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E.W. Scripps Company (New)(OLD) (SSP) Q1 2020 Earnings Call Transcript

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E.W. Scripps Company (New)(OLD) (NASDAQ:SSP)
Q1 2020 Earnings Call
May 9, 2020, 8:30 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Ladies and Gentlemen, thank you for standing by, and welcome to the Scripps First Quarter 2020 Earnings Call. [Operator Instructions] I would now like to turn the conference over to our host, Carolyn Micheli, Head of Investor Relations. Please go ahead.

Carolyn Pione MicheliSenior Vice President, Corporate Communications and Investor Relations

Thank you, Grace. Good morning, everyone, and thank you for joining us for a discussion of The E.W. Scripps Company’s financial results.

You can visit for more information and a link to the replay of this call. 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. The COVID-19 pandemic enhances the uncertainty of forward-looking statements we make about our operations and financial condition. Because of this rapidly changing economic climate, we are not issuing second quarter 2020 guidance, and we also are rescinding most of our previously issued guidance, with a few exceptions we’ll discuss today. We do not intend to update any forward-looking statements we make today.

We’ll hear first this morning from Scripps’ President and CEO, Adam Symson; and then CFO, Lisa Knutson. Also on the call are Local Media President, Brian Lawlor; National Media Executive Vice President, Laura Tomlin; and Controller and Treasurer, Doug Lyons. Now here’s Adam.

Adam SymsonPresident and Chief Executive Officer

Thanks, Carolyn. Good morning, everybody, and thanks for joining us. Well, those of you who have been with us for some time know that 2020 was supposed to be a watershed for our company financially. And the year certainly started out that way. Despite the impact of the coronavirus outbreak on advertising for the last two weeks of March, we are reporting a tenth straight quarter in which Scripps had delivered better-than-expected results on nearly every measure. While our full-year results will be unlikely to meet the high expectations I had coming into the year, I’m heartened to tell you that the plan we have been working over the last 2-plus years has made us stronger and better performing.

For the first quarter, the Local Media margin is up over Q1 2019 on both the adjusted combined and as-reported basis. National Media segment profit was double last year’s Q1, and the $49 million in total company segment profit for Q1 is the highest profit number for the first quarter that we have seen since we spun-off Scripps Networks Interactive in 2008.

The bigger and better performing portfolio we have will pay off during the upcoming political advertising cycle in this presidential year and through the upside we are capturing in retransmission revenue. Even before the impact of the outbreak on advertising, those two revenue lines, political and retrans, were projected to account for more than half of our local media revenue in 2020, and we expect them to hold up well during the crisis. The changes we’ve made to the company to make it leaner and more efficient and the significant M&A we did that doubled the scale of our Local Media portfolio has also made us more durable and better able to withstand the crisis, like the one we’re all living through now.

Today, we’re in the midst of a business disruption due to stay-at-home orders, shuttered businesses and a soft advertising market. But the fundamentals of the broadcast industry generally and Scripps’ local and national businesses specifically remain sound.

On behalf of the Scripps’ Management and Board, I’d like to thank our shareholders who have been supported us during this challenging time. Many of you have been with us for years and some since before the last financial crisis. Today, as always, we appreciate your understanding of Scripps’ near- and long-term growth strategies and the value this company has created over the decades and will continue to create in the years to come. Here is Lisa to discuss our financial picture, and then I’ll be back to cover a few more topics in detail. Lisa?

Lisa Ann KnutsonVice President, HR-Operations and Corporate Secretary

Good morning, everyone. The first quarter got off to a strong start across the company. In Local Media, we were on track to significantly exceed first quarter budget until mid-March when the COVID-19 outbreak began to impact the economy. We reaped the benefits of our acquisitions of 27 television stations last year. And although core advertising ended the quarter down on a same-station basis, it had started the year with the same momentum we saw in Q4. We received significant early political advertising spending finishing the quarter at $19 million, and we captured retransmission revenue upside as we completed negotiations for about 20% of our subscriber households, with another 20% left to negotiate this year.

Retrans revenue was up 21% in Q1 on an adjusted combined basis. The National Media division saw even more positive Q1 dynamics. By far, our largest national business is the Katz Networks, which managed to deliver its best revenue growth since we acquired it, 31%. Newsy also finished up around 30%, a testament to its ongoing appeal with young audiences and driven by programmatic ad growth on its over-the-top platform.

Overall, the National division met and beat our first quarter guidance with $108 million in revenue and more than double its Q1 2019 segment profit at nearly $12 million.

Turning to expenses. Local Media’s Q1 expenses came in well below our guidance of up low-teens at up 8% on an adjusted combined basis. National Media’s expenses came in at $96 million versus guidance of about $100 million. Shared services and corporate expenses were nearly $19 million in the first quarter that is consistent with what we guided and much higher than what we’ll see the rest of the year because it included annual compensation and benefit payments. I’ll talk more about our ongoing expense control in a moment.

The company’s Q1 net loss was $0.15 per share, but that loss is only $0.10 per share if you factor out the first quarter acquisition and integration costs of $3.7 million net of taxes. So again, a very solid first quarter.

Now I’d like to spend a few minutes on our current financial picture. Although we are temporarily suspending guidance, we do feel obligated to our shareholders to make a good faith attempts to provide insights that reflect the current state of affairs and our outlook. Those issues include where we stand today operationally and financially, how we’re responding to the COVID-19 by protecting the well-being of our workforce and how our operations and financial condition may change as global efforts to fight COVID-19 progress.

In addition to our comments today, you will find disclosures and risk factors related to the outbreak in our 10-Q. Of course, we can’t know the full impact of the COVID-19 crisis at this time.

Turning to the Local Media division. Let’s start by discussing the progression of core advertising revenue over the last two months. So speaking sequentially, from March to April of this year, we saw a 40% decline in core as our markets felt the impact of state governments’ stay-at-home and business shutdown orders. Right now, our ad pacings indicate core advertising improving from April to May and from May to June. Let me be clear, we are discussing month-to-month performance in 2020, not our year-over-year performance. Many factors will come into play into our final Q2 results, including the pace of businesses reopening and consumer spending rebounding across our markets. In comparison to core advertising, political ad spending remains healthy. Michael Bloomberg’s presidential run provided helpful dollars at levels we don’t normally receive so early in the presidential campaign.

And now that Joe Biden is the presumptive Democratic nominee, we expect the full force of the democratic fundraising effort to fall behind him, setting up for robust political spending. Key Senate and Governor’s races are also falling in line for us. All in all, we expect a strong political spending year and our outlook for political advertising in 2020 has not changed.

Our retransmission revenue outlook has actually improved from the start of the year. In January, we began our new Comcast contract, and in March, we completed negotiations for about half of the 42% of subscriber households that are up for renewal this year. We are pleased with the outcome of those negotiations and believe our expanded station footprint helped us to realize greater value. We have now begun negotiations on the rest of those households, another 20%. Regarding subscriber counts, we saw no substantial change from the third quarter to the fourth quarter of 2019, the most recent data available. Our National Media businesses also felt the effects of the soft advertising environment in April.

The month of April was down 19% from the previous month March. And March was the best month of the first quarter. However, we now see stabilization in the national businesses for the remainder of the quarter. Like Local Media, these businesses are managing the ad market challenges by employing stringent expense controls. In addition, we believe the national businesses are well equipped to withstand these challenging times.

At Katz, the pillars of the network’s businesses are very durable. They bank on growth in over-the-air TV viewing. They benefit from stronger national advertising, and they each reach nearly all U.S. households. These fundamentals will help Katz rebound as the economy improves.

At Newsy, the stability of programmatic ad revenue on its over-the-top platforms has allowed it to manage through this unusual time. While Newsy has seen cancellations and softness in the second quarter, its ad rates are holding steady along with viewership gains. Stitcher’s business also faced challenges from the unfolding economic crisis and advertiser uncertainty about usage as stay-at-home orders reduced commute times. But listening has bounced back in recent weeks to near-normal levels with a new spike midday. And the Stitcher team has been actively managing its P&L with two goals in mind; to preserve and strengthen the long-term value of the business and to mitigate risk through prudent expense management. Stitcher continues to receive pitches from big celebrities and maintains key partnerships with others and is well-positioned to emerge as an even stronger brand.

Now I’d like to discuss the proactive expense control measures we’ve executed across the company since mid-March to help us manage the ad revenue declines. Our initiatives have included a reduction in capital expenditures, a hiring freeze, a freeze on the merit pay raises we were scheduled to implement on April 1, the rolling back of executive pay increases that were made earlier in the year. Then later, pay cuts for executives and reductions in our Board of Directors’ fees and general expense reductions in items like travel, entertainment and marketing.

We expect these initiatives to provide cash savings of more than $85 million for the year. And now a few key liquidity items to update you on. Our current forecast for full-year cash interest is $90 million versus our previous forecast of $100 million. The savings reflects the significant decline in LIBOR over the last few months. Our capital expenditures currently are estimated to come in between $25 million and $30 million versus our previous estimate of $50 million. And our cash taxes are currently estimated to be 0 for the year. In fact, rather than paying taxes, we’re receiving a $14 million tax refund as a part of the CARES Act.

I’ll talk more about CARES in a moment. Many of you were with us as we weathered the Great Recession of 2009. That was a difficult time for this company, and we were forced to impose furloughs, pay cuts and suspension of many employee benefits. We hope those measures won’t be necessary in this case. Our expense reductions are certainly helping. Another significant difference from that period comes from the benefits of the federal stimulus package to our company’s liquidity.

The stimulus provisions that benefit Scripps include the deferral of social security taxes and pension contributions, the tax relief on the use of net operating losses and interest expense limitations. These measures either bring in cash this year or help us to push out cash payments to 2021 and beyond. The total impact to Scripps is about $60 million. We appreciate the federal efforts to help businesses maintain continuity during this difficult period. We expect to be cash flow positive for the year, and based on our current outlook, we expect our cash flow from operations to be efficient to meet our operating needs over the next 12 months.

We have, of course, stress tested our forecast with a number of downside scenarios. And even in our most severe downside models, our 2020 cash flow significantly exceeds 2019 cash flow. And while we do not anticipate liquidity constraints, we do have other potential cost control levers as well as the ability to slow our working capital spend and generate cash in the event of a prolonged economic weakness.

Right now, we do not need to take these steps. I’d like to conclude with the cash with cash and capital allocation.

Our cash balance at March 31 was $180 million, and net debt was $1.94 billion.

Our net leverage at the end of first quarter was 5.4 times. Just a reminder that our term loans and unsecured notes have no maintenance covenants. We have no maturities until Q4 of 2024. Our revolving credit agreement has a maintenance covenant only withdrawn. Its maximum leverage is 4.5 times on first lien debt on an adjusted pro forma 2-year blended EBITDA as defined by our current credit agreement.

At March 31, we were at 2.9 times on this threshold. Finally, our team has been focused on navigating the economic fallout from the pandemic with a sense of urgency. Our number one priority right now is managing our cash and liquidity through the duration of the downturn. However, we haven’t lost sight of the fact that outside of this crisis, our overarching priority is to pay down debt. This is why we’ve temporarily suspended share buybacks last quarter. Nevertheless, we thought it was important to maintain our $4 million of quarter dividend. And now, here’s Adam.

Adam SymsonPresident and Chief Executive Officer

Thank you, Lisa. I shared with you at the outset of the call, how the plan we have been working over the last two years at Scripps was designed to make us a stronger and more durable company and why that work has better positioned us to navigate this moment. Then after sharing the results of our strong start to the year, Lisa detailed our plan to weather the current storm. Now I’d like to discuss how we believe the work we are doing today will better position our company for the dawn ahead when we know the sun will inevitably rise again on commerces.

As the coronavirus crisis came upon us this spring, we identified three key priorities to guide our actions. Number one, to protect the health and well-being of our 6,000 employees. Number two, to energetically serve our audiences and communities with the objective news and information they need to stay safe and the entertainment they seek to lift their spirits. And number three, to maintain business continuity and strong financial stewardship of the company. These three priorities have guided our decisions thus far, and they are the reason we believe we will be be

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