E.W. Scripps Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 23, 2024

There are 10 speakers on the call.

Operator

Thank you for standing by. Welcome to the Scripps' 4th Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Instructions will be given at that time.

Operator

As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Executive Vice President of Investor Relations, Carolyn Miceli. Please go ahead.

Speaker 1

Thanks, Rich. 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.

Speaker 1

A reminder that our conference call and webcast include forward looking statements and actual results may differ. 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.

Speaker 1

Included in our earnings release are the reconciliations of non GAAP financial measures to the GAAP measures reported in our financial statements. We'll hear first this morning from Scripps' Chief Financial Officer, Jason Combs then from Scripps' Chief Operating Officer, Lisa Knutson and finally from President and CEO, Adam Simpson. Here's Jason.

Speaker 2

Thanks, Carolyn. Good morning, everyone, and thank you for joining us. Let's start today with a look at our strong finish to 2023. I want to review a few 4th quarter and year end highlights, then I'll give guidance for the Q1 and several full year items, and I'll conclude with capital allocation and our debt picture. We were very pleased to end 2023 by significantly exceeding our free cash flow expectations.

Speaker 2

On our last earnings call in November, we set a range of $50,000,000 to $60,000,000 in full year free cash flow, and we ended at about $77,000,000 The over performance was driven by our highest political advertising revenue for an off cycle election year as well as stronger than expected ad revenue results in Scripps Networks. Also in 2023, we achieved $752,000,000 in distribution revenue as we renewed 75% of our pay TV households. That was up 15% over 2022 and those results drove net distribution dollars up more than 40%. We are pleased we were able to successfully avoid any blackouts with the cable and satellite providers throughout all of those negotiations. For the Q4 of 2023, we reported financial results that nearly all met or exceeded the expectations we set in November.

Speaker 2

We executed tight expense management and our Scripps Networks revenue came in better than expected at down only 7%, driving Network segment profit performance. Scripps Networks revenue for the Q4 was $230,000,000 exceeding our guidance because of better than expected revenue from all three key areas: General Market, Connected TV and Direct Response. Scripps Networks Q4 segment expenses were 166,000,000 dollars down 1.2% from the prior year quarter. Segment profit in Networks was $64,000,000 In our Local Media division, total revenue was down 12% from the prior year quarter due to the absence of election year political advertising revenue. Political ad revenue in Q4 2023 did exceed our expectations at $16,000,000 driven by spending in Montana and Ohio.

Speaker 2

Total political ad revenue for 2023 was $33,000,000 as I mentioned before, the highest for an off cycle election. 4th quarter local core advertising revenue was up 1% from the prior year period and local distribution revenue was up 22% fueled by renewals of our cable and satellite agreements. Local media expenses were up less than 5% in the prior year quarter. This increase reflects higher programming fees and the cost of sports rights agreements with 2 National Hockey League teams. Local Media segment profit was nearly $86,000,000 In the segment labeled other, we reported a 4th quarter loss of $12,000,000 The segment includes spend on promoting our Tableau over the air viewing device.

Speaker 2

Shared services and corporate expenses were $24,000,000 up a bit from our November guidance as better than expected quarterly results drove our variable compensation higher. The loss attributable to shareholders of Scripps was $268,000,000 or $3.17 per share. Pre tax costs for the quarter included a non cash goodwill impairment charge for Scripps Networks of $266,000,000 In addition, we recorded $9,400,000 in restructuring charges. These charges increased the loss attributable to shareholders by $3.15 per share. The restructuring costs are related to our company wide reorganization.

Speaker 2

We are on track to realize annualized savings of more than $40,000,000 by the middle of this year. As of quarter end, cash and cash equivalents totaled 35,000,000 dollars Our net debt at quarter end was $2,900,000,000 We ended the year with net leverage of 5.7 times for the calculations in our credit agreements. And now, I'd like to discuss a few key guidance items for the Q1 and full year 2024. For the Q1 in the Scripps Networks division, we expect revenue to be flat to down low single digits. We expect 1st quarter Network segment expenses to be down low single digits.

Speaker 2

We expect total local media revenue to be up in the low teens percent range. We expect local core ad revenue to be flat to up low single digits.

Speaker 3

Lisa will give more color in

Speaker 2

a moment about our strong start to the quarter with key categories, including auto. We expect Q1 local media expenses to be up about 10%. If you back out the costs associated with our new sports deals, network fee step ups and one time facility work, local media expenses would be up in the low to mid single digits. 1st quarter shared services costs are expected to be about $24,000,000 We expect the segment labeled other to generate a loss of about $7,000,000 in Q1 as we continue to educate consumers about free over the year viewing and to promote our Tableau device. Now I'd like to touch on several full year items.

Speaker 2

We expect our local political advertising revenue to come in between $210,000,000 $250,000,000 in this presidential election year. We expect Connected TV revenue for the networks to increase by more than 40%, excluding the impact of our low margin programmatic product that we're sunsetting. We expect our distribution revenue growth to be modest this year because we're renewing only 5% of our pay TV households. We expect capital expenditures of $70,000,000 to $80,000,000 That includes one time cost to build out a new station facility and to reconfigure office spaces where we're consolidating our footprint to lower operating expenses. We expect cash interest this year of between $200,000,000 to 210,000,000 dollars cash taxes of $50,000,000 to $60,000,000 and depreciation and amortization of $150,000,000 to $160,000,000 We do not have any required pension contributions this year.

Speaker 2

I'd like to end by discussing capital allocation and debt pay down. As you know, Scripps took on significant debt in early 2021 to acquire ION Media. The strategic purchase of ION formed the foundation of our Scripps Network segment, which helps the Scripps to diversify its revenue base and to build strong nationwide over the year audience reach. The new segment has increased the durability and profitability of our enterprise. The ION television stations and the spectrum have opened up significant growth opportunity for the company in local and national media through Scripps Sports.

Speaker 2

Remarkably, in the 3 years since acquiring that debt, Scripps has already paid down 22%, significantly outpacing our peer group. We brought our total debt down by nearly $1,000,000,000 from about $4,000,000,000 to about $3,000,000,000 today. That represents 98% of our discretionary capital applied for debt reduction. Focusing on debt pay down, we have elected to defer the payment of our preferred equity dividend to Berkshire Hathaway this quarter. This deferral is permitted under the terms of our agreement with Berkshire.

Speaker 2

A deferral will allow us to maximize the pay down of our traditional bank debt and provide us with more flexibility in refinancing our upcoming maturities. Political advertising revenue, incremental cash flow that may come from other top line revenue, operating expense levers and financing levers. So when you hear us say every quarter that our top capital allocation priority is paying down debt, we are backing that up with our actions. Now, here's Lisa to share highlights for both the Local Media and Scripps Networks operations.

Speaker 4

Thanks, Jason, and good morning, everyone. I'm pleased to start by sharing that the advertising momentum we saw begin to build in the Q4 has continued as we move through the Q1. That's true across both our operating segments from local media core advertising to several of our national network revenue stream. This morning, I will give you color on our local core advertising categories for Q4 and Q1 and then discuss the trends we are seeing in national advertising with Scripps Networks. Then I'd like to look ahead to this season's upfront, which will be upon us very quickly, and we'll wrap up with our political outlook.

Speaker 4

In local media for 4th quarter, we saw our top 5 categories end up higher year over year. The top performer was automotive, up 9%, followed by home improvement, up 8% and the media and communications category, up 6 percent. Also notable was services, our largest category, which was up 3%. That is the 1st quarter services has finished up year over year in 5 quarters. Moving into the Q1, the services category is up quarter to date as our automotive, home improvement and retail.

Speaker 4

We see continued momentum as we move through this quarter and are optimistic about a solid finish. Turning to Scripps Networks, the 4th quarter saw us begin to build back of some of the direct response advertising dollars that had declined as inflation spiked in recent quarters. And easing up inflation has brought back Doctor advertisers who are reliant on tapping consumers' discretionary income. Demand is up and therefore so are our ad rates. As you know, the entire national advertising marketplace was challenged by last year's week upfront, which was down 10%.

Speaker 4

For Scripps, the upfront typically lays in a nice foundation, 30% or so of 1st quarter dollars. We're making up ground with our aggressive tactics to drive rate in Doctor and scatter, and that accounts for the momentum you see in our Q1 guide. In fact, scatter pricing is up more than 35% over upfront pricing. Connected TV revenue has continued to be strong for Scripps Networks. 2023 saw a year over year increase of nearly 70% after backing out the impact of the low margin programmatic products we are discontinuing.

Speaker 4

Looking ahead, we're expecting more than 45% growth in our Connected TV revenue for Q1. And for the full year, we are guiding to more than 40% increase in CTV, again, after removing the programmatic product to show the extent of organic growth. We're benefiting from continued audience growth as Americans seek out new options for ad supported free TV, and we continue to expand our distribution within the marketplace. In 4th quarter, we launched Ion on Pluto, and it quickly grew to be the number one network on its entertainment tier. Likewise, Ion was named by Google TV as one of the most watched live channels of 2023.

Speaker 4

Ion is the only broadcast network available in the fast marketplace, which is a premium programming lineup that includes top rated ION and the coming season and why we expect significantly improve our outcome. This year, under the direction of our new Chief Revenue Officer, who came to us from NBCU, we are taking a much more aggressive stance. We've scheduled our upfront for April 9, a month ahead of the large conglomerates in person events. We are expecting several 100 buyers to attend. The new approach is commensurate with the stronger position we hold as a result of our expansion into live sports, the most valuable content genre for linear TV.

Speaker 4

Scripps Sports and our partnership with the WNBA and the National Women's Soccer League are the foundation for recasting Ion into an entertainment destination for younger and more diverse audiences of scale, which is more attractive than ever to advertisers. Our national sports sales efforts are drawing new premium advertisers to Ion and other Scripps Network brands across all time periods. Sports advertising is serving as the tip of the spear for scatter market advertising in general. To that end, we are focused on growing our base of regular advertisers, drawn by our sports programming and expanding into CTV and into our popular entertainment brands with a specific focus on multicultural. In addition to the lift from sports, we are seeing rating successes that also position us well to benefit as the ad market recovers.

Speaker 4

In fact, the Scripps networks are the only national entertainment portfolio showing year over year growth in the Q1, both in prime and total day. We are delivering 7% more households and 5% more total viewers than at the same time last year. This growth is separate and in addition to the audience growth and momentum we see we are experiencing on CTV. I'd like to conclude by giving you color on our political ad revenue opportunity for 2024. As you know, each race, each market, and each election year are different.

Speaker 4

Spending is determined by where the toss ups are taking place and where the national parties and PACS put their ad dollars to work. What we know for sure is that the ecosystem of spending will be larger than ever. And we know that local broadcasters will continue to take the lion's share of that spending. Ad Impact puts the total election spend at $10,200,000,000 compared to $9,000,000,000 in 2020. And the firm says 52% of the advertising spend will go to local broadcasters compared to 48% last time.

Speaker 4

For Scripps, Jason mentioned our clearest line of sight now is the range of $210,000,000 to 2 $50,000,000 Presumably, we're going to see the same 2 candidates running as in 2020. But there are a couple of new factors think about here. 1, Biden's support is not what it was in 2020. And 2, much of the money Trump has raised is going to his legal defense, not to his campaign. So while experts say there will be a greater level of fundraising for this cycle, it won't necessarily be spent on the presidential race.

Speaker 4

The states where Scripps does expect to benefit from presidential election spending are Arizona, Nevada, Wisconsin and Michigan. Turning to the U. S. Senate races, Scripps has local stations in 7 competitive states, all of which have Democrats defending their current seats. Montana is a big one with Senator Jon Tester.

Speaker 4

We're already seeing significant orders coming into Montana where Scripps commands strong market share across the state. We're also well positioned in Ohio with 2 big ABC stations and in Wisconsin, Maryland, Michigan and Arizona, which also are projected to have tight Senate races with national money pouring in to support party's candidates. In Nevada, our Las Vegas stations will benefit from both a contested Senate race and being in a presidential swing state. We have no contested governors' races this that could be beneficial is the ballot referendums in some of our bigger states, including Florida. It's estimated that up 7 states could have controversial ballot issues.

Speaker 4

One such measure in Ohio last fall helped to drive our over performance with political for the year. So we'll be watching to see whether those issues make it onto the ballot in key states this summer. Before I turn it over to Adam, I'd like to thank Scripps employees for their hard work and perseverance during a specially demanding time. A year ago, the company began a significant reorganization. In addition to realizing meaningful cost savings, we have made many changes to the way that we do business.

Speaker 4

We have acted with urgency in rethinking the best ways to serve our audiences and our advertisers and to create new value for the enterprise. While necessary, the changes haven't been easy and I credit our resilient employees for making it work. And now here's Adam.

Speaker 5

Thanks Lisa and good morning everyone. It's been a tumultuous several months in the U. S. Media landscape. Last September, after a 10 day impasse during which you would have thought we were witnessing the end of pay TV, Disney and Charter announced the landmark distribution agreement that reinforced the power of the cable bundle.

Speaker 5

Then just a few weeks ago, Disney, Fox and Warner Brothers Discovery announced the sports streaming partnership. And again, from the market's reaction, you would have thought it was literally the end of television. I completely understand why even the most seasoned media investor is struggling to sort through the chaos. I've been a part of this business for a while and while it feels and it feels like the market is always ready to believe the worst about broadcast. As a journalist myself leading a company with a journalism mission, I prefer to deal in facts and steer clear of rumor, innuendo and speculation.

Speaker 5

So I thought I'd start this morning with what we actually know about these changes to the marketplace and how they impact scripts. To start, the yet to be named sports focused streaming joint venture will be yet another virtual MVPD in an already crowded and somewhat established marketplace. It will also be competing with and likely cannibalizing other streaming products from the very same companies that make up the partnership. At somewhere between $40 $50 a month, it will be less expensive than most of its virtual MVPD competitors and it will also be much less of a complete consumer proposition than the existing pay TV bundles. If this is all about attracting the sports fanatic, it's hard to say it's a slam dunk.

Speaker 5

March Madness will be incomplete. The Olympics will be missing outright and subscribers will get only half of the NFL, the very sport that makes up the top 200 programs on TV. It's the introduction of yet another service into a fragmented landscape that will likely confuse found an already frustrated consumer. This is not to say that the new offering won't get subscribers. If as the partners say, it will target cord cutters, we at Scripps will very much benefit from increased distribution fees and strength in reach.

Speaker 5

Executives have confirmed over and over that affiliates like Scripps will be carried along and compensated just as we are with the other virtual MVPDs. I can't see why analysts nor investors would see this as some sort of killer app, but hey, if it adds new value to linear television, I will be happy to root for its success and take advantage of its reach because we will get paid for our ABC and Fox affiliates. To be clear, fragmentation and disruption were here well before the JV announcement and Scripps has already been driving growth in this chaos even if Wall Street has yet to recognize it. We continue to reap the benefits of re transmission revenue and expect to do so for years to come. Last year we renewed 75% of our subs, drove net distribution margin expansion and created new incremental value through agreements driven by our sports strategy.

Speaker 5

There should be more growth here to come from the productive relationships we have with both traditional and virtual pay TV platforms. Pay television is still a solid business that will support scripts as we transition to our next growth phase. Because of our platform diversification strategy, distribution revenue accounts for less than a third of Scripps' total company revenue. So we are much less reliant on it than others. Our reach in revenue are buoyed by the growing over the year audience and our aggressive moves in connected TV, strategies that are paying off and powering real financial growth.

Speaker 5

Aggressively tackling future opportunities even when they are disruptive has been a consistent thread in the Scripps story and thanks to our foresight, connected TV revenues for the enterprise should be well past $140,000,000 this year. As Lisa pointed out, our networks portfolio stands alone growing ratings and with our focus on live sports, momentum is on our side in the advertising market too. Once again, we benefit from pay TV reach, but aren't limited by it. We are growing opportunity around it. Scripps is heavily leaning into the opportunity of free TV and we are making it even easier for media consumers with Tableau, which delivers the most popular linear programs via over the air right alongside another 65 or so premium fast channels.

Speaker 5

You could even think of Tableau as the only fast platform to offer the NFL and college sports. That in and of itself makes it a more compelling sports proposition than the new JV service and it's free. Tableau can now be found in most major retailers. Walmart.com launched in January. Amazon is the top retail partner accounting for about 60% of sales.

Speaker 5

The home shopping network launched Tableau in October with exceptional results selling out its first airing in only a few minutes and we expect HSN to drive significant portion of unit sales in 2024. As we move into this year, we'll continue to explore partnerships both regional and national to expand our footprint and scale. Since we launched our latest version in August, we have had incredible engagement with users. The 1st party data show us that on average customers are watching 2 hours a day and that OTA programming accounts for most of that viewing. 50% of that time is spent watching live sports, news and talk shows.

Speaker 5

Speaking of data, Tableau is the only platform in the market that directly measures over the air viewing. Our back end measures all of the same data that set top boxes do and more. That valuable data and the monetization of the fast platform are the recurring revenue streams that drive value further downstream and will make up the average revenue per user metrics we'll share with you in the future. While the Tableau platform makes TV easy, it's live sports and live news that make linear television most relevant today. And that's why we continue to aggressively pursue sports rights that are appropriate to our local market depth and the scale of our national reach with Ion.

Speaker 5

For local broadcasters in particular, winning sports rights is yet another catalyst for the growth of over the air among cord cutters and for the durability of the pay TV bundle. It's a growth strategy that's creating immediate new value for just the 2 National Hockey League partnerships that we already have underway in Los Angeles and Phoenix. We project advertising revenue for 2024 and we continue to see many partnership opportunities with teams ahead in both the near term and long term. On the national side, last year we completed a very successful first season with the WNBA. Here's the power of ION's reach and our CTV plus OTA plus pay TV strategy.

Speaker 5

The WNBA spotlight on ION, the Friday night franchise we launched grew the WNBA's audience by 30% while drawing a hefty premium above typical ad rates on ION for that time period. 65% of the revenue last season was from new to Scripps advertisers. This year we'll be back with the WNBA on Friday nights and it will be women's soccer on Saturday nights. Scripps is proud to be launching a franchise night doubleheader for the NWSL as part of the league's landmark rights agreement. We start the season on Saturday, March 16.

Speaker 5

Sponsorships and advertising sales are well underway and having the intended effect on our whole networks portfolio. 2023 was a tough year as a result of an unsteady and uncertain economy, but there's a lot to celebrate in the work this company is doing to best position itself for continuously improving near term performance and long term value creation. And now operator, we're ready for your questions.

Operator

Thank We'll begin with the line of Dan Kurnos with The Benchmark Company. Please go ahead.

Speaker 6

Thanks. Good morning. Adam, maybe just to start with sports, Could you just give us your thoughts on the impact of maybe diamonds being allowed to survive, I guess, for another 18 months given the cash inflow over there and what that might mean for your ability to go after incremental local sports rights? And then, look, obviously, you've been out there a lot on the JV, and I think most people believe that it's going to be de minimis to the market place if it even gets off the ground. But there's obviously been a lot of commentary about sports just moving to streaming over time.

Speaker 6

And I know that broadcast is included in all of these packages, but just kind of your thoughts on being able to sustain negotiating power and leverage within the sports industry as more and more sports shift to streaming?

Speaker 5

Yes. Good morning, Dan. Thanks for the questions. On the Amazon investment into the RSN, I guess near term it means the teams are committed to the RSN contracts until either the RSN open up the opportunity for teams to move in a different direction. Longer term, nothing about this investment changes that the RSNs can't deliver the reach that team owners need given the erosion we are seeing in pay TV.

Speaker 5

And that's why they continue to turn to broadcasters. So all of this to say, the RSN model is still in critical condition. I think you described it as sort of still thriving. This investment wasn't in any way a cure for what ails the RSN model and I continue to expect that rights will move in the direction of local broadcast and I continue to expect that Scripps will benefit from those moves. Relative to the joint venture, I don't know if there's more to say than what I already said in my prepared remarks.

Speaker 5

I guess I would say, I think there is no math that supports the idea local rights can move to streaming or move to a D2C product and support a team's need to field a good team and to win. We've modeled it every other way and while streaming will continue to be an important part on the local end for incremental reach. These teams need broadcast reach and that's the direction they're all moving in. So my enthusiasm for the opportunity for Scripps Sports has not dampened at all. On the national side, I will tell you speaking to the leagues, the owners, I think it's safe to say that reach continues to be the primary component for all of these team deals.

Speaker 5

During the Super Bowl week you heard Roger Goodell say that he expects at least 90% of all games for the NFL to be broadcast on broadcast television, again demonstrating the important power of reach. I don't think any of these leagues want to impair their asset over the long term by completely going behind a paywall and being inaccessible to most Americans, especially as we continue to see that streaming landscape get more fragmented not consolidated. So we believe there will be a continued opportunity for broadcast networks, new opportunity for networks like Ion and of course we think the continued opportunity for our affiliates that are partnered with the big four networks.

Speaker 6

Got it. For the record Adam I said survive not thrive for the RSN. I think it's toast to, but that's a different story. Can you just or Lisa just quickly give us a thought on the shape of national for the year, just given sort of the mix between general market and Doctor still kind of lagging a bit?

Speaker 4

Yes. Part of my prepared comments, I talked about the fact that, obviously, across the marketplace, we had a lower upfront. And so therefore, we are really being aggressive in making up that ground in the scatter marketplace, but also in Doctor. I am seeing certainly, we saw it in 4th quarter and we're seeing it again in Q1, where CPMs in 4th quarter were up 4% over 2022 Q4. And this year, we're seeing CPMs continue to be up versus our upfront pricing.

Speaker 4

In January alone, they were up 35%. So I'm seeing good momentum certainly in the general market space, in the scatter marketplace. I think the other really interesting story for Scripps and I think in Adam's remarks, we're really, really well positioned to capture CTV revenue, both from an upfront perspective as we go to market, but also continuing to drive organic growth, but also some of the new launches that I mentioned in my remarks.

Speaker 6

Got it. Super helpful. Thank you both. Appreciate it.

Speaker 5

Thanks, Dan.

Operator

We'll now go to the line of Steven Cahall with Wells Fargo. Please go ahead.

Speaker 7

Thanks. So, 3 for me. So maybe first, Adam, I appreciate your comment about facts on the sports streaming JV rather than speculation. So I was wondering if you could just tell us what discussions you've had, especially with ABC and Fox as well? And whether those discussions have confirmed that this will be classified as a vMVPD in the minds of those counterparties.

Speaker 7

I think that would be really constructive to the market. And then Lisa, just on national ads, maybe picking up on the last question. So a big sequential improvement in the Q1 guide. Does turn positive by Q2? It sounds like there's a lot of potential for it to do so, especially with where scatter is.

Speaker 7

And then finally, just on the political guide, how do we think about how much of that versus your 2020 political is due to just difference in races? I think there's you just have fewer congressional races. And then how much of that is attributable to the comment you made about Trump's PAC putting more towards legal and less towards ads? Thank you.

Speaker 5

Well, Steve, I think I've said over and over, I've had direct conversations with executives at the of Disney and with Fox, and they describe this as it is, the virtual MVPD. And they describe the arrangement will be consistent with the arrangement affiliates have with other virtual MVPDs that will be carried along because clearly our broadcast networks or their broadcast networks are core to the offering given how much of the NFL or really the only NFL offering will come through the broadcast stations and that we will be compensated in exactly the same mechanism that we are compensated for other virtual MVPDs. So I don't know if we can make it any clearer, if in fact these and this is literally what was said to me on the day of the announcement, if these executives as they say are true to their word and will aggressively pursue cord cutters in order to bring them back to linear television, this stands to benefit scripts in incremental distribution and incremental fees. Is that I mean, is that helpful? It is, yes.

Speaker 5

Thank you. Okay. This comes directly from ABC and Fox. And this is consistent with what all of the affiliates have been saying. This is just another virtual MVPD and we will be compensated for the carriage of our affiliates through this virtual MVPD.

Speaker 4

So, Stephen, we are seeing positive momentum that started I think in our performance in Q4 and moving into Q1 with our guide. We are optimistic as we continue to see the strength in scatter and in Doctor rates. Both rates are up year over year and year to date in Q1 compared to 2023. So we're really aggressively pursuing that. I think we mentioned in our guide coming in potentially flat to last year, which I think is just probably certainly best in peer performance.

Speaker 4

And we expect that momentum to continue throughout the year. As for political, there are differences and I mentioned some of those differences in my prepared remarks. After redistricting, there were certainly less competitive house races than we saw in 2020. Some of the presidential toss-up states have changed. Florida was always squarely a swing state and with migration into Florida over the last several years, that has changed.

Speaker 4

And so we're seeing some of those changes affect and give a little bit of less visibility into where the money will actually be spent given the toss-up races this year. I think I mentioned the competitive races for the Senate, which is really where we're very, very strong

Speaker 1

this year.

Speaker 4

And we expect and are already seeing really great spending in Montana you know, early this year and also in the back half of the year already laying in a good foundation for the year.

Speaker 8

Thank you.

Operator

We'll now go to the line of Craig Huber with Huber Research Partners. Please go ahead.

Speaker 8

Yes. Hi. Thank you. My first question, if I could, let's focus on costs, if we could, please, maybe Jason or somebody. How are you feeling about your cost base this year?

Speaker 8

I mean, you've obviously talked to this $40,000,000 plus cost savings plan that should be, I guess, fully in numbers by the middle of the year. Are you expecting that you're going to have to step up further on the cost cutting front? Or are you guys pretty comfortable where your costs are at right now as you kind of think about what your ad revenue trends are, etcetera?

Speaker 2

I think that from a cost perspective, we have been aggressive with the restructure. We will have at more than $40,000,000 in sort of run rate annualized savings by the middle of this year. And I think the focal area will be just continuing to manage things as efficiently as possible. We have things this year when you talk about political, when you talk about some of the green shoots that Lisa is talking about in terms of national ad marketplace that should be great benefits to the bottom line in addition to our tight expense management. But I think you'll see us continue to manage things really tightly as we move throughout the rest of the year.

Speaker 2

And

Speaker 8

Jason, a housekeeping question, please. Your retrans subs, what was the decline year over year that goes into your retrans revenue number that you had in the Q4, please?

Speaker 2

We were down mid single digits, which

Speaker 5

is consistent with where we've been for a while. It

Speaker 8

Okay, good. Thank you for that. And then your other revenue line in the EBITDA there, can you be, Jason, help us how should we think about that line EBITDA in revenue for the full year? What are you budgeting there, please?

Speaker 2

Yes. And so that other roll up includes a bunch of different things, including Tableau, which Adam talked about, where we're continuing to invest as we launch that. So we guided to a loss of about $7,000,000 in the Q1. I would say in general that will likely be somewhere between $7,000,000 to $10,000,000 each quarter this year, revenue growing as the year moves forward.

Speaker 8

Okay, very good. That's all I have for right now. Thank you.

Operator

We'll now go to the line of Jeff Paskin with Phoenix. Please go ahead.

Speaker 3

Yes. Thank you for your time here. Just one quick question. It sounds like you're going to defer the Berkshire preferred payout. What's the plans for reducing the bank debt and pushing those out?

Speaker 3

Is there a plan for also going out past 2027?

Speaker 2

Yes. So the decision to defer the Berkshire dividend, that's a decision that we make to work on a quarterly basis. We did elect this quarter to defer that payment. It really allow us to focus on maximizing the pay down of our traditional bank debt. And it really gives us more perspective, more flexibility in terms of debt pay down and refinancing our upcoming maturities.

Speaker 2

We also are very focused on the fact that we do have a maturity coming up in 'twenty six that we're keeping a very close eye on the debt markets right now, which have improved over the last couple of months to determine at what point in time we want to go ahead and take action and look to refinance that debt, which the goal would be to have that refinanced at least 18 months in advance of maturity.

Operator

We'll go to the line of Michael Kupinski with Noble Capital Markets.

Speaker 9

Thank you. Thanks for taking my question. Just a quick one. It seems like the network business, the OTA business is getting more competition. A couple of your peers have indicated that they're crossing certain hurdles in terms of distribution across the country.

Speaker 9

And I know that you're seeing some improving trends there, but I was just wondering if you can kind of give us a taste of what advertisers are seeing in terms of maybe shifting some dollars to some of the competition that's out there and whether or not you're hearing anything like that? And if you could just kind of give us a state of just the business in general for the OTA market?

Speaker 4

Yes. Hey, Mike, it's Lisa. We're not seeing really any competition from, I think the expanding OTA multicast network. In fact, we're seeing strength in our Doctor ad rates. We're also seeing strength in demand for Doctor advertising.

Speaker 4

Typically, when those other networks are launching OTA, they're primarily Doctor advertising and it's very sort of bottom of the barrel advertising. And we really our networks are premium programming and we're competing in both really the hybrid Doctor and the premium Doctor ad rates. So we're not seeing any or worried about any of that competition.

Speaker 9

Got you. And in terms of in general in terms of core advertising on the local level, I mean, are you seeing much variance between local and national on the core level outside of political, of course?

Speaker 4

Yes. I think some of the trends that we're seeing both on the local level, which I included in my prepared remarks, sort of the categories that are up year over year. We have different categories certainly in the national ad marketplace, in the local marketplace. But I would say that certainly the momentum is equal across both segments.

Speaker 9

Got you. Okay. That's all I have. Thank you.

Operator

Thank you. We will return to the line of Craig Huber with Huber Research Partners. Please go ahead.

Speaker 8

Thank you. For auto advertising, I'd be curious to hear your updated thoughts there, both on national level and local for auto advertising outlook there, please.

Speaker 2

Yes, I will

Speaker 4

give you yes. I will give you a little bit of 4th quarter and then full year and then some remarks that take us into Q1. So, 4th quarter auto was up, as we said, 9% versus Q4 of 'twenty two. The full year 2023 auto was up 10%, which is really strong. This marks really the 6th consecutive quarter of growth and we saw really each quarter 4, so far in January, we finished up 3% and pacing to be up potentially up to 7% in February.

Speaker 4

And it's just a little too early, to say about March. So, we're seeing that momentum continue. Domestic dealer auto groups were up year over year last year. Foreign dealer groups were up, but it was really barely up. It was 1% and we're continuing to see where things are lagging as manufacturers from a domestic perspective were down year over year last year by 9% and foreign manufacturers were up about 24%.

Speaker 4

So, again, automotive last year, great story and continuing really that momentum into 2024.

Speaker 8

Then also, Jason, how you calculated on your banks, your net debt to EBITDA ratio trailing 8 quarter basis, what was that at the end of the year we just finished? And what do you projected to be at the end of this year, please?

Speaker 2

Yes. So it was 5.7% at the end of last year. We're focused, as I said in my prepared remarks, really focused on paying down debt and delevering. We're not giving a year end leverage target right now because of sort of the wide range of outcomes when you talk about, for example, the political guide we gave, which can really swing that number as well as some uncertainty in the timing of the advertising rebound, which again can really move that number as well. So we're not giving a specific guide, but as I said, we're focused on delevering this year and using the cash flow we're going to get through the political cycle through growth continued growth in Connected TV and the benefits of our expense restructuring

Speaker 8

If you take that out, what would your underlying CapEx be for the year, please, more than maintenance type level trying to get to?

Speaker 2

It'd be around $60,000,000

Speaker 8

Okay, great. Thank you.

Speaker 2

The guidance is $70,000,000 to $80,000,000

Operator

And with that, we have no further questions in queue at this time. Please continue.

Speaker 1

Thank you very much, Rich. Thanks to everyone for joining us today. Have a great day.

Operator

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Operator

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Earnings Conference Call
E.W. Scripps Q4 2023
00:00 / 00:00