E W Scripps Co (SSP) 2019 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Scripps Fourth Quarter Earnings Conference Call. (Operator Instructions) As a reminder, today's call is being recorded.

I'll turn the call now over to Ms. Carolyn Micheli, Head of Investor Relations. Please go ahead.

Thanks, John. Good morning, everyone, and thanks for joining us for a discussion of The E.W. Scripps Company's fourth quarter 2019 results.

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. You can visit scripps.com for more information. You also can sign up to receive e-mails any time we disclose financial information, and you can listen to an audio replay of this call there. The link to the replay will be up this afternoon and available for a week.

We'll hear first this morning from Chief Financial Officer, Lisa Knutson; then Local Media President, Brian Lawlor; National Media EVP, Laura Tomlin; and from President and CEO, Adam Symson. Also in the room is Controller and Treasurer, Doug Lyons. Now here's Lisa.

Good morning, everyone. Today Scripps closes the books on a very successful 2019, a year when we more than doubled our TV station portfolio, improved our operating performance and industry position, and significantly grew revenue at our National Media businesses.

On January 1 for the first time, we began capturing the value from all of our Comcast households, and now we are looking with enthusiasm at the many opportunities we see for our growth this year. Brian Lawlor and Laura Tomlin will provide more 2020 color in just a moment, but first I will review the highlights of our strong fourth quarter financial results, which once again beat expectations across the board.

And just a reminder, I will discuss our results as though we had owned all of our recently acquired stations since January 1, 2018. In today's press release, you can find the results on both an as reported basis on an adjusted combined basis.

Now let's talk about our strong performance to complete 2019. In our Local Media division on an adjusted combined or same-station basis, revenue was $330 million, down 21% from fourth quarter of 2018 when we had $114 million in political ad revenue. Core advertising was up about 5% on an adjusted combined basis. Retransmission revenue was nearly $111 million. Political advertising was $15 million in the fourth quarter. Expenses for Local Media were down more than 5% in line with our guidance.

Now let's talk about the rest of the company's results on an as reported basis. The National Media division had a very strong fourth quarter, easily surpassing the $100 million to hit $113 million of revenue, well above our guidance. Katz, Newsy, Stitcher and Triton all contributed to the over performance.

National Media expenses were a bit higher than expected for a number of reasons including costs tied to the higher revenue and adjustments to the amortization pattern of some of our programming assets. Without those adjustments, National Media segment profit would have come in around $10 million.

Shared services and corporate expenses were just under $14 million in the fourth quarter.

The company's Q4 income from continuing operations was nearly $11 million, or $0.13 per share. Pre-tax costs for the current quarter included $5 million of acquisition and related integration cost, as well as restructuring cost. Those onetime cost decreased income by nearly $4 million, net of taxes. That works out to $0.04 per share. So we would have reported income of $0.17 per share if you exclude the impact of the non-core items.

Interest expense was $27 million compared to $9 million in the fourth quarter of 2018. The increase is due to the issuance of our $765 million term loan B last May and $500 million of senior unsecured notes in July to fund our local broadcast portfolio expansion.

Our capital expenditures totaled $19 million for the fourth quarter and $61 million for the year. The full year figure includes $17 million for the FCC repack for which we expect to be fully reimbursed by the federal government.

Turning to capital allocation, the company made $4 million in dividend payments in the quarter and $16 million for the full year. We also have a new share repurchase authorization for 2 years and $100 million.

On December 31, cash totaled $33 million while total debt was $1.95 billion.

Now I'd like to go through our guidance for the first quarter. In today's press release and on this call, we are providing Local Media revenue and expense guidance on an adjusted combined basis. For the first quarter, we expect Local Media revenue to be up in the low-teens percent in comparison to Q1 of 2019. We expect Local Media expenses to be up in the low-teens as well. However, excluding the increase in programming cost, expenses would be up mid-single digits.

Turning to National Media, we expect revenue of between $105 million and $110 million and expenses of about $100 million. We expect continued margin expansion in the National Media division this year.

The shared services and corporate line is expected to come in at around $19 million for the first quarter due to the annual cycle of benefits and compensation items. It will return to a lower run rate in the second quarter.

Finally, we expect to report higher CapEx in the first quarter than we will the rest of the year. That's due mainly to a proprietary software system at the former Tribune stations that we are replacing in order to yield synergies.

Now here's Brian to discuss our Local Media results.

Thanks, Lisa. Good morning, everybody.

Well, we haven't even hit Super Tuesday yet, but we're well into the 2020 election. We've got a presidential incumbent campaigning in primary states, a dark horse billionaire advertising his way up the polls and a contested Congress with much to be lost or gained by both parties. The American people have a lot to keep up with over the next 8 months.

Scripps is one of the best-positioned broadcasters to serve as a medium for this political messaging, especially after doubling the size of our portfolio and gaining more highly ranked stations in key markets. We've already begun to play an instrumental role in this democratic process.

Scripps has a strong presence in a number of expected presidential swing states, including Arizona, Florida, Michigan, Nevada and Wisconsin. The early fundraising levels give us reason to believe these states will have well-financed races as we enter the back half of 2020.

We also own top stations in states with 3 of the most competitive U.S. Senate races: Arizona, Colorado and Michigan. And we have a toss-up governor's race in Montana where our cluster of 5 number 1 stations receives a high percentage of the political advertising dollars. We will host 35 competitive U.S. House races on our markets, including New York City, Detroit, Phoenix and our 2 Virginia stations in Norfolk and Richmond. We also expect strong issue spending at our 3 California stations. Given the strong start to the 2020 election cycle, combined with the expertise and efficiency of Scripps' own dedicated political sales office, we now expect a record level of political ad revenue at nearly $200 million.

Turning to core advertising, our third quarter momentum continued through the fourth quarter. We finished Q4 up nearly 5%. Strong categories include services, retail, home improvement and travel and leisure all up double digits. Our rapidly growing home improvement category was up well over 20%. Our sales execution and the health of our local economies continue to drive this strength, and Scripps is proud to be a high quality and trustworthy partner to local businesses who must reach our audiences in order to grow.

Retransmission revenue is another strong story for Scripps as we turn the page to 2020. As of January 1, we are now receiving our long awaited retransmission revenue from Comcast, and we will reset several other key contracts in the first half of this year. When those are complete, we will have reset the rates on more than 60% of our pay-TV households this year. Then we'll look forward to another 18% renewing next year.

Turning to the Katz networks, we were extremely pleased with the excellent finish to the year. Fourth quarter revenue from 5 Katz networks was up 30% over the fourth quarter of 2018, their best quarterly performance since we acquired them. For the full year, Katz revenue was up 22%. Strong ratings growth and viewership across the networks, in particular Bounce, Court TV and Grit, have driven significant growth in advertising revenue.

2020 is expected to be another great year for the Katz networks. The growth on Court TV will be fueled by more distribution and larger audiences, starting with 2 big events: the Harvey Weinstein trial, which just concluded this week; and the Court TV original series OJ25, which will continue beyond the first quarter. The fourth quarter marked 2 full years that we've owned Katz, and as we've been telling you, the business continues to exceed our expectations.

And now, here's Laura.

Thanks, Brian. Good morning, everyone.

Those of us in the National Media division are proud to have delivered well over $100 million in quarterly revenue in Q4 and nearly $400 million for the year. These are meaningful milestones as we further expand profit margins this year. We're also on track to exceed our previous revenue guidance of $500 million in 2021.

It is significant that all 4 of our big National Media businesses made strong contributions to our 2019 annual growth: Katz at 22%; Stitcher at 42%; Newsy at 75%; and Triton, which we acquired in late 2018, up 16% on an apples to apples basis. All 4 of these businesses are leaders in fast-growing marketplaces. They are increasingly improving Scripps' enterprise value as they capitalize on media consumers' changing behaviors.

Let's start with Stitcher where the sales team delivered its largest sales quarter ever in the fourth quarter. This performance was due to a combination of sales effectiveness on hit shows and increasing advertiser demand. Over the last year, Stitcher has sold more ads than anyone else in the 400 most popular podcasts. In addition to its sales performance, Stitcher is well positioned with its end-to-end approach in a fast-growing and competitive industry. This includes our expansive portfolio of content that we create and own, hit shows in a variety of the most popular genres in podcasting, including comedy and true crime. We combine that portfolio with another expansive list of popular podcasts we represent in the advertising marketplace.

As I mentioned, Stitcher's advertising sales business is the gold standard in the podcast industry. And of course, we reach audiences through multiple listening platforms: Stitcher's mobile app, smart assistants and connected cars. These platforms provide us an additional ad sales opportunity, as well as listening data to inform our strategies. Stitcher's holistic approach puts it on a path to continue its revenue growth in the 40%-plus range.

Our national news network, Newsy, continues to resonate with audiences because of its objective contextual approach to the big stories facing the national. Newsy is on track to cross into profitability later this year, just as we have said it would. We've long said our plan was to develop Newsy into an important voice in the national news landscape for younger audiences and a growth and profit contributor for the company. And that's exactly what we've been doing while so many of Newsy's competitors have fallen by the wayside.

Turning to Triton, we saw our newest National Media business achieve multiple milestones in 2019. Triton's metric ranker tool provides insight into the top performing streaming audio stations and networks. Its use continues to grow in Europe, the Middle East and Africa, helping to expand Triton's international revenue.

Triton also has received certification from the Interactive Advertising Bureau that will allow it to become the measurement standard for the podcast industry. In fact, Triton debuted the first podcast ratings report for Australia and Latin America last year. And this quarter, Triton will release podcast reports in the U.S. and the Netherlands. These reports will provide buyers with the trusted third party podcast measurement they need to make informed decisions around podcast advertising. Triton has laid the foundation to establish itself as the currency for podcast measurement worldwide. This is the same path Triton took to become the leader in digital audio streaming measurement. Triton's financial results have continued to exceed our expectations as it capitalizes on growth in digital audio industry.

Now, here's Adam.

Thank you, Laura, and Good morning, everybody.

Those of you who have been with us for some time know we at the company have really been looking forward to 2020. This is the year we knew we would make meaningful strides in margin growth and free cash flow generation. And 2 months in, because of the work we completed in 2019 to reposition the company, the year is setting up very nicely.

From a retransmission revenue perspective, we are now happily on the other side of our Comcast step up. Next up, you should expect us to fully capture fair value for the distribution of our signals to another 40% of our pay-TV households. Those will move to new market rates by midyear, creating a strong run rate as we move into the back half of 2020.

As Brian said, political advertising revenue also is shaping up to be massive for us this year. Presidential candidates are spending in ways they haven't spent before, earlier and more broadly, and to build their brands before they ask for votes. One thing that hasn't changed, though, the majority of their money is being spent on television. They know broadcast TV is by far the most powerful way to reach and influence America. Because of the strong start to the year, we have increased our outlook for 2020 political ad revenue.

All in all, we expect 2020 to be a tremendous year for Scripps's free cash flow generation. While the politicians and PACs are confident in their use of broadcast television as the best advertising platform, we also recognize that our audiences have put their trust in Scripps's news operations to help them sort fact from fiction during what promises to be a contentious and confusing political season.

I'm proud to say that Scripps newsrooms are recognized as among the best news sources because of our unrelenting dedication to high quality, objective news coverage. As a news organization, Scripps has a corporate social responsibility to help audiences understand their world. So we recently partnered with the nonprofit, nonpartisan News Literacy Project to hold the first annual National News Literacy Week. The public awareness campaign was designed to educate Americans to distinguish between sources of trustworthy news and sources of disinformation. We'll continue this educational work as we move through the year because it's important to our business and critical for our democracy.

Now let me take a moment to talk about Scripps and podcasting. We were early in podcasting when we acquired Midroll back in 2015. And I certainly remember plenty of conference calls like this one when we were trying to explain what a podcast was and how we made money. And now, we're pleased to see that podcasting is getting a lot more attention from investors. All along the way, we've been building a podcasting juggernaut.

I recognize the growth in our podcasting operations sometimes gets lost in the scale of our local television business. So let me remind you that for the last several years, we have been riding high on the back of our execution and the podcast marketplace's expansion to deliver consistent revenue growth north of 40% and as high as 90%. And you just heard Laura describe how a moment ago our SaaS business, Triton, has positioned itself to become the measurement standard in podcasting as it is with other digital audio. I'm pleased to see more and more investors taking notice of the value Scripps has been building in this fast-growing and emerging marketplace.

Likewise, Scripps was ahead in recognizing an opportunity to create shareholder value from a resurgence in over-the-air broadcasting when we acquired and then expanded the Katz networks. Whereas once upon a time, over-the-air broadcasting was a platform reserved for folks who couldn't afford TV, pay-TV, today, it's a totally different story. And while everyone has been so focused on the variety of internet options for TV, over-the-air has been growing right alongside OTT.

What's old is new again, and broadcast linear television is seen by younger audiences as the perfect pairing to subscription services and virtual MVPDs. They're plugging in digital antennas and tuning into free over-the-air television. Once again, executing our growth plans, alongside more Americans choosing to use over-the-air, has powered our 5 OTA networks, the Katz networks, to 22% growth last year. You'll recall that growth rate is higher than the expectations we had for the business when we acquired it. The combination of our local television portfolio and our 5 Katz networks uniquely position Scripps to take advantage of the over-the-air renaissance in the media marketplace.

At our company, we look to capitalize on opportunities that stem from consumer change and profit from disruption. Stitcher and Triton, alongside Katz and Newsy, are important contributors to this company's growth. As you can see from today's results, our National division is expanding its margins as revenue generation surpasses expense. That's the way to build strong and enduring businesses, and that's the way Scripps organically creates new shareholder value.

Scripps has successfully repositioned itself to thrive in the ever-evolving media landscape through the prudent deployment of capital, our focus on executing for near-term results, and our commitment to the mission of informing and entertaining our audiences. Together with our shareholders, we will reap the benefits of those moves this year and well into the future.

And now, operator, we're ready for questions.

(Operator Instructions) And first from the line of Dan Kurnos with Benchmark.

Very nice quarter, guys. Just a couple. Obviously, Brian, probably the focus has been on net retrans a lot lately given some of the noise in the space. So just to the extent that you can talk about what you're seeing or expecting maybe this year on the sub front and if there's any change to kind of your outlook for net retrans. And then just some timing questions. I think the bigger step up of the first half occurs in Q1 and then it's a little bit smaller from Q2 to Q3, if I have that right. And just remind us, I think you also get the benefit going into next year of some of the CW dissynergies, if that's correct. And maybe magnitude would be helpful.

You threw a lot at me there, so let's start. First of all, I know it's a little odd that we didn't give guidance on the retrans. But as we said, 40% of our subscribers are up for renewal in the first half of the year, and we're right in the process now of negotiating for a large portion of those subs. So, we don't think it's in our best interest, or quite frankly the shareholders' best interest, for us to give a lot of guidance at this point. Give us a couple of months and we'll have a lot more insight on what this looks like.

And Dan, that would also obviously translate into net retrans as well.

I think in terms of just the cadence you asked is more in the first quarter, yes, more of the 40% comes up in first quarter, and so we're actively negotiating those now. I think you also asked just about sub counts, and I think what we're seeing is very much in line with our peers what they've been reporting all week, down low- to mid-single digits on a net basis year over year. Fourth quarter actually softened and was a bit better. We saw a very nice uptick in the virtuals in Q4. And for the year, virtuals were up over 40% last year. So, we still think that there is some shift happening, but we do see maybe the net declines softening. Did I get it all?

And I think there was just one more -- yes, just one more piece. Just I think just to remind us, I think you also get the benefit going into 2021 of writing some of the CW dissynergies. Is that accurate, and is there any way to kind of frame that up?

That is accurate. I think we will wait to give a little more detail, again, since those are caught up in these negotiations as well.

And our next question's from Michael Kupinski with NOBLE Capital.

Congratulations on your quarter. Obviously there was a significant step up in revenue growth at Katz. And I was wondering if you can just give us a sense of how much Court TV contributed to that in the quarter. And maybe if you could just maybe somehow qualify the growth that you saw from the Weinstein trial, maybe give us some sense of that?

It's Brian. Court TV as you know launched on May 8. When we launched, we had about 63% of the country in over-the-air distribution, another 25% on cable. But I think the more meaningful step up was really October 28, and that's when the Tribune stations came on with us that got us into New York and LA and Chicago. Right after that we went live on Pluto TV. So, I think the distribution of Court was building through fourth quarter, and typically the distribution moves ahead of the revenue. So, the revenue is settling in right where we thought it would right now, and it's growing every week, grows a little bit more. We clearly got a great uptick as a result of the Weinstein trial, a lot of interest. I was very proud of our coverage. Hopefully some of you got to see it. We had a studio in New York right across from the courthouse. We had great visibility and branding there. And so I think it was another step to establish Court TV through a very high profile event. Court TV is exactly where we hoped it would be, and we're really excited on what the potential is as we go through this year and beyond. It's becoming a big -- it's returning, I should say, to a big national, credible news brand.

And Brian, can you just tell me, I know that you're making investments for Court TV, but have margins for Katz increased since you owned it?

They have. Yes, Mike.

And then can you give me a sense of the guide on the first quarter Local Media revenue? How much of political's reflected in that number?

It's hard to -- Look, we're having a really good first quarter. We've already surpassed $15 million in political for the quarter, and we still have some Super Tuesday to write. Much of the business is getting booked week to week. Bloomberg books his business week to week. As soon as we get through Super Tuesday, then we have 2 big weeks after that because March 10 we have 3 primaries, but Michigan is in there. March 17 is a big day for us: Arizona, Florida, Ohio. So all of those are states where we have multiple stations. They're big, expensive markets. So, obviously we expect to build and grow beyond the $15 million. As it relates to what will that look like for the quarter, really, our job is to maximize revenue. The more we write, the more impact it has on core. Core's off to a really nice start to the quarter, but the 2 are really working in tandem. And I think at the end of the day we'll maximize our revenue. I think we'll have a good core performance. We'll have a very good political performance.

And then just on Newsy, it saw the accelerated sequential growth in the quarter. Can you give us some color on where that growth is coming from? Is it coming from cable distribution or other advertising, so forth? Can you just kind of give us a sense there?

It's Laura. The growth at Newsy is really still being driven by OTT. We see more and more consumers and our audience growth on those platforms. So that's the primary driver. And as we've said before, it's going to take some time to build audience on cable, and that revenue will grow over time.

Got you. And then my last question. The step up in shared services and corporate to $19 million, can you give us a sense of as we look at -- you said that it's going to step down a little bit. But is the 18% growth year over year kind of what we're expecting for the subsequent quarters, or kind of give us a sense on what that run rate will look like in the second quarter going forward.

It's Lisa. So as I mentioned, Q1 expenses are up due to really our larger footprint and some of the cycle of benefits that happen. You've been around us a long time. Q1 tends to pop up. But that run rate, the 18% will moderate over the remaining quarters. So, that certainly won't be our run rate growth going forward.

Next we'll go to Steven Cahall, Wells Fargo.

Maybe first I'm going to try to pin you down on that retrans as well. Can you give us maybe any bit of color on what your reverse retrans cadence or renewal cycle looks like for the year?

It's Lisa. As Brian said, we have typically not disclosed our net retrans. But based on our large percentage of subs resetting to new rates in 2020, our growth in net retrans dollars will certainly outpace our peers.

And Steven, one other important note, because you had talked about the renewal cycle. We do not have any renewals with networks this year. We're all locked in.

Okay, great. And then Adam, on buyback and leverage, so you announced the share authorization. I think in the stock sometimes -- in the past sometimes the stock has underperformed when maybe investors thought you weren't committed enough to deleveraging. So can you just help us think about kind of the water line that you look for in terms of when you get active in the market for repurchasing versus when you might want to look to paydown debt?

It's Lisa again. In fact, our current authorization was set to expire March 1, so we, as announced, put a new authorization in place. While we're not currently buying back shares -- we're instead focused on delevering as we've said over the last several quarters -- we really do believe it's prudent to have an authorization in place in the event that circumstances changes. So as we've discussed, delevering I think is really a priority of ours, and share buyback will hopefully begin again as we get to the point of delevering.

And then maybe I missed it, but did you address your free cash flow guidance or your prior free cash flow guidance that you gave? Because it sounds like you upgraded the political guidance, so just wondering if we should think about that as a drop through to that prior $225 million to $250 million.

Yes. So we're feeling confident in our free cash flow generation for 2020. Our previous free cash flow guide was a range of $225 million to $250 million, and that really took into account some upside and downside scenarios. So we're, as I said, confident in our free cash flow generation for 2020.

And then last one for me and then I'll let somebody else talk. But how do you just think about realizing more value from your audio assets given some of the transaction multiples we've seen in the peers?

It's Adam. Look, we've talked about over the years the modest investments that we're making into our National Media businesses, including our digital audio businesses that we believe are creating shareholder value. And you know, the company obviously has a long history of creating and then unleashing shareholder value oftentimes though transactions. At this moment, we're focused on organically growing those businesses and yielding value within the company.

Next we'll go to Kyle Evans with Stephens.

Brian, you wiggled out from underneath that political guide from 1Q 2020 pretty well. Can you talk a little bit about what you're seeing in pacing so far, what your outlook is for the rest of 2020 on core pacing? And then what's your kind of sub view on auto is underneath all that?

Sure, Kyle. Well, first of all, I think as I mentioned, political's off to a good start for the quarter. So is core. Obviously you can see we had top of the industry core in third, top of the industry core in fourth. We're off to a really good start as well. The political, the way it's coming in, Nevada we had significant political. There was some displacement there. And now we're seeing it in some Super Tuesday states. So, we're expecting core for the first half of the year to be very healthy. I think depending on what happens with the selection and who the candidates are, we expect that there'll be some displacement as we work through the year. But I think we'll be kind of managing that as we work through it and seizing the opportunity, whether it's core dollars or it's political dollars. But core is off to a good start just as it was the back half of last year. And so it's still the end of February. We got some points to write for March. But I think 6 of our -- or 5 of our top 7 categories were again up in January and February, so we feel good about the core strength as well. As far as auto was concerned, it was down low-single digits. It was probably its best quarter of the year last year in fourth quarter. Came out of the gate flat in January. And we're still writing dollars for February and March, but it doesn't appear to be down the way it had been as we entered 2018. And just to drill down a little bit for you, it really comes down to the factory dollars. The dealer groups in Q4 were actually up for us, the combined foreign and domestic. Individual dealers were up for us. So it's really the domestic and foreign factory that is down double digits that is dragging down the entire category, but we do see that softening a little bit. And so I'm not going to tell you auto is going to be up this year, but -- and a lot of that would probably be due to displacement. But it does appear to be a more stable category.

Great. And do you -- thanks for issuing a political guide. I know there's lots of moving parts there. Can you talk a little bit about the puts and takes on that roughly $200 million number versus the 2016 cycle on a pro forma basis and the 2018 cycle?

Yes. Look, it doesn't look anything like 2016. Our pro forma 2016 was $135 million. To just give you a comparison, I just mentioned that we did -- so far, we've already passed $15 million in Q1. In Q1 of 2016, we had I think it was $3 million.

$3 million.

What?

2018 we did $3 million.

Oh, we had $3 million in 2018. So, we're well ahead of pace on that. Obviously presidential's going to drive part of it, but we also expect Senate. We have -- as we handicap things, it looks like there's maybe 6 competitive Senate races around the country, and we probably have the 3 largest in Arizona, Colorado and Michigan. So I think we're well positioned. And the states that we have are probably more expensive states, so I think a lot of the PAC money that's going to move around for Senate will wind up in our markets, and those are states that we have multiple stations in. On the gubernatorial side, we have an open Montana race. We're already seeing the lead republican spending money across the state. And then as I mentioned, the House is going to be very competitive this year. I mentioned we have a lot of races, 45 races that are going to be competitive. We've got toss-ups in, I don't know, maybe about 20. We're already seeing early spending in San Diego, which is the first market where we're seeing some House money. So, I don't think it all comes down to one thing. I don't think it's just going to be presidential. I think we have a great footprint for presidential, and depending on the candidates, the states of -- the swing states may vary a little bit. But at the end of the day, I think we know where the Senate money's going to come from, we know where the governor money is going to come for. And we have a real good feel that the House is going to be spread through much of our portfolio.

Great. Maybe we can switch over to the National business. The programming and licensing fees jumped in 4Q. I'm assuming that has to do with the Court TV launch. But Lisa, you also mentioned that there's an amortization maybe jump in that number as well. How should we think about that number in 2020, and how should we phase it? Is there any seasonality to that?

So, I'll answer the first part of your question and Laura may chime in on the 2020 piece. Periodically, we reassess our programming amortization to ensure alignment of the expense recognition, really just normal course of business kinds of things, and obviously wanting to make sure that the expected economics will be recognized for the usage of the program. So, that's what that onetime, really that adjustment that you saw come through in first quarter, that bumped that expense a bit.

And on the distribution side, we've made investments in the last year in Court TV. We'll continue to make investments on furthering that footprint for the entire Katz network.

Great. Laura, while I've got you, I'm glad to hear Newsy is tracking towards profitability. Any way you might hazard a guess at kind of what the terminal margin on that business might look like?

You know, I think if you look at our results from last year, we continue to pursue margin expansion as a division. Really, the most important metric that we continue to track is revenue, but we do need to continue to invest to capture the growth in these fast-growing marketplaces. Look, each of these businesses are growing revenue at different rates, and we continue to take a disciplined approach from an investment perspective. I'd say in the long term, we would expect as a division for margins to settle in around 20%.

Great. One more for Brian then I'll get out of the way. 40% renewals in the first half of this year. Are those kind of all at the end of 2Q? And I know you don't want to talk too much about the renewals because you're in process on negotiations, but could you kind of characterize the structure of that? Is it lots of little ones? Is it 2 big ones? Is it some combo of that?

It's Brian. The renewals, more than half of the 40 million subs come up at the end of first quarter. We have I'd say several large deals that make up the 40%. None of them are small. So they're all meaningful and important negotiations.

But half at the end of 1Q?

More than half.

More than half. Okay. Great.

Next we'll go to Craig Huber with Huber Research Partners.

Yes. Maybe I'll just start with a follow-on to the question that you just heard. What about the phasing of the sub renewals for the second half of the year, please, how should we think about that? Just update us on that, please.

Yes, so all of our sub renewals will happen in the first half, Craig.

There's none in the second half, you're saying.

That's correct.

Okay. And just, what about just for next year on the retrans subs? Is there any -- how is that phased for next year if you have that?

Yes, we have 18% of our subs are up next year. I don't have in front of me when exactly those come up.

Is that this afternoon?

We can get that to you later.

Okay. Very good. Your cost guidance for television broadcasting for the first quarter up low-teens here on a year-over-year basis pro forma. What exactly is driving that? Maybe you can talk about the network comp piece, if you will. But what is driving that since it's higher than we would have thought?

Yes, and it's higher than usual and it really is because of a couple of onetime things. So obviously, as you mention, the network cost is a significant part of it. And I think Lisa called out the fact that if you back that out, we're up about mid-singles, which is still higher than our normal run rate. A couple of things there. We've made a major commitment to expand news in some of the television stations we just bought. So, we're launching a news brand in Miami, and so there's an investment there to get that up and running. We're adding a news -- we're expanding news in Phoenix onto the news station that we've just acquired there. So there's expansion cost there as well. And we just expanded our morning newscast in New York, as well as 1 or 2 other markets that we're adding some weekend newscast in all. So, we do think news is part of the Scripps brand. It's what I think local communities count on for us most. You can't capture as much of the political opportunity if you're not in the news business, so we're expanding news. And so it could put the costs are associated with that. Beyond that, it's the beginning of the year, so HSA seed money. This is the first time that the Tribune stations and the other stations we acquired are getting seeded at the beginning of the year. And then it's just normal benefits, merit, some addition of head count associated with our news expansion. So, I think that kind of breaks down why the extra cost in Q1.

It sounds like Brian, though, the biggest jump is the network comp. I wasn't aware of any significant contract -- affiliate contract renewals at year-end to account for that. Is it just more escalator clauses, or what exactly is going on there for the first quarter?

Yes. We did negotiate quite a few contracts last year. So, we negotiated a new contract for all of our Foxes in the back half of last year. We negotiated a new agreement with CBS for I think 4 or 5 of our markets at the same time when we acquired the Tribune television stations. We had 1 renewal on ABC from a Cordillera station we renewed. So all of that would have been new and incremental over this time last year.

But in terms of -- was that all done at year-end, you're suggesting? So it didn't hit --

It was all done -- well, it was all done in the second half of the year, and probably most of it in the fourth quarter.

I'm sorry, I guess what I'm trying to get at here is why are your TV costs up so much? Forget year over year up low-teens then. Why is it up so much sequentially versus the fourth quarter?

Well again, I think it really gets back to what I just spoke about relative to the investments in --

I'm sorry, Brian. The network comp jump, you did not see that then in the fourth quarter, but you are seeing it in the first quarter. Is that I guess the message?

Well, I think we saw some of it in fourth quarter, plus ABC would have stepped up on a new calendar year, and that's the largest part of our portfolio.

But I would also point out, Craig, that all of the list of the investments that we're making were all part of the strategy that we used when we decided to deploy capital and get into second stations in some of these markets. And all of the investments to expand news onto these news stations are all investments that are key ROI positive investments for the company.

Right. I guess my last question on this topic. I guess it sounds like just cost growth for the remaining part of the year should probably moderate given what you just sort of went through. Is that a fair statement?

That's correct.

Okay. And then just sort of the unknowable out there, but I'm just curious on this coronavirus issue out there, is there -- it sounds like the core advertising so far this quarter is going quite well, Brian, both here on the national side as well. But are you hearing much at all about any hesitation from your advertisers around this issue here that you might hit an air pocket on TV advertising, and also on the national side as well impact there? Or is it just totally unknowable at this point what people's thoughts are?

I'll tell you what we're hearing. We're not hearing anything like that. We haven't heard of any stumbles or air pockets. The potential for an outbreak of COVID-19 in the U.S. is another example of why we take our commitment to news and information so seriously, Craig. Particularly in the case with our local journalism, I think our audiences will turn to us for the information they need. And in fact, the local officials are going to increasingly rely on us to execute what we see as our public service responsibilities. I think our dedication to delivering on that commitment with the same level of professionalism and discipline that these scenarios demand of us is key. It's obviously especially the reason why we already have plans in place and have and will take all the necessary steps to ensure the health and safety of our employees while maintaining business continuity across the company. We haven't seen or heard anything that gives us pause with respect to results or guidance, and we're just ready to execute our mission.

Craig, it's Brian. I just wanted to add, obviously we're all watching the market the last couple days, and I think it's reacting to technology companies, airlines, all those others that are going to be adversely affected. Those are not our advertisers. They're not advertising in local markets. 2/3 our advertising comes from our local businesses, our local service categories, retailers, travel and leisure. And so I recognize why the market's reacting the way it is, but as it relates to our local advertisers, we don't see their impact at this point.

Next we'll go to David Cohen with Midwood Capital.

Great quarter, everyone. Actually my question's been answered.

And we'll go to David Steinhardt with Litespeed Partners.

So, congrats on another great year. Looking forward, it looks like you're continuing to grow the news -- the National Media business along with revenue. Just curious if you can provide any idea of where one might get leverage in terms of the expense base that you're building out just to -- I know they're trying to foster growth through additional content, but it'd be helpful just to understand where the expenses might [stop] growing.

This is Adam. The key strategy there is to continue focusing on margin expansion. We believe that we are well-positioned for the revenue to continue on its fast growth, and we're obviously very disciplined about the kind of expenses we throw back into the business. The -- I'll give you as a perfect example our decision to launch Court TV. We obviously took some of the profit from the Katz networks and reinvested them early last year and last year in order to launch Court TV. Even through that, we saw 22% revenue growth and the continued margin expansion with the National Media business. And I think it's a good example of the way we look to organically fuel revenue growth and our expectations for growing margins.

So in addition, can you talk to the repurchase authorization that you guys just made? Like how should we think about the $100 million repurchase authorization in terms of capital allocation, given that you want to get your debt levels to normal levels by the end of 2020?

It's Lisa. What we just announced was a new authorization because the previous authorization was expiring. And we believe it's prudent to have an authorization in place at all times. So that was really the impetus for that. Based on our current view, we would expect to leverage to be around the mid-4x by the end of 2020, and that's our priority. So, we're focused on delevering. And as we delever and if political comes in hotter than expected, we have an authorization in place and at some time may get back in the market. But as we've said over the course of the last 6 to 9 months, delevering is a focus area of ours.

And with no further questions in queue, I'll turn it back to the company for any closing comments.

Thank you. We appreciate everyone joining us today. Have a good day.

Ladies and gentlemen, that does conclude your conference for today. We thank you for your participation. You may now disconnect.