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E.W. Scripps Company (SSP 0.14%)
Q4Â 2020 Earnings Call
Feb 26, 2021, 9:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the Scripps earnings call. [Operator Instructions] [Operator Instructions]
I would now like to turn the conference over to Carolyn Micheli.
Carolyn Micheli -- Senior Vice President of Corporate Communications and Investor Relations
Please go ahead. Thank you, Cynthia. Good morning, everyone, and thank you for joining us for a discussion of the E.W. Scripps company's financial results. You can visit scripps.com for more information and a link to the replay of this call. A reminder that our conference call and webcast include forward-looking statements, 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 conditions. We do not intend to update any forward-looking statements we make today. If you have not yet signed up for Scripps Virtual Investor Day next Wednesday, you can email us at [email protected] to register.
We'll hear this morning from Scripps' President and CEO, Adam Symson; our new Chief Financial Officer, Jason Combs; the President of our new Scripps Networks division, Lisa Knutson; and our longtime local Media President, Brian Lawlor. Also on the call is Controller Dan Persky, who was recently promoted from assistant controller and has been with Scripps for 13 years. Our former controller and Treasurer, Doug Lyons, is now overseeing financial strategy and special projects.
Now here's Adam.
Adam Symson -- President and Chief Executive Officer
Good morning, everybody, and thanks for joining us. Today, we present you with an E.W. Scripps company that has significantly evolved over the last few months. We are exiting the digital audio business to fantastic returns, and we have acquired ION and combined it with Newsy and the Katz networks to assemble a powerful new national broadcast networks business. Today, Scripps is a full-scale television company and the largest holder of broadcast spectrum in the United States. Our local station group reaches one in four U.S. TV households across the nation to deliver local news and programming over-the-air, on pay TV and on Internet-based platforms. Our new national networks business, Scripps networks, reaches nearly every American through free broadcast TV, on pay TV and across a range of emerging television platforms.
As a company, we provide our advertising customers with unparalleled audience reach that is both broad nationally and deep locally, more about why I say unparalleled audience reach in a moment. By now, I think our track record supports me when I tell you we are dedicated as much to our near-term operating performance as to our longer-term value creation. The strategic moves we have made over the last few years will note they already are paying off for our shareholders. The transformation of our company is about so much more than next quarter's performance. Because we will be exceptionally positioned for the future of television. As we often tell you, Scripps has always been about anticipating and capitalizing on the evolving habits of media consumers.
And today, we're poised to do it again, profiting from the disruption in television. Practically every month, a new D2C subscription service launches, and they are all battling each other out for a finite share of the American consumer's wallet. At this point, many Americans are paying as much for broadband and multiple subscription services as they were when they complained about their pay TV bills. And it is in this SVOD melee that investors will come to see the power of the Scripps opportunity, our significant leadership in free television. Because television consumers, whether they subscribe to cable or not, are picking and choosing for themselves. And more and more often, they're combining subscription streaming services with free TV delivered over the air. As we all should recognize by now, television consumers have taken control of their own bundles.
The future isn't a question of pay TV or streaming TV or over the air, the future of television is a combination of all three. Our local and national television brands reach consumers in all of these places with the quality entertainment and fact-based news programming they're seeking. And of course, that means we're also delivering the eyeballs that advertisers are looking for. While time spent watching cable for the key demos is way down, the advertising impressions for free television are way up, and we expect that growth to continue as the marketplace develops. We bought a great business in ION, and combining it with Katz and Newsy gives all seven networks new growth levers both immediately and over the longer term as we harness the scale of our networks together to grow audience and national advertising share.
To quantify the immediate growth, I can tell you we have significantly raised our expectations for free cash flow per share accretion. We now believe we will exceed our previously provided 2020-2021 free cash flow per share accretion estimate of more than 16%. Instead, we now expect this transaction to yield free cash flow per share accretion of about 75%. Our new Scripps networks President, Lisa Knutson, will talk more about the network's growth levers in a moment. While we are already creating value in 2021 and focus on our growth opportunities beyond, I have to take a few minutes to recognize our 2020 financial performance, which exceeded even the expectations we laid out to you in November. Scripts ended the year by delivering free cash flow that was about 30% higher than the estimates we put out for 2020 before the pandemic began.
We rescinded that guidance last March when COVID hit the country, so I think you'll agree our performance was remarkable given the economy last year. Exceeding revenue expectations across the board translated to higher profitability and cash flow, much higher even than the $280 million estimate I gave you on November six and when we had already accounted for our full political year. I'm very pleased to share that we ended the year having generated $310 million in free cash flow. This performance will translate to about 17% of every net revenue dollar dropping to the free cash flow bottom line. On an as-reported basis, that compares to 9% in 2018, and a comparable political year and before we acquired the Cordillera and Tribune Nexstar divestiture stations. We were able to deliver higher free cash flow than anticipated even after accounting for the heavy political spending because of the additional strong revenue and profitability of the national businesses, better-than-expected local core advertising and prudent expense management across the company.
You'll hear much more from us next Wednesday morning at our investor presentation about our near-term strategies and the value we are already creating from our national networks business. The success and perpetuation of this company would not have been possible without the longtime steady stewardship of Rich Beney, who announced last week, he would not run for reelection to our Board. Rich has played an integral role in the milestones of our company since we went public in 1988. He partnered with former Scripps Networks Interactive CEO, Ken Lowe, to develop the idea of putting home renovation on television with HGTV. And from there, lifestyle networks became an entertainment phenomenon that has created tremendous value, including for many of you. Rich led this company through the sale of its newspapers, the expansion of its local broadcast holdings, the acquisition of Cakes and the entry into digital audio, among many other transactions.
Rich is my mentor and my close friend, and I'm privileged to have learned from his wise counsel and his entrepreneurial spirit. Finally, I'd like to welcome Jason Combs to his new role as Chief Financial Officer. Most of you know Jason because he's been a close partner to Lisa as Head of Financial Planning and analysis for Scripps. I am confident Jason will take forward Scripps' conservative balance sheet approach as we look to pay down debt we assumed to fund the company's recent transformation.
Now here's Jason to discuss our strong 2020 results.
Jason Combs -- Chief Financial Officer
Thanks very much for that, Adam, and good morning, everyone. I'd like to start our discussion of Scripps' fourth quarter and year-end 2020 results with our local media division. This morning, we released tables at the end of the earnings release, giving a look at local media for the full year of 2019 and quarterly periods of 2020 as though we had not owned WPIX in New York for those periods. The sale of WPIX closed on December 30, 2020, so my comparisons will be on that adjusted basis using those results for both periods. And just a reminder that the third quarter was our last quarter of adjusted combined treatment for the Cordillera and Nexstar-Tribune station acquisitions. You can find our as-reported results in today's press release. Political advertising revenue ended the quarter at $137 million, and we finished the full year at a record $265 million, again without the WPIX results.
We're now looking ahead to a few off-cycle elections this year and another very big year for the 2022 midterms. Local media core advertising revenue was $170 million in the fourth quarter. That represents only an 8% decline from the fourth quarter of 2019 and was much better than our expectations of down mid-teens. We did see significant core displacement from political ads from October one to November 3. But after election day, we saw core climbing back, and we've had an acceleration of momentum since the start of the year. For the first quarter of the year, our best view right now is that core will be about flat from the first quarter of 2020 on an adjusted combined basis. Turning to local media retransmission revenue, we were up 38% in Q4. If you factor out subs for WPIX in New York, we renewed 50% of our pay TV households during 2020.
Brian will give you more color on our new subscriber renewal schedule, excluding picks in a few minutes. We did not have any renewals in the fourth quarter and ended the year as we had expected at $579 million, up 31% excluding WPIX. In our latest reporting period, Q3, we sold just about 1% subscriber churn from the prior quarter. Looking ahead to 2021 retransmission revenue, a reminder, only 4% of our households renew this year. For the first half of the year, we expect retrans to be up about 10%, then flattish in the back half of the year as we annualize the 2020 renewal schedule. Local media expenses increased by only 1% over the year ago quarter, excluding contractual programming costs and higher incentive comp based on our greater financial performance. When the pandemic began, the division imposed cost savings initiatives, including merit page freezes and reductions in capital expenditures, travel and marketing.
Local media segment profit was $202 million, which is the strongest fourth quarter profit number ever for this division and finished the year at another record, $445 million of segment profit. Now let's discuss the results of our former National Media division. These results include the Katz networks, Newsy, Triton and our other national businesses. Stitcher was sold on October 16 and is classified as discontinued operations. So the fourth quarter and full year division results do not include Stitcher for any period. National Media division revenue once again exceeded all expectations for the fourth quarter as Katz and Newsy capitalized on the resilience of the national ad marketplace and especially strong direct response advertising. Triton also outpaced our expectations in Q4, up 26%.
Fourth quarter revenue for the division was up an impressive 28% to $117 million as each business delivered double-digit revenue growth. National Media expenses for the fourth quarter were $95 million, up 19% from the same quarter a year ago, mostly tied to our revenue growth. So National Media delivered Q4 segment profit of nearly $23 million and margin growth of six percentage points over Q4 of 2019. This is impressive margin expansion in any year and especially in 2020. We announced the sale of Triton on February '17 to iHeartmedia for $230 million, which reflects a 1.6 times cash-on-cash return. We expect the sale to close early in the second quarter. We were very pleased with the performance of Triton, which was always accretive to our division's margins. That will be the last time we talk about the results in the former National Media division. In today's earnings release tables, in addition to the local media division adjusted combined tables, you will find tables with illustrative results of the new Scripps networks division for 2019 and 2020 as though the division had been formed on January 1, 2019.
The new division results roll up our national Networks business, which includes ION, Bounce, Grit, Last, Core TV, Core TV Mystery and Newsy. Advertising for these networks will be sold together, and many of their support functions have been centralized to create efficiency. They will be operated as one business, and so we will report them as such. You can expect our financial reporting on that division to largely reflect the format of the tables today. Looking ahead to Scripps networks revenue for the first quarter of 2021, we expect revenue to be flat to down low single digits from the adjusted combined results we shared in Q1 of '20 -- shared for Q1 of 2020. In addition to the Local Media division and the Scripps Networks division, we will continue to report in other segment, which includes the Scripps national Spelling BEE, the Scripps Washington Bureau and several other small businesses. Triton will also be reported in that segment until its sale is complete. Turning to shared services and corporate expenses.
They were $17 million in the fourth quarter. During the quarter, we had higher bonus accruals as a result of free cash flow coming in so far ahead of our projections at $310 million. We achieved our previously announced $75 million in companywide expense controls and cash management measures for 2020. The company's Q4 income from continuing operations was $1.35 per share. The quarter included $6.5 million in gains from the sale of WPIX and also $2.6 million in acquisition and related integration costs. Our full year 2020 interest expense was $93 million. For '21 -- sorry, for 2021, taking into account our debt to finance the ION transaction, we estimate interest expense to be around $145 million. And the cash interest outlay to be between $125 million and $130 million. Our full year capital expenditures for 2020 were $36 million, excluding repack costs, and we expect the acquisition of ION to increase those to between $55 million and $65 million in 2021.
On December 31, our net debt was $1.4 billion, which includes unrestricted cash on the balance sheet of $576 million. Our net leverage at the end of the year was 3.7 times per the calculations in our credit agreements. That's down from 5.3 times at the end of the third quarter due to proceeds from the sales of Stitcher and WPIX and political advertising revenue. Our company's increased cash flow as we move forward, paired with the proceeds from the Triton sale, will allow us to pay down more than $300 million when the Triton sale closes. Next Wednesday, during our Investor Day presentation, we'll talk more about the revenue growth drivers that are already under way and how our increased profitability will allow us to delever quickly.
Lisa often told you, and I will firmly reiterate that our top capital allocation priority is to achieve a strong, flexible balance sheet, and now here's Lisa to talk about the Scripps networks.
Lisa Knutson -- President of National Networks
Thanks so much, Jason, and good morning, everyone. I'm thrilled to be joining you in my new capacity as President of the Scripps networks businesses. We decided to call this newly formed division, Scripps networks, because we want it to be 100% clear that Scripps is operating a full-scale national television networks business, seven networks that reach nearly every American either over the air, over-the-top or on satellite and cable. Our networks have come together to form a fantastic business, which will provide double-digit revenue growth for the next several years and efficient centralized expense structure and division margins of about 40%. These networks deliver a collection of audience demographics that are attractive that are attracting premium advertisers and driving strong ad breaks. They are playing in the resilient national ad marketplace and capitalizing on the health and growth of the direct response category, as we demonstrated last year with the impressive performance at Katz.
Since our close of ION on January 7, integration of these businesses has gone exceedingly well. Our leadership team is nearly in place with Jonathan Katz, serving as Chief Operating Officer and Head of the entertainment network. We're close to hiring ahead of the news unit, which includes newsy and Court TV. Our division's 750 employees have already been organized into new management reporting structures and launched into their new roles, and we're on track to achieve the synergies for this year that we've previously identified. The bottom line is we have now put into action the strategies we outlined in our acquisition announcement, and you will see immediate value creation. In fact, the foundation of this value creation includes four key growth drivers that we are already beginning to capitalize on.
Number one is the growth in the size of the audience, watching free TV through digital antennas. Recent Nielsen figures show that nearly 50 million Americans U.S. TV households or 40% owned antennas in 2020. That was a big jump from 29% in 2019, and we're here to serve them with the most popular premium programming. Number two, we will continue to expand on the platforms in which we're distributing these networks: over the air, over-the-top and on pay TV. And next, we're finding ways to efficiently expand our portfolio of networks. We have the incredible opportunity to expand our leadership share of this marketplace because we own so much of the distribution ourselves. And number four, we'll continue to improve advertising yield through audience growth and better yield management, including maximizing direct response on ION.
This week, the new Scripps network makes its debut as a bundled business in our upfront presentations to advertisers. We will share the story of this powerful new path for reaching nearly every American with three quality programming for both niche and mainstream audiences. You will hear much more about this next week, next Wednesday at our Investor Day. And I think it will be clear, if it's not already, that bringing these networks together adds up to so much more value than they created apart. ION, Katz and Newsy are a powerful combination. As I described a few moments ago, the Scripps networks includes two units: entertainment and news. Our entertainment networks feature premium programming that audiences love with some original programming at Bounce and familiar favorites in drama, crime and comedy at the others.
Our networks will continue their fact-based contextual coverage, Newsy focus on national news themes and Court TV on bringing transparency to America's Criminal Justice and court system. Finally, I hope you can see the focus and the drive this management team has on delivering on the promises scripts made when we announced the ION acquisition to realize the identified synergies and to drive outstanding operating results.
And now here's Brian.
Brian Lawlor -- President of Local Media
Thanks, Lisa. Good morning, everybody. In 2020, the local media division generated nearly $1.5 billion in revenue while closely managing our expenses, leading to record segment profit. That's a pretty noteworthy performance given the nation's economy last year. Political and retrans both contributed to our record year, and core advertising performed better than expected. Let's dive into each of these revenue lines. Core advertising revenue began to turn around almost immediately after election day. Services were up high single digits in both November and December, and home improvement was up high singles in November and nearly 20% in December. Auto was down only low single digits in December with some subcategories like foreign factory showing year-to-year growth. Core advertising momentum has continued as we move through the first quarter.
Services and home improvement remain up, and auto is down only low single digits despite new production problems with computer chip supply. In addition, sports betting, has emerged as a material contributor within our travel and leisure category. That category has been decimated by the pandemic's impact on live sporting events, concerts, travel, cruises and even casino attendance. Emergence of sports betting has helped rebound the travel and leisure category, pushing the first quarter positive compared to last year. Sports betting is already legal in seven states where Scripps own stations, with more coming this year. As states make sports betting available to their citizens, the industry is using local broadcast stations as a primary means for getting out their message.
Backing out sports betting and travel and leisure remains down about 45%, and we eagerly look forward to the return of live events with that are traditionally robust top five category. Clearly, political advertising continues to be a tremendous value creator for local broadcasters, and we really maximize our opportunity at Scripps with our specialized political sales office and our strategies around maintaining and managing inventory and yield. We also benefit from a geographic station footprint in many purple states and from the growing amount of money in the whole ecosystem. In 2022, we expect the amount of political spending to grow beyond even the tremendous 2020 presidential election levels. $9 billion is the new nationwide spending market, and Scripps expects to continue to capture more than our fair share.
Our stations will be home to 17 governors races and 18 U.S. Senate races in 2022. We also expect redistricting after the 2020 census to shake up races in a number of our states, including Arizona, Colorado, Florida, Michigan, New York and Texas. Finally, we're also coming off a great year for retransmission revenue. We renewed 42% of our pay TV households. It's 50% if you back out WPIX households, and that schedule translated to big jumps in revenue for the year. As you know, these contracts move through various renewal cycles. And again, factoring out WPIX, we'll see 4% of our households to renew in 2021 and 21% in 2022, and we'll have another big year in 2023 with 75% of our households renewing.
And now operator, we're ready for questions.
Questions and Answers:
Operator
[Operator Instructions] And our first question, we will go to the line of John Janedis with Wolfe and your line is open.
John Janedis -- Wolfe -- Analyst
Thank you. Good morning. I had a couple. Maybe the first one for Adam or Lisa. You talked about the advertising impressions. I know you're only a few weeks in. But as you talk about the growth levers with the networks, are there any early anecdotes you can share from the sales team as they sell that larger offering?
Lisa Knutson -- President of National Networks
John, it's Lisa. Yes, we're optimistic. The year really continued to build on the momentum that was in fourth quarter. So we -- both in the general market and sort of upfront and scatter market, but also in the DR. The DR space, strong continued growth in really all categories. Certainly in fourth quarter, we saw some -- that was really bolstered by, certainly, the healthcare, large advertisers in healthcare, and obviously, the Medicare spend that was happening in the fourth quarter. So we're seeing momentum, and we're really optimistic, especially as the year builds.
Adam Symson -- President and Chief Executive Officer
John, let me add something to that also. I think important to let investors and analysts know that our early looks at ION's yield and ION's sales processes open up a lot of opportunity. I think in many ways, we had indicated before, given the gap that sweetened their audience size and their monetization that there would be some opportunity for growth as we close that gap. And early indications are, we were right on. I think bringing the networks together with our others in the bundled upfront is going to yield terrific opportunity for all of our networks. And then clearly, we think we can bring some of our expertise with yield management, especially around direct response to improve the yield and rate at ION I think that's what we've been saying from the beginning. And our investigation of the business as we brought it and integrated it in, I think, has definitely confirmed that.
John Janedis -- Wolfe -- Analyst
Okay. Great. And then maybe, Brian, thanks for the color on the categories. As you start to lap the dislocation from the pandemic, what are you seeing? Was there anything notable that you saw, call it, late February heading into March?
Brian Lawlor -- President of Local Media
John, it's Brian. Just the continued momentum. I think I spoke in my prepared remarks about the health of services, the health of home improvement. That absolutely continues. Travel and leisure is very strong right now as a result of sports betting, but I think that's -- that and retail are the two categories that are probably the slowest to rebound, although retail is having its best month in the last year in March. So that one's coming back. But I think when the traditional travel and leisure accounts come back and when retail, when the states begin to allow more people into shopping locations and so forth, I think that's the one that we have a lot of optimism. And as we look at stimulus money getting in the hands of people, we think that advertisers are going to be anxiously fighting for market share for those dollars, and we'll be pretty aggressive in that space. But I think that the big story for March is continued improvement really every category. February was an improvement over January, and March is now an improvement over both of those first two months.
John Janedis -- Wolfe -- Analyst
All right, thanks a lot.
Brian Lawlor -- President of Local Media
Thank you.
Operator
Our next question comes from the line of Dan Kurnos with The Benchmark. And your line is open.
Dan Kurnos -- The Benchmark -- Analyst
Thanks, good morning. Nice results again, guys. So just a follow-up on John's first question, Adam, Lisa. At the risk of opening myself up to the answer, wait until Wednesday, I'm just curious on as we get into 2021, just how you're thinking about mix by channel than national? Obviously, the story from Katz originally was get more into general market. And obviously, you've had tremendous success lately with direct response just given some of the performance-based optionality there. Just curious if you could give us maybe some initial high-level thoughts there. And then Brian, did I hear you say you thought political in '22 would be better than 2020?
Brian Lawlor -- President of Local Media
Yes, Dan, I did say that.
Adam Symson -- President and Chief Executive Officer
Dan, I'll start with this. You're right, and I know you love hearing that. You will have to wait to some extent to Wednesday at which time, I think we will provide, I think, some information that will allow you to better scope the contribution of each of the different advertising categories to the networks performance. So recognizing that the networks themselves are made up of really general market, direct response and OTT, and each have, I think, growth opportunities ahead, but it's different per network. And Lisa will spend a fair bit of time on that on Wednesday.
Dan Kurnos -- The Benchmark -- Analyst
Certainly, beats here and you're wrong, Adam. So the other one, just maybe just on Newsy, just some updates on your thoughts heading into this year. Obviously, there's been a huge DTC TV push. Newsy has been charging along nicely. You've got strong distribution agreements in place now. Just kind of maybe your thoughts on scaling and sort of how profitability continues to improve from here.
Lisa Knutson -- President of National Networks
Yes, Dan, you're right. Again, newsy had tremendous growth in 2020, growing about 20%. Really, the majority of that growth came -- really, most of the growth came on the back of expanded OTT advertising, and so we will just continue to maximize that. I think we talked maybe in the last call about the fact that we are really the leaders from a programmatic advertising perspective, and Newsy is really capitalizing on that. And so we'll continue to pull back growth driver because we see that definitely as a big opportunity for Newsy going forward, and we'll bring that same platform to the other networks as we look at expanding on the programmatic side with our other networks.
Dan Kurnos -- The Benchmark -- Analyst
All right. Awesome. Thanks guys. Really appreciate it.
Lisa Knutson -- President of National Networks
Thanks.
Operator
Our next question comes from the line of Stephen Cahill with Wells Fargo. Your line is open.
Stephen Cahill -- Wells Fargo -- Analyst
Thanks. So Adam, thanks for that increase in free cash flow accretion related to ION. Maybe first off, what's driving that? What's changed now that you've owned the business for a couple of months. And does that include the Berkshire warrants in that calculation?
Jason Combs -- Chief Financial Officer
Stephen, it's Jason. So first of all, to answer on the virtue, yes. That includes the payment that we'll need to make for the Berkshire warrants. The main thing that's improving accretion at this point is really lower interest expense in our outlook. First of all, we received more favorable financing rates than we had originally modeled at the outset of the deal. Also the Triton sale proceeds will allow us to pay down debt in 2021, and then also the Stitcher and WPIX divestitures resulted in us having more cash available at the time of the financing and thereby financing less. So all those are kind of driving into a lower interest spend.
Stephen Cahill -- Wells Fargo -- Analyst
Yes. Great. And then you mentioned that you'll be the biggest owner of broadcast spectrum. You all have been on an asset monetization tear. Is the spectrum that you have? Is there any excess that you might monetize in the future? Or you require all that spectrum, given all the OTA content you have now?
Adam Symson -- President and Chief Executive Officer
Actually, I think that today, not only are we the largest holder of broadcast spectrum, but I would say we're the most efficient monetizer of that spectrum given the operating businesses that we have, leveraging that spectrum. And I think Lisa described the opportunity we have with respect to the growth drivers, among them, the efficient expansion of our networks business to continue and take advantage of our leadership share position in the free television marketplace. So I would say that we are actively working on strategies to identify the best and highest use of that spectrum with respect to the transition to ATSC 3.0 new data casting possibilities, but the hurdle rate is high because we expect to continue and to expand the profitability of our production over that spectrum through our operating businesses right now.
Stephen Cahill -- Wells Fargo -- Analyst
Yes. And then last one for me, just a mundane on local media one, any outlook for net retrans for the year?
Brian Lawlor -- President of Local Media
A mundane question for local media? Stephen, it's Brian. Look, as you know, related renewals last year for about half of our pay TV households, and we're pleased with the outcome of those. As a reminder, Comcast rates renewed at December 31 a year ago, and so all of that drove 30% grocery trans revenue in 2020 over 2019 on the same-station basis. Because we had no network renewals this year and don't have any new ones until the end of next year, the cadence of rate step-ups and expenses was in our favor this year.
We've not given a 2021 guidance, but I can say that the timing of margin growth is entirely tied to the timing of our contract renewals. So we've got about 4% households renewing this year, a little bit more than 20% next year. And then the big year again, years now, 75%. So I guess, I would just say the successful renewals of these. And our revenue growth, our margin expansion, they've all kind of validated our thesis about buying 28 television stations last year, and I think all of that roll together has made us a much stronger division and company.
Stephen Cahill -- Wells Fargo -- Analyst
Great, thank you.
Brian Lawlor -- President of Local Media
Thank you.
Operator
Our next question comes from the line of Kyle Evans from Stephens. And your line is open.
Kyle Evans -- Stephens -- Analyst
Hi, thanks. It's clear that Scripps networks is the dominant player, but maybe just some brief commentary on the competitive landscape, especially as we saw TEGNA launch twist. And I guess I'm wondering, are we going to see a new station rollout race between you guys? And then I've got some follow-ups.
Adam Symson -- President and Chief Executive Officer
Yes. Look, I mean, I think we encourage, and we're pleased to see more premium content being put into the live TV ecosystem. I think for a long time, our networks stood alone as networks that were focused on creating brands and developing programming that was more than just stuff that was on the shelf, and I think that we're pleased to see that the marketplace will develop because that will make free television a more compelling consumer proposition overall. I do think our leadership share is significant. I think the economics behind the ION acquisition and our ability to continue to expand that share and to profitably operate our unparalleled, and so while I certainly expect there'll continue to be more development in the free TV ecosystem, I don't think anybody will be able to do it with the economics that we have and to start with the distribution that we're able to bring to the country right away. So I do think -- I do, of course, expect the marketplace to develop, and I expect us to continue our leadership by a far stretch. Lisa?
Lisa Knutson -- President of National Networks
Yes. Just one other thing I would mention. Remember, in the -- our network, the former Katz network, the landscape in which they're competing in, there are only 13 of those networks that are Nielsen-rated. Five of those networks are our networks, and I think that's the proxy for actually people watching those networks and us being able to monetize those networks through the eyeballs that we're selling. So I think we are the dominant player, and we will continue to be as we move forward.
Kyle Evans -- Stephens -- Analyst
Great. And while I had you, I think there was a January release from you guys about exceeding the $500 million in synergies. Maybe some detail on that, please.
Lisa Knutson -- President of National Networks
Yes. I think there was a release early on. Jason can say more about the synergies, but we did -- we hit the ground running, Kyle, with certainly beginning to lock in the synergies that we promised at the time of the acquisition thesis. I think there was a release early January, Jason, that outlined some of those.
Jason Combs -- Chief Financial Officer
Correct. Yes, we had a release, which was focused on how quickly we would have been able to operationalize the headcount corporate synergies. And on the distribution side, we're actually diligently working through those synergies right now. In fact, the migration of the first of our Katz channels over to ION's distribution signal begins this weekend.
Lisa Knutson -- President of National Networks
Kyle, that will be really the first consumer-facing step in delivering on our plan that's happening over the weekend. So more to come.
Kyle Evans -- Stephens -- Analyst
Great. Adam, it was a different world. You were a much smaller business. But I recall that at one point, there was a lot of discussion about kind of in-market and swaps, and we're waiting for a Supreme court ruling in June. Maybe just your high-level thoughts on what that could mean for end market activity going forward on the local side.
Adam Symson -- President and Chief Executive Officer
Sure. I mean we remain committed to continue to improve the performance of our local media portfolio. I think one of the ways we could do that is by picking up second stations by continuing to get deeper in the markets where we already operate. We don't break it out, of course, but a local state -- two local stations in a market is much more productive than just one. We just recently sort of quietly picked up a second station in Denver, and we expect that, that will enhance the margin of our operation in Denver and enhance the cash flow generation there as well.
We've already launched news on that second station and are optimizing the programming, and that's been very, very efficient. That was a really efficient acquisition of a second station. I think we paid $9 million for the station. And I would expect that if the Supreme court opens up the opportunity for broadcasters to get deeper in the markets where they already operate, something that we would welcome, I think you would definitely see us participate in that swapping opportunity.
Kyle Evans -- Stephens -- Analyst
Great, thank you.
Adam Symson -- President and Chief Executive Officer
Thank you.
Operator
Our next question comes from the line of Michael Kupinski with NOBLE Capital Markets, your line is open.
Michael Kupinski -- NOBLE Capital Markets -- Analyst
Thank you. First, I want to wish Rich well on his retirement. I remember when he was a reporter and he used to call me for posts regarding media. So I wish him all the best. So first, Brian, can you talk about rate integrity throughout 2020? I -- obviously, the pandemic had a big hit on that. And I was just wondering, as you kind of look -- I'm just trying to get a little bit of flavor or color as we kind of cycle through the second quarter. What have rates got? And how have you maintained rate?
Brian Lawlor -- President of Local Media
Yes. I think through 2020, Mike, we had a -- obviously stayed fluid with how we're running the business. We knew that we had a big political business that was going to back -- run through the back half of the year. Obviously, we had to manage our lowest unit rates and make sure that we accommodated inventory for the politicians. So to some degree, that gave us rate protection. Early in April, May, June of last year, we were scrapping for every dollar we could when we're outside the political windows, and I think that served us well. I think all that's behind us. We -- following the election, good core momentum in November, build on that in December.
Now we're having a very strong first quarter. Very excited about the health of the quarter. And as we build toward second quarter, we have a lot more optimism that the categories are going to continue to improve. I think as in the next couple of days as Washington boats on a stimulus, that's going to put a lot of money into the economy, and I think that has the potential to drive a lot of advertisers fighting for a share of those dollars. So I think our rates currently are not impacted by what happened at the beginning of last year. We were really back to full recovery there.
Michael Kupinski -- NOBLE Capital Markets -- Analyst
Okay. So that basically rates are at 2019 levels?
Brian Lawlor -- President of Local Media
I think that's probably a good way to say it.
Michael Kupinski -- NOBLE Capital Markets -- Analyst
Okay. And how much of your network comp is variable versus fixed?
Brian Lawlor -- President of Local Media
It really depends network to network. We have different arrangements with all four networks.
Michael Kupinski -- NOBLE Capital Markets -- Analyst
But collectively, what would you say?
Brian Lawlor -- President of Local Media
Yes, I don't think we'll comment on that.
Michael Kupinski -- NOBLE Capital Markets -- Analyst
Okay. And then you obviously bought ION in the midst of a pandemic, and you mentioned the sales gap. Can you talk about ION. And is the operations were in line with what you thought in 2020? And if not, are there additional changes you plan to make outside of these sales changes that you were talking about?
Lisa Knutson -- President of National Networks
Mike, yes. So we're really creating a scale business bringing together ION, Katz and Newsy. So each of them independently ran as businesses in 2020. And starting really immediately, we're operating them as one business, combining sales, combining everything from marketing to the back office, so to speak, functions around creative services and research, and so whereas each of those businesses in the past would have had things like that each individually. So we really, within the first, I think, week, announced our organizational structure, hit the ground running in terms of bringing together those businesses.
You heard in my prepared comments what we think the drivers of value are. One of those really is the yield management that Adam talked about and I talked about. I think having -- being ready to do a combined upfront with all of our businesses in that upfront was a Herculean task. We think it will pay dividends this year as we're selling these businesses across platforms or across brands, and so we really think that we're not losing any time to really maximize the opportunity that we see here.
Michael Kupinski -- NOBLE Capital Markets -- Analyst
Great. And going back to Brian. You indicated that off-year election advertising, you're expecting to be pretty good this year. Can you give us some color on those comments and how that would compare to what you would have in a, like, say, 2019? I mean I'm just trying to get some color on what that comment means.
Brian Lawlor -- President of Local Media
Yes. Well, I think what were -- our comments today indicate that we see Q1 flat to last year. I think that speaks to very strong recovery. March is up compared to last March. So -- and it has a lot of momentum, and we think that's going to continue into...
Lisa Knutson -- President of National Networks
Political advertising.
Brian Lawlor -- President of Local Media
Yes, the political advertising.
Lisa Knutson -- President of National Networks
Yes.
Brian Lawlor -- President of Local Media
Specifically.
Lisa Knutson -- President of National Networks
So this fall elections.
Michael Kupinski -- NOBLE Capital Markets -- Analyst
How will it go about this fall's elections?
Brian Lawlor -- President of Local Media
I'm sorry, Mike.
Michael Kupinski -- NOBLE Capital Markets -- Analyst
Yes. Sorry. Yes. Okay.
Brian Lawlor -- President of Local Media
Yes. Look, we only have a governor race in Virginia this year. So we had very little at the statewide, but we do think that there'll be some pretty good issue money that starts in the back half of the year. I think with 18 Senate races up next year and a 50-50 Senate, I think you're going to see some early spending in the races that are considered to be tight or toss up, and so we think it's going to get an early start in the back half of the year.
Michael Kupinski -- NOBLE Capital Markets -- Analyst
Got it. Okay, thank you. That's all I have.
Brian Lawlor -- President of Local Media
Thanks.
Lisa Knutson -- President of National Networks
Thank you.
Operator
Our next question comes from the line of Craig Huber with Huber Research Partners. And your line is open.
Craig Huber -- Huber Research Partners -- Analyst
Great, thank you. My first question, sort of the nitpick, but you guys mentioned retrans subs down 1% quarter-over-quarter. shying for, that means down about 5%, 6% on a year-over-year basis on a like-for-like basis.
Brian Lawlor -- President of Local Media
Yes. Craig, it's Brian. We're down about mid-single digits over the last 12 months ending in Q3.
Craig Huber -- Huber Research Partners -- Analyst
Do you think that was similar for the latest quarter as well?
Brian Lawlor -- President of Local Media
Well, no, for the last quarter, we were down about 1% from Q2 to Q3.
Craig Huber -- Huber Research Partners -- Analyst
No, no, I'm sorry, just year-over-year for that third quarter you're talking about rather than just four quarters on a trailing basis?
Brian Lawlor -- President of Local Media
Yes, I need to go back and look.
Jason Combs -- Chief Financial Officer
Craig, it's Jason. Yes. So the down mid-single digits comment is referring to the last reported for reported quarter we have is Q3 data. So that is a -- from Q3 of '20 to Q3 of '19, it's the down mid-single digits.
Craig Huber -- Huber Research Partners -- Analyst
Okay. That's helpful. Jason, maybe you could just update us on this? Your long-term goal for your debt ratio, what is that on a sustained basis? Or are you guys trying to get it down to? And maybe just level set everything? Where is your debt ratio right now adjusting for all the acquisitions, the acquisitions and divestitures as well, please, on a two year blended average basis, please?
Jason Combs -- Chief Financial Officer
Yes. So at year-end, prior to the ION acquisition, we were at 3.7 times net leverage. At the ION deal close, we're at 5.0 times which is better than we had initially indicated when we announced the deal. We had originally thought we'd be at 5.3 times and obviously, a strong fourth quarter in the WPIX. Proceeds helped us to come in a little bit lower there. I think ultimately, our target leverage is in the mid threes. It is managing the company toward a clean and flexible balance sheet has always been top priority and certainly with something that's in Scripps DNA, and the attractiveness of the ION transaction really compelled us to put our balance sheet to work to create a higher-performing and more durable company. And so as I said, we're five times on a lagging 8-quarter basis now, and we believe that our new cash flow outlook will allow us to move swiftly toward delevering.
Craig Huber -- Huber Research Partners -- Analyst
A couple of quick things on ION. Does ION have any significant amount of political advertising? And my other question is, I recall you guys talking about when you maybe announced that it had a 12% tenure revenue CAGR through 2019, obviously very impressive. Do you expect to be able to get revenue growth back up anywhere near that level once we get through this pandemic, maybe even after we annualize it? I mean, what's your thoughts there, please?
Lisa Knutson -- President of National Networks
Craig, ION had a tiny amount of political revenue last year. So it was pretty insignificant. Remember, they -- ION and the way that we will run this really is a national network. So it doesn't necessarily play in the same the local spots that Brian division sells in. As for revenue CAGR, I think I indicated in my remarks that over the next several years, we think that ION's or the combined networks revenue will grow around 10%. So we think that that's probably best in -- we think that, that revenue growth is certainly projected to be double-digit -- low double-digit growth over the next two years.
Craig Huber -- Huber Research Partners -- Analyst
So you talk about what Katz and with ION combine, everything combined.
Lisa Knutson -- President of National Networks
Yes, that's the entire network business, Scripps networks business.
Craig Huber -- Huber Research Partners -- Analyst
My last question on ION, I just want to ask, are you contemplating any programming changes there going forward? I know it's early.
Lisa Knutson -- President of National Networks
Yes. Certainly, we are always looking at tweaking some of the programming that ION has done. They've been hugely successful. In fact, ION retained its fifth it's rating and ranking in terms of the largest broadcast network last year. And really, from a cable perspective, viewing would be number three behind a couple of the news networks from last year. And so we think there are tweaks that we will need to make, but essentially, the formula that ION has been pretty successful.
Craig Huber -- Huber Research Partners -- Analyst
My last question. Brian, maybe if you could just update us, please, on ATSC 3.0, the business model there? And how long do you think it might take to become significant to you on the revenue contribution side? How many years out are you thinking?
Adam Symson -- President and Chief Executive Officer
Craig, it's Adam. I'll take this. I think it's still fairly far out given the need for consumers to adopt new devices that will bring in our signals. So while today, we are aggressively continuing to and efficiently transition to a 3.0 signal along with the rest of the industry, we're working with the CE manufacturers to take the 3.0 chips and move them, not just from the highest-end television sets, but down to TV sets that you could buy at Walmart and Costco. And frankly, also, I think a big part of that equation is going to be also new set-top boxes and dongles that consumers will be able to plug-in, and that will transform their TV sets into 3.0 sets.
So there's some time for that to happen. I think you'll see us continue to play a leadership role in that transition. But when I speak to investors, I'm pretty clear, I think right now this is three to five years out, and the first effect is likely going to be on yield management the opportunity for us to use 3.0's multi variable advertising capabilities to enhance rate and to enhance yield. But again, that's a little bit farther out, and I think we'll continue to communicate with transparency to the Street as the transition occurs.
Craig Huber -- Huber Research Partners -- Analyst
Great, thank you.
Adam Symson -- President and Chief Executive Officer
Thank you.
Operator
Our next question comes from the line of Matt Swope with Baird. And your line is open.
Matt Swope -- Baird -- Analyst
Yes, good morning guys. Jason, can I just follow-up on your debt comments? You talked about paying down more than $300 million when the Triton sale closes. Would you think about paying down your callable bonds with that at that point? Or would that be for bank debt? How do you think about that?
Jason Combs -- Chief Financial Officer
Yes. Matt, so I mean, we can prepay any portion of our term loans any time. But to your point, we would certainly also focus on our cost of capital or the highest cost of capital, which would be our 2025 and 2027 bonds. And our 2025 bonds are outside in the call premium, so it would certainly be something that we would look at.
Matt Swope -- Baird -- Analyst
Would you take it far enough? I mean you mentioned the lower interest rates than you expected. And obviously, your new bonds have traded quite well. Would you even consider coming back to market and doing a little more to take those all the way out and to maybe pay down some bank debt?
Jason Combs -- Chief Financial Officer
So I mean, I think it's something certainly we would look at, but I think we're also in the early stages from an integration standpoint of really getting a good feel for our cash flows for the year. And so I think there are a lot of other factors that will go into it. I also do think, right now, from a debt structure perspective, we're happy with kind of the mix we have.
Matt Swope -- Baird -- Analyst
Got it. I really appreciate it. Thank you.
Jason Combs -- Chief Financial Officer
Thank you.
Operator
We'll go to the line of Eric Green with Penn Capital, your line is open.
Eric Green -- Penn Capital -- Analyst
Thank you. Hi. On our team. Can you just think about the potential for the large tech companies to pay for news content as received in Australia, the EU in Canada? What kind of opportunity could that ultimately be for your company as well as the industry?
Adam Symson -- President and Chief Executive Officer
Eric, good to talk to you. I do expect that this will eventually move to the U.S., where the things end up paying their fair share to news creators. I do expect that local broadcast stations like ours will be at the table, developing those relationships, and I think you'll see us at Scripps play an active role in those conversations.
Eric Green -- Penn Capital -- Analyst
Great, thank you.
Adam Symson -- President and Chief Executive Officer
Thank you.
Operator
Thank you. And at this time, we have no further questions. Speakers, please continue with any closing remarks.
Carolyn Micheli -- Senior Vice President of Corporate Communications and Investor Relations
Thank you, Cynthia, and thanks to everyone for joining us today. And again, if you'd like to join us for Investor Day, you can email [email protected]. Have a good day.
Operator
[Operator Closing Remarks]
Duration: 57 minutes
Call participants:
Carolyn Micheli -- Senior Vice President of Corporate Communications and Investor Relations
Adam Symson -- President and Chief Executive Officer
Jason Combs -- Chief Financial Officer
Lisa Knutson -- President of National Networks
Brian Lawlor -- President of Local Media
John Janedis -- Wolfe -- Analyst
Dan Kurnos -- The Benchmark -- Analyst
Stephen Cahill -- Wells Fargo -- Analyst
Kyle Evans -- Stephens -- Analyst
Michael Kupinski -- NOBLE Capital Markets -- Analyst
Craig Huber -- Huber Research Partners -- Analyst
Matt Swope -- Baird -- Analyst
Eric Green -- Penn Capital -- Analyst
