'll continue to engage there because we do believe that, that methodology is flawed. Beyond that, the current macroeconomic environment is having an impact on performance-driven advertisers in the direct response space. Inflationary pressure and higher fuel costs continue to weigh on heavily in the American consumer and geopolitical and stability has created some hesitation in the marketplace and some ripple effects. And so from a longer-term perspective -- in the short term, that has created a little bit of a drag on revenue and on margin in our segment. And we worked really hard to get the Networks margin back to a 30% margin business. I think as you look at the implied guide for Q2 and our results for Q1, I would expect that our second half margin is higher than our first half margin. Q3 is the heaviest sports quarter in terms of inventory. And Adam talked about the excitement we've continued to see in terms of premium sports inventory. Q4 also brings in seasonal health care ad dollars, and you'll start to see some impact from the transformation efforts start to roll in the second half as well. And so we remain committed that this -- that the Networks business is a 30% margin business. And while we may have seen a bit of a step back here in the current quarter, we remain committed to driving the business to a long-term 30% margin.

Adam, just 1 follow-up on that or Jason, too, as we think about monetization, obviously, we're continuing to see more live sports move towards programmatic. And obviously, CTV in particular, is moving towards programmatic. I know you've got a lot of direct response and traditional sales and it's probably not as applicable to the broadcast component of this. But I mean, how do you guys think about pushing deeper into DSP relationships, leading into the ad tech ecosystem and getting better fill even if CPMs come under pressure, you still ultimately get better monetization out of that?

Yes. I mean I would argue we are operating right now a best-in-class CTV platform actually. Dan, going all the way back to sort of the earliest years of digital and CTV. We've been very focused on ensuring that we're maximizing the opportunity with direct sales and programmatic. The leadership we have at the networks level, focused on monetizing our CTV across the enterprise, I think, is second to none. And I think we're very well invested in that space. And I expect -- you can see that in the 26% growth following last year's significant growth following the year before, significant growth on the CTV side. We haven't just been riding growth in the marketplace, I would say we have been catalyzing the revenue opportunity for ourselves by both taking advantage of some of the natural growth but also doing everything from taking advantage of the ad tech relationships and improving the programmatic stack, but also leveraging our significant leverage in the marketplace with the distributors. I mean the fact is that we represent among some of the most watched premium channels in the Connected TV marketplace. And that gives us, I think, significant leverage to ensure that we negotiate terms that benefit us and partnerships that benefit both us and the platforms. And so far, it's working exceptionally well.

Certainly wasn't trying to imply you're leaving money on the table, Adam. I was just trying to understand if there was incremental opportunity as the market continues to shift, but you've got -- you've done a great job with CTV.

Yes. No, look, I do think there's incremental opportunity. And that's why, like Dan, even in my prepared remarks, I talked about continuing to lean into those things that we see as accessible growth areas like Connected TV. Launching scripts sports -- the Scripps Sports Network is an example of that, but I think there are going to be many more opportunities for us to leverage technology, to improve monetization in CTV, to improve monetization in local CTV. I think there's significant opportunity ahead with political in CTV. We're already seeing the beginning of that this year, allowing us to sell connected TV advertising out of our political office, outside of the markets that we've traditionally been in because, of course, we've traditionally only been able to sell in markets where we had local stations. Today, we sell nationwide. In fact, a fair amount of the advertising that we saw on Connected -- in political in the first quarter came from outside of our markets. So we're off to a really good start there, and I expect that we'll continue to keep the pressure on.

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

Can you just give us an update, if you would, a little bit further on the $125 million to $150 million restructuring transformation program you're working on, I guess, by 2028? Just update us, if you would, first, where you think the annualized run rate will be at the end of this year? Any changes on that front?

Yes. So last quarter, we gave an annualized run rate of $60 million to $75 million, which as we exit this year, we adjusted that during this most recent earnings cycle up to $75 million. And so I think we would say we're making good progress on it, and Adam, in a second, can give some sort of higher level thoughts on it. I'll also point out the move we had in leverage this quarter and maybe just explain that a bit. So last quarter, when we announced the large transformation initiative and as you referenced, $125 million to $150 million, we recently -- we've been doing a lot of work to sort of lock down our bankable plan of initiatives expected to be implemented over the next 12 months. And per the terms of our credit agreement, we're able to reflect those sort of retroactively back into our trailing 8-quarter EBITDA for purposes of leverage calculation. And so that is the driver behind the big move you see in leverage this quarter, down to 3.9x. And that's really tied to not all of the initiatives, but the initiatives that we think will have fully implemented by the end of Q1 of next year. Adam, do you want to talk a little bit more about bigger picture on transformation?

Yes. I mean we're executing a comprehensive plan that's allowing us to rethink everything about how we deliver service to the customer. When I think about our customer, I think about our audience and our advertisers. We spent months examining the opportunity to remake the company across every corner of the business, the front office and the back office, and now we're moving into implementation. And I got a lot of comments about how confident I sounded last quarter when I said take it to the bank. I'll tell you, I'm as confident today as I sounded last quarter that we're going to improve EBITDA by more than 30% to emerge a stronger, more nimble and more aggressive company oriented for growth. It's all about our customer, and it's all being done through the lens of the company's vision, we create connection. A lot of it has to do with technology, the use of AI and automation. It's very much oriented towards growth. But the most important thing I think investors have to hear is we are on track to achieve exactly what we set out to do.

I appreciate that. And then talking about AI, can you give us a little more flavor of how you're using AI to help your services, but also help on the efficiency side? Is it possible to maybe quantify how much you think out of the $125 million to $150 million improvement in EBITDA comes from AI? Is that possible?

Yes. I mean I can't quantify that at this point. I would expect that as we roll out different initiatives, when they're in the rearview mirror, we can provide a little bit more color. I would say, broadly, Craig, there's been a shift with technology that opens up an opportunity for all companies in every industry to be more effective and efficient. I'd say traditionally, the broadcast industry has been too slow to adopt these technologies and probably as a result of this being a business that has been in consolidation, we haven't taken advantage of stepping back and rebuilding companies in the front office and the back office. And so now that's what we're doing at Scripps. Several years ago, we pioneered a new way of producing newscasts, for example, that leveraged technology that allowed us to reallocate resources so that we could put more reporters in the field and even give higher wages to those reporters. We call that then the news initiative. And that was the basis for our neighborhood news strategy. Now the geographic beats that I referenced in my earlier comments, we continue to have more reporters in the field covering the community than our competitors. That's really what our consumers care about, and we're leveraging AI and automation to facilitate that process. We also see significant top line upside from implementing technology and revenue yield management. Improvements to account executive productivity, our account executives, I think, could be made much more productive by leveraging tools that you see in other industries in order to allow them to spend more time in the field, from the prospecting all the way to the closing of business than doing administrative work. And then I would say look, these -- you have to recognize, and like I said, I'm happy to get into more details in the future. These aren't themes or broad brush sort of ideas. These are plans with real business cases that have been developed by our employees who have taken a great sense of agency in evolving this business. As I said before, even the cost savings opportunities will actually improve our product, both content and advertising, improving our service to audiences and advertisers and generating additional top line and bottom line value.

My last question, if I may. Just talk a little bit further, if you would, please, about the macro environment. Is it letting up at all for you here? Is it feeling like it's getting worse? Is there any other categories other than DR that you'd want to call out that's impacting? And I guess, if we think back on the first quarter, did you really start to see it tied into when the Iran War started at the very end of February, was it tied in directly with that? And is it just continued at that same level what happened in March? Or has it gotten worse? Just couch that for us, if you would, please?

Yes. I mean I think on the network side, we talked a bit earlier in this call about the impact we are seeing and the fact that we would point it back to both sort of macroeconomic conditions and the geopolitical conditions, inflation, gas prices, all those things. And that is creating what I would say is some headwinds in the national ad marketplace. We really haven't talked about the local ad marketplace yet. But as you saw in Q1, from a local ad perspective, we were up 7%. That was the best in the industry. And for Q2, we guided to down low single digits again, better than all of our peers guided. Unlike Q1, where we saw a lot of growth tied to our sports inventory, Q2 doesn't have the same level of premium sports inventory, and we are seeing maybe a little bit of noise in some of our categories in macroeconomic state. But all in all, I would say, from a local core perspective, things are pretty stable.

And our next question comes from Avi Steiner of JPMorgan.

A couple of questions here. Just on the environment, and I apologize if I missed this, I was a couple of minutes that was off. But can you just refresh us on the exposure to direct response to advertising? And remind us maybe how quickly that came back in kind of prior down cycles? Is it leading into bidding? How should we think about it?

So from a DR perspective, it really varies by network, but we certainly do have a material portion of our networks revenue, which is tied to DR advertising. What you see DR advertising is very tied into broader macroeconomic trends and can both downturn quickly, but also bounced back pretty quickly as well. And so we are seeing some noise right now that's part of. I know you think you said you missed the beginning of the call. But the guide we gave for Q2 is both tied to some of those macroeconomic and geopolitical implications on direct response as well as impacts we're seeing on ratings tied to some recent Nielsen methodology changes.

I would say from a speed perspective, it snaps around pretty darn quickly. And 1 good example of that is what we saw in fourth quarter. The beginning of fourth quarter, we were a little soft with DR as a result of the government shutdown. Its impact on employment and its impact on Medicare enrollment. When the government shutdown ended, it snapped back. And so I think the bottom line here is uncertainty is not good for the American economy. Uncertainty is not good for the American consumer because they hold on to their dollars. And so the greater level of certainty that we can have, the easier things will be in the ad marketplace.

That's super helpful. And then on the enterprise value growth that you're putting in being the cost savings and revenue growth initiatives. Just on the cost savings side, and apologies again if I missed this as well. What is the cost of the company, if any, for some of the transformation initiatives you're undertaking and maybe timing of any of those costs?

Are you asking specifically cost to achieve?

Yes.

Yes. Yes. So we guided to the lift in EBITDA of $125 million to $150 million. We would estimate $40 million to $50 million of cost to achieve with the largest portion of that falling in the back half of this year.

Super helpful. And then if I could sneak 1 more in quad housekeeping, just cause understanding. The recap financials being the supplemental part of the disclosure was very helpful. So I'm wondering if you could provide the LAQ EBITDA for the same base of assets that is underlying? Again, that disclosure, which was helpful. And then refresh us if you can, what's left to close and dollars in and dollars out?

So the LQA that supports that 3.9 calculation on leverage is $568 million. What's left to close is -- I think was the other part of your question. We are awaiting closure of our swaps with Gray and sort of getting that final process done. We also have a transaction with Hineo to that is before the SEC and right now as well.

And do you have the dollars for those -- I know there's no dollars in the swap. Remind us of the dollars of HIneo. And do you have the 568 without the cost saves, if you have?

I don't have that number readily available, but it is a little over $100 million of cost savings that is reflected backwards into that. The LQA number, from an annual perspective, it was -- it is in the kind of mid $50 million range. It's somewhat dependent on timing. I think in our most recent announcement on that, we said $53 million.

Our next question comes from Shanna Qiu of Barclays.

I know you touched on this a little bit earlier, but could you give us a sense of how much the Scripps Networks' top line guide, the decline in 2Q is related to the overall macro and ad environment versus what you called out on the Nielsen methodology change?

So I don't think we're breaking it down specifically. I would say both are driving a material impact to the revenue guide that we provided.

Yes. I mean I think it's important to recognize that on the network side, we sell impressions and the impressions are determined by your currency. So mid-February, overnight, Nielsen's methodology changed, didn't impact sales execution, and it didn't impact the demand we have in the marketplace, it impacted how many impressions we had to sell. And so we're working right now with Nielsen to right that ship. But we're also not just sort of letting it go. I mean we're doing what we can to make changes both on the marketing side as well as on the programming side to bolster the programming strategy so that we can see an increase in impressions. Because we have the customer demand, we have the advertiser. We just need to see the impressions come back. I would say that's separate and aside from some of the macro stuff on the DR side. But the general marketplace has actually held up pretty nicely relative to the demand we're seeing. And that's probably as a result of our sports strategy and I think the strength of our sales execution performance.

All right. That's really helpful color. And then I think earlier on the call, you mentioned that you expect full year gross distribution revenue growth of low single digits. I was just curious on your thoughts on the pending charter Comcast merger. Is that reflected in that gross distribution guide that you highlighted?

So, we don't generally talk about specific contracts, but I would say is we feel pretty good about that guide. And the fact that we went through an impasse in the second quarter and with Comcast, and we're able to maintain our guide on gross and only make a small change in our net guide from low teens to low double digits. I think that, that was something that we were pleased with the outcome of that deal. And while it does create a very short-term blip in our Q2 financials, really pleased with what that deal means in the midterm and long term for us.

And we have a follow-up from Craig Huber of Huber Research Partners.

Curious to the Nielsen change you're talking about. Are you willing or able to talk about what percent hit that was to your impressions or how you sort of view it in also curious anything about it on that front?

Yes, I don't think that benefits us. But to be honest, you heard a similar reference on some other companies' earnings calls that have national broadcast network exposure. This is just something that all of the broadcast networks and streamers inexplicably are dealing with. And so we're working with our colleagues at Nielsen to try and right this, so that the advertising marketplace is able to make decisions on their buys with a methodology that actually reflects what's going on in the television marketplace. It's obviously not the case that cable is growing and streaming and OTA are declining, okay? That's obviously not the case. So at the end of the day, I think everybody recognizes that some changes have to be put back into the system in order to address this for there to be more accuracy.

And just to be clear, Nielsen has not been able or willing to put out recast numbers on this new methodology over the last 12 months or so?

I can't speak for Nielsen what they're willing to do or not.

But they haven't so far in the public domain, right?

I don't know that they would recast. I mean we're only talking about February -- something that went back to sort of mid- to late February.

Yes, it just would have been helpful, obviously, from their vantage point, if they were willing to put that number -- those numbers out there.

there's a lot that would have.

I can tell how upset you guys are, I don't blame you. You're not the only ones, of course.

Our next question comes from Steven Cahall of Wells Fargo.

Sorry, I had a little trouble getting into the queue. So Jason, I just wanted to understand the sequential change in core ad growth at local. There's a lot in there, I think, going from plus 7 to the down low single digit. I know there's a change in local sports. There's the Comcast blackout. Can you help us kind of think about what the underlying sort of core sequential change looks like within that? I know it's a lot less than the 9 percentage points of deceleration. So how do we kind of think about that within?

Yes. So from a core perspective, the Q1 number, the up 7%, had a significant benefit tied to our NHL deals as well as you had the Olympics in there as well. I would view it as you take out sort of the sports impact and the overall core marketplace is pretty consistent with what we've been seeing and not significantly impacted by what's going on sort of more broadly in the economy. And I think that down low singles that we put out there is also better than most everybody else I've seen in our industry was kind of down more low to mid-singles. And so from app standpoint, I actually see our core as a strength right now.

Yes. I mean I just hope -- this is Adam. I just hope that investors and analysts recognize that our performance in first quarter is cause to celebrate because we're executing a strategy that is putting significant growth opportunity in front of us cyclical as it may be. And now, of course, we move towards that opportunity on the network side. But obviously, when you're running a strategy that allows you to vacuum up more core revenue in a local market, you do so recognizing that it's going to be with the sports opportunity.

Yes. And then kind of a related question on Networks growth. I know Q3 is the biggest for sports networks. But I think just sequentially 1Q to 2Q has more sports as well, like WNBA restarting. So I guess what I'm trying to figure out is like if the market hasn't changed as we get past Q3, do you see a big drop-off in the rate of decline? Or are there other kind of levers that you'll have to pull in either programming or pricing with upfront or other things as we get into the back half of the year, kind of continuation of the trends?

Yes. So I think -- and we touched on these a little bit earlier. I mean I think there -- from a margin perspective, we expect the second half to be higher than the first half. I mean we do have some sports in Q2, yes, but those ramp up sort of the full quarter in Q3. And so when you look at sort of the revenue trend line, I would expect to see the year-over-year changes improve when you get into the back half of the year. You also start to pull in health care. And I think I also alluded to some of the transformation benefits that will roll through here as well. And so I do think you'll see a better picture in the back half of the year than you do the first half of the year for the Networks business. And even though that's trending right now below the 30% target, we remain committed to as we manage through this year and into next year, making decisions we need to make to get this business back to a 30% margin.

Yes, Steven, I would also say it's obviously way too early to be talking about anything from a volume or pricing perspective on the upfront. And while Nielsen's measurement change may have negatively impacted impressions for OTA and streaming, the fact is the ad marketplace is responding very well the message that we have out there in the marketplace for the upfront. Our focus is continuing to be on our distribution platform, which grows OTA and streaming and the differentiated programming we have, live sports, specifically women's sports. And that's our messaging that, especially that OTA opportunity continues to be, I think, really well received by advertisers in the marketplace who recognize what's going on in the cable industry and are looking to shift dollars from general market cable into more premium products. That's what has been behind some of the significant new advertisers coming on to our platform. I mentioned Amika coming in as the title sponsor, presenting sponsor for the Walter Cup finals here on ION. These are the kind of advertisers historically that haven't been advertisers on our platform and are moving over now to spend with us because we have the product and the distribution they're looking for to reach the people they want.

And then just a last one for me. So if I understand what's going on in leverage, you're able to take advantage in your credit agreements of the transformation initiatives, which I think just gives you a little bit of breathing room versus covenants versus net leverage calculations. Does that mean you can start to devote this year's free cash flow towards the accumulated pref dividends or otherwise kind of negotiating the pref? Or do you think the pref is kind of better left to maybe be part of like a longer-term strategic M&A transaction? I would just love to know how you're thinking about it.

Yes. So first of all, on the covenants sort of cushion. I mean we already were sort of well with under -- well under all of our covenants. And so while the transformation does provide a benefit into our leverage calculation, like there was already significant coverage there. From a Berkshire dividend perspective, based on the refinancing that we did last year, the large refinancings we did, we cannot pay the dividend until 2027 until our leverage is below 4.25, which obviously, we're under and is -- and we have less than $50 million outstanding on the B2 term loan. So when you think about the pref, I would think of it this way. Those are the requirements for us to begin paying the dividend. Once we meet those, we would intend to start paying a dividend again. Once we get leverage into the low to mid 3x, we would begin looking to address the principal, not all at once, but likely in increments. We can do that in $60 million increments. And so I think that is kind of the way we think about the pref.

This concludes our question-and-answer session and also today's conference call. Thank you for participating, and you may now disconnect.