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

Good day, and thank you for standing by. Welcome to the Second 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, Steve. 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 Scripps' President and CEO, Adam Simpson; and Chief Financial Officer, Jason Holmes. Here Adam.

Thanks, Carolyn. Good morning, everybody. Before Jason reviews our financial results, I'd like to make a few brief comments on yesterday's vote at the FCC to lift the broadcast ownership count. We're very pleased that the commission has made the decision in the direction of further leveling the playing field in the media business by finally addressing some of the arcane rules that have significantly impaired the broadcast industry. These regulations once served an important purpose, but they were put in place well before the digital revolution, well before consumers have the kind of choices they do today. . Over the last 20 years, these regulations have put us at an unfair disadvantage to the nationally scaled big tech companies and streaming platforms that buy for audience and advertiser retention. I'm pleased that yesterday's actions should support our ability to pursue business models that will allow scripts and broadcasters like us to maintain our commitment to the communities we serve, both as a result of M&A and through Scripps' transformation, which I'll discuss further in a few moments. First, here's Jason.

Good morning, everyone, and thank you for joining us. This morning, we're looking forward to discussing highlights from the second quarter that demonstrate our commitment to transforming Scripps operations and creating new value in our current businesses through sports, through TV station M&A and through our network and distributor relationships. I will discuss the financial details of these business highlights, and then Adam will provide more color on our strategic progress. This morning, we also plan to share some new third quarter and full year guidance that will help you quantify where we will soon realize these benefits. We continue to move forward on our company transformation plan, which includes both expense reduction and revenue growth components. As we have said previously, we're targeting $125 million to $150 million in incremental enterprise EBITDA by 2028. And we now expect to have executed on $100 million in annual run rate savings by the end of this year. That's up 33% from the guidance we gave you on our first quarter earnings call. During the second quarter, we made further gains in our script sports strategy, signing our first NBA agreement with the roses in our Local Media division. And another marquee national women's sports agreement with the women's Volleyball World Cup tournament in 2027 on Ion. These agreements join a robust portfolio of local and national sports that are adding material value to our core advertising revenue, our Scripps Networks revenue and our traction in the national advertising upfront this summer. On the M&A front, we have executed a number of accretive local station transactions, including acquiring a second big 4 station to create a duopoly in Licensing, Kentucky. We completed a station swap with Gray media across 5 midsized and small markets that expand our presence in the Mountain West. And just a reminder that we completed the sales of stations in Fort Myers, Florida and Indianapolis in the spring, putting that cash towards debt paydown. One more highlight I want to mention from the second quarter, we completed the last of 3 major distribution agreements, covering the majority of our pay TV subscriber households renewing this year. As you know, both Comcast and DIRECTV temporarily dropped strip stations, which affected our distribution and core advertising revenue for the second quarter, but we held firm with them in order to attain our fair share of the value our programming provides to them. We are pleased with the outcome of those negotiations. With those highlights in mind, let's now turn to a review of our financial results for second quarter 2026 and guidance for the back half of this year. I will present our second quarter Local Media division results on the same station or adjusted combined basis, removing the Q2 2025 results of the 2 TV stations that we've now sold and reflecting our addition of the Lexington ABC affiliate. During the second quarter, our Local Media division revenue was $317 million, down 1% from the second quarter of 2025. Core advertising decreased 4.8% and tied to factors, including broader economic uncertainty, political crowd out and the impact of our carriage dispute. Global Media political amortizing revenue was $28 million, a record second quarter for us and what's expected to be a record spending cycle for the midterm election. Local media distribution revenue declined 13% to $161 million. The service blackout periods during the contract negotiations with Comcast and DIRECTV accounted for the decline. 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 $56 million compared to $51 million in the year ago quarter. For the third quarter, on an adjusted combined or same-station basis, we expect Local Media division revenue to be up about 20%. We expect core advertising to be down low double digits, in line with the core revenue decline in the third quarter of the 2022 midterms. We expect our political advertising revenue for the full year to reach a range of $225 million to $250 million. We are carefully watching spending for a number of federal races that will determine where we land and Adam will give more color on that in a moment. For comparison, in the 2022 midterm, we took in $198 million. As I mentioned, local media distribution revenue has been impacted by our in pass with Comcast, which ran from March 31 to May 5 and with DirecTV, which lasted from May 31 to July 10. Based on those events, we now expect full year gross distribution revenue to be down in the low single-digit percent range, but net distribution revenues to be up in the mid- to high single digits. We expect third quarter local net expenses to be down low single digits in comparison to Q3 of 2025. Now let's review the Scripps Networks division's second quarter results and third 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 the second quarter, Scripps Networks revenue was $172 million, down 13% from Q2 of 2025. The decline was driven by linear TV viewing trends and changes in Nielsen's measurement methodology. Nielsen has told us they are developing some forthcoming adjustments to their methodology that will better reflect our true audience size. As you know, this is a bit of a black box for those of us in the industry. Nevertheless, we are aggressively pursuing strategies to improve the networks revenue and overall operating results. Our networks results also were impacted by a softer direct response advertising market, which is susceptible to consumer spending trends. Connected TV revenue continues to be a strong growth driver for us, up 28% over the same quarter last year. The division's second quarter expenses were $146 million, up 3.7%. Scripps Networks Q2 segment profit was $26 million compared to $57 million in the year ago quarter. For the third quarter, we expect Scripps Networks division revenue to be down in the mid-teens percent range as we work through the impact of the Nielsen measurement changes and continuing soft direct response advertising market conditions driven by the macroeconomic environment. We expect Scripps Networks expenses to be up in the low single digits. For the segment label other, in the second quarter, we reported a loss of $4.5 million. Shared services and corporate expenses were $27.5 million due to higher medical claims and increased insurance premiums. For the third quarter, we expect that line to be about $25 million. To update to our full year guidance. We now expect to receive a net tax refund of approximately $5 million, and we brought down our forecast for CapEx to a range of $50 million to $60 million. As I mentioned at the beginning of my remarks, we now expect our company transformation plan activities to produce an annualized run rate of $100 million by year-end. You can see the benefits of this work begin to roll through into our third quarter guidance and that benefit will grow as we move into the fourth quarter. Let me size that up for you with a comparison for each division of third quarter and fourth quarter expense guidance. In the Local Media division, backing out the impact of new sports-related costs, we expect expenses to move from a low single-digit decline in Q3 to mid- to high single-digit decline in Q4. In the Networks division, we expect expenses to move from up low single digits in Q3 and to down low to mid-single digits in Q4. For the second quarter, the company is reporting a loss of $12.68 per share. Due to the current outlook for national linear advertising revenue, driven by economic and secular pressures, we reported a $1.1 billion noncash goodwill and other intangible asset impairment charge for the Scripps Networks business. The quarter also included $36 million in restructuring costs coming out of our company transformation plan and a $9 million gain from our swaps with Gray Media. These 3 items together increased the loss attributable to shareholders by $11.83 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 ended the quarter with $13 million in cash and nothing drawn on our revolving credit facility. Net debt was $2.2 billion as defined in our credit agreement. Following the successful refinancing of our 2026, '27, '28 debt last year, we achieved another major milestone in the second quarter by extending our corporate revolving line of credit through July of 2029. We secured commitments for a total credit capacity of $200 million with this extension finalized, the company has no near-term debt deadlines. Net leverage at the end of the quarter was 4.9x as compared to 4.4x at the end of Q1 when calculated on the same basis according to the terms of our credit agreement, which includes certain pro forma adjustments related to our transformation efforts. And now here's Adam.

Thank you, Jason. Good morning, everybody. We're reporting a second quarter during which we significantly advanced Scripps' strategic priorities on every front: live sports, distribution value, top line and net political advertising, M&A and operational efficiency through transformation. Our financial performance for the quarter didn't meet my expectations. We faced challenges on a number of fronts, including sudden changes to Nielsen's measurement methodology that impacted our networks, continued declines in linear viewing, uncertainty in the economy and the advertising market and blackouts with legacy pay-TV providers. The second quarter's results don't reflect the hard work performed by hundreds of our colleagues across the company. They have been creating more efficient ways of working to drive profitable top line growth that you'll begin to see as permanent benefits to our results starting in third quarter and into next year. I'm pleased to share that through this work on our company transformation plan, we've lifted our guidance for the year-end run rate savings twice now to $100 million. In a moment, I'll discuss more details about our transformation plan, including how we are leveraging AI, automation and technology to remake the business and better serve our consumers. But first, let me discuss some operational and financial highlights that are setting up the company for growth. Nearly 4 years ago, we created scripts Sports to seize the opportunity caused by the implosion of the RSN model and capitalize on the tower of our broadcast reach. During the second quarter, we expanded upon our leadership, signing 2 new teams to multiyear full-season partnerships. Our fifth NHL team, the Nashville Predators and our first NBA team, the Detroit pistons. As you saw in our financial results last season, these partnerships add material gains to our core advertising revenue and meaningful organic growth in core revenue year after year. You'll see that reflected again this year starting in the fourth quarter on top of the benefit of political. When we flip an ion station to an independent carrying local sports, we create a platform for new core revenue and new distribution revenue, creating a local duopoly without having to deploy capital to buy a station. It's a clear example of how we are optimizing our spectrum for its best and most profitable use. We have now converted 5 ION stations to build local duopolies and we'll continue to look for opportunities to maximize the productivity of our assets. On the national side, we have seized upon the importance of live sports and linear broadcast. Scripps Sports has established Ion as the home of women's sports. That leadership is why the women's volleyball World Cup announced in July that it would make Ion its U.S. home for next year's tournament leading up to L28. The women's volleyball World Cup joins the WNBA, the National Women's Soccer League, professional women's hockey and Women's college basketball, track, Prochir and rodeo on ION. In this tough television marketplace, live sports is 1 of the most valuable ways to drive advertiser demand and premium rates. During our national advertising upfront negotiations this summer sports has helped differentiate Scripps' program offerings and created opportunities to capture advertiser investments across our networks, broadcast, connected TV and broader portfolio. I expect we'll continue to see more growth in our sports revenue performance as we turn even more focus to this growing part of our business. With respect to distribution revenue, we are leveraging the power of our network affiliations, news and premium live sports to maximize our opportunity with the MVPDs. The blackouts are now behind us, and I'm very pleased with the results of our new distribution agreements. We successfully renewed 70% of our subs with agreements that will contribute to margin expansion and our ability to serve local audiences for years to come. And you can see from our local media programming expense line, we also are bringing down network compensation costs across the board. We are realizing these savings on the expense side while driving new value on the revenue side, allowing us to capture and keep much more of what we deserve for our programming. Second quarter also set a new record for our company in political revenue, foreshadowing what we expect in the back half of the year. No other medium delivers a political message as powerfully and reliably as broadcast television, and our multi-platform approach allows candidates and campaigns to reach voters anywhere they watch TV. Ad impact recently raised its estimate for this year's spending to a record $11.6 billion, and they are projecting local television to once again capture nearly half of that as it has in recent election cycles. As Jason mentioned, Scripps expects a record midterm cycle between $225 million and $250 million. We are seeing strong election spending in our markets across Arizona, California, Colorado, Florida, Michigan, Montana, Nevada, Ohio, Virginia and Wisconsin. The recent Supreme Court decision on coordinated candidate and party spending has raised some investor questions. We see this ruling creating significant upside for political volume encouraging more investment into the political ad ecosystem. The ruling has clearly not dampened our political revenue outlook. We are committed to capitalizing on changes in the federal regulatory environment to create value through our recent M&A activity. We have sold stations for cash, swapped others strategically and acquired some to create high-margin duopolies. Station M&A will continue to be a meaningful tool to optimize our portfolio enabling our public service mission. And while I'm bullish on the future of M&A for our industry and recognize the opportunity for financial engineering, it will not be the only arrow in our quiver. That's why scripts through our company transformation plan is proactively making fundamental changes to the way we produce our most important and costliest product, local news. Our strategy will address a few simple truths. First, our audiences expect us to deliver the news when and where they wanted. And to meet that expectation, we're rolling out 24/7 local news streams to distribute stories as they happen to social, digital and streaming platforms. Second, consumers expect us to report on the full texture of life and their communities down to the neighborhood, so we're doubling down on our commitment to having more reporters covering geographic feeds. And third, making these changes requires an entirely different approach to resource allocation. So we're leaning into AI, automation, technology and the centralization of some roles. This revolution and that's really what it is, a revolution in the way local news is created and distributed has been developed and built by members of Scripps' news and technology teams who have been working together for the last year because they believe our mission is too important the role we play in our community is too critical for us not to evolve to meet the moment. This work makes Scripps local media a technology-forward AI-powered broadcast journalism company, dedicated to serving our communities with the same high-quality stack-based reporting for which they've relied on us for nearly 150 years. Let me be clear, we are making use of technology to improve our operating model and better serve our audiences. We are not wavering from our commitment to quality journalism. Because we are adopting more efficient ways of working across the entire enterprise, our transformation work has resulted in a reduction in our workforce. This week, we notified 268 employees that their jobs would be eliminated. Since the beginning of the year, we have eliminated 432 employee positions and 126 open positions. 12% of our total. The coming quarters will see additional savings. Parting ways with colleagues is a painful process, full of difficult decisions. but we make them knowing they are financially necessary to fulfill our commitments to our communities, our nation and our shareholders. Just as we have been making significant changes in our local media business, so are we applying our transformation lens to the Scripps Networks business. We realized the headwinds there require us to rethink our strategies. And that's 1 of the reasons why I've asked Dean Littleton to oversee the networks business as well as local media in his new role as President of Media. We believe the Networks business can benefit from his holistic view of our opportunity, his industry expertise and his growth mindset. I'm energized knowing that hundreds of Scripps colleagues are invested in our transformation plan, so invested in the company's future that they've been willing to set aside conventions about how things have always been done in order to invent what's next. At a time when many in our industry will respond to economic pressure with cuts alone Scripps is differentiating itself with a goal to build a better product under a more sustainable model for serving our audiences and advertisers. Our work is what separates cost reduction from transformation. One protects an ineffective status quo, the other builds something new and powerful with tremendous value to the enterprise. This is the word positioning Scripps for durable growth and creating meaningful shareholder value. I'm going to close where I started, and quote Chairman Car's remarks yesterday because between the regulatory changes and our own transformation, this is exactly how I feel. He said "we should learn from our mistakes with the local newspaper industry, and we should not let the same thing happen to the local broadcast TV industry. Trusted sources of local reporting broadcast over the public airwaves are worth protecting and worth fighting for." Operator, we're now ready for questions.

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

I appreciate all the additional color guys and sort of the progress on the transformation plan. I have to housekeeping-ish questions and then 2 kind of larger questions. The first housekeeping question is, Jason, I just want to double-click on. Did you say core was pacing down low doubles in Q3?

Yes, low doubles in Q3, driven by the political product you would expect. It's pretty -- it's right in line with what we saw in core in Q3 of 2022. But I would...

Rising, I guess, well, go ahead, Adam. If you're going to say something .

No, I would also point even ahead though to that because the onset of the NBA and NHL seasons will just start in third quarter and then really come into their own in the fourth quarter when we will expect to see significant outperformance above political.

Yes. No, that makes sense. I mean we have Q4 a little bit better, I think, than Q3 on that. And that's that's something I do want to get into in a second. But just I just want to make sure I get this right, Jason, because I'm just trying to sort of back into the up 20 and your retrans guide seems pretty clear now given the noise is behind you. So it kind of implies political in the mid-70s in Q3. Is that the right figure?

Based on the full year guide we gave and the core guide we gave in Q3, I can see where you'd end up in that range.

And then just the other piece of that is -- I appreciate the color in the release on the impact of, obviously, Comcast and direct, is there a way directionally, I don't expect a specific number, but is there any directionally to think about net retrans in '27 now? Because obviously, we started it. I think mid-teens net retrans growth this year. And obviously, the blackout clearly impacted that, but you'll get the full benefit of that next year. And I don't think you have any major network renewals and your programming costs are coming down anyway. So just any way to think about into next year, the trajectory for that?

Certainly, we're going to get a year-over-year benefit from the impact of the blackout. We're not going to give any guidance now. We do have about 20% of our subs resetting next year. And then obviously, we have the full year impact of the step-ups we have this year. And so I do think both gross and net will be a victory for us next year, but I don't think we're going to be any more specific than that right now.

And Dan, just to reiterate what you said, we have locked in all of our affiliation agreements. And so that -- we have that expense visibility here into the foreseeable future.

Okay. Perfect. And then the 2 big things that I wanted to hit. First, just on Nielsen, if you can just talk about any progress that you've made on the sort of the big panel stuff, which seems -- I mean, like you can see the numbers, they're ridiculous. I don't know why they'd be bearing their heads in the sand. So any progress on that front? And then subsequently, it sounds like there may be some benefit on the local side from Nielsen. So I mean, how are you guys thinking about sort of the broader impact from any Nielsen changes in the coming quarters?

Yes. So it's the same changes that you're talking about that are meant to rebalance things and more accurately measure our Networks business and that we are told will improve or benefit local broadcast. The same round of changes, so to speak. Right now, just for investors reference, I would say our performance softness, I'd attribute about 50% of that the sudden change in Nielsen. We've been in conversations with the very highest levels at Nielsen on the process that they're working on to correct this for this fall. But as you know, I'm leery to sort of take anything to the bank. None of the upside of a fix is baked into our guide. And so I'm just a little gun shy of assuming anything until things go into production. We -- just as a reminder, we were on track in the first quarter and really sort of seeing everything as it should have been until Nielsen made that set and sort of inexplicable update to its measurement methodology that finished the broadcast networks and benefited cable. By the way, it's also underrepresenting multicultural audiences, something else they say they're going to address. And all of this has been negatively impacting both streaming and broadcast, which is not at all a reflection of what we know is actually happening in the video ecosystem as it relates to the consumer habits and cord cutting. So I expect changes to begin sometime in September, but I'm unclear on what the benefit will be. And so we're just taking a more I think, sober approach and would hope to recognize upside.

Okay. No, that's very helpful, Adam. And I think that's probably prudent given that it's Nielsen. And then the last thing I want to ask you is just big picture, Adam, on the transformation plan. So I appreciate the color on the 24/7 new streams. Clearly, we've got the momentum on the local side. You've got -- in you've got in switching to Indies. The growth on local actually kind of puts now and local is obviously twice as big as networks. . The color that you just gave on Nielsen was super helpful. Is there anything else that we can think about outside of maybe CTV on the network side that can help just kind of get the rest of the balance of the equation even though I think local growing something could probably offset even modest declines in network and Producer Plus.

Yes. I think, first of all, you should recall that we have been very proactive in managing the P&L and managing the networks for growth. As last year, we beat our expectation on improving the margin for networks. And we're very, very dedicated to getting back to that place. continuing we're focused on continuing to expand in sports and to drive revenue growth and profit. We want to address some of the opportunities with our programming and distribution strategies, continue to expand and fast, and this is also 1 of the reasons I recently made a leadership change at the networks. We now have brought the operation together under Dan Littleton's leadership. We're sort of looking at the portfolio as the largest portfolio of broadcast stations and how we use that spectrum for its best and highest use through both network, television and local. Dean will, I think, be optimizing the business from that perspective. He's done a great job leading in transforming the local business and its cost structure, and I think it's going to bring the same opportunity to the network side and get it quickly back on track. There's no question in my mind that the story of the networks and our, I guess, cumulative collection of the largest nationwide broadcast platform isn't complete yet, and we'll continue to look at ways to use this platform to drive greater shareholder value.

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

Great I guess, sorry for the directness of this question. But I mean, given all the changes you guys are making here and given what's happened outside of your control here, does this any of this make you and the family any more likely or less likely to sell the company? I mean, obviously, you had a bid here not too long ago for the company and so forth, you guys turned it down. I understand why. But does any of the change you guys have put in place to make you feel like you really don't need to go down that road and you can just you get through all this successfully?

Well, first of all, it's important to note, Craig, that I don't speak for our controlling shareholder, but I can reiterate what I've said many times before and what you've seen over the long history of the company. The family has always acted in the best interest of all shareholders and is committed to doing what's best for the company to create the greatest shareholder value. Now I'll speak for myself and maybe management's perspective. We believe greater scale nationally and greater depth in market are helpful. for our assets to perform their very best for shareholders and continue in service to the communities where we operate. from a journalism, local programming and local sports perspective. So I expect we'll continue to do everything in our power to take advantage of this moment. I mean I expect the greatest opportunities will be ahead for us, whether that is continuing to transform the business or identifying opportunities for us to engage in swaps, select divestitures or acquisitions to improve our portfolio.