The E.W. Scripps Company — Q1 2022 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Scripps operates 61 local television stations and nine national networks, alongside digital businesses. Comparisons are with Q1 2021, which included ION acquisition and Triton divestiture effects.
Financial performance
Amounts in USD millions except per-share data and percentages.
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Revenue | $565.7 | $540.9 | +4.6% |
| Operating income | $71.3 | $57.2 | Operating margin 12.6%, versus 10.6% |
| Income from continuing operations | $22.4 | $3.5 | Effective tax rate 38%, versus 85% |
| Net income attributable to Scripps shareholders | $9.8 | $(6.1) | After preferred dividends |
| Diluted EPS attributable to shareholders | $0.10 | $(0.07) | Continuing-operations diluted EPS was $0.10 versus $(0.10) |
| Operating cash flow | $37.4 | $50.1 | Down $12.7 |
| Cash used in investing activities | $(32.9) | $(2,455.3) | Prior period included ION acquisition spending |
| Cash from / (used in) financing activities | $(70.0) | $1,317.4 | Prior period included ION-related debt and preferred-stock financing |
- Revenue mix: Advertising was $398.5 million, up from $362.6 million; retransmission and carriage revenue was $155.8 million, approximately flat; other revenue was $11.4 million, down from $21.8 million. Political revenue increased to $5.9 million from $1.3 million.
- Segment performance: Local Media revenue rose 4.5% to $326.7 million, while segment profit fell 2.8% to $54.4 million. Scripps Networks revenue rose 11.9% to $239.1 million, but segment profit fell 7.7% to $85.1 million. Other segment revenue declined to $4.2 million from $18.1 million.
- Margins and costs: Cost of revenues increased 12.6% to $297.8 million, faster than revenue, principally from higher programming costs. SG&A rose 6.0% to $152.7 million. Segment profit is a company-defined measure, not GAAP operating income.
- Liquidity: Cash and cash equivalents were $35.0 million at March 31, versus $66.2 million at year-end; the prior-year-end balance also included $34.3 million of restricted cash. Scripps reported $318 million of additional revolver borrowing capacity and said operating cash flow should meet operating needs for the next 12 months under its current business plan.
- Debt: Outstanding principal was $3.158 billion, compared with $3.211 billion at year-end; net carrying value was $3.082 billion. The company had $75 million drawn on its $400 million revolver at a 2.94% rate. First-quarter redemptions totaled $123.3 million of senior notes, funded with cash on hand; Scripps also borrowed $75 million net under the revolver.
Material changes and unusual items
- Q1 2022 revenue growth reflected higher core and political advertising and growth in Scripps Networks. Networks revenue benefited from ION and the 2021 launches of Defy TV and TrueReal; more than half of its increase was attributed to those additions. Lower ratings in key monetized demographics and lower direct-response advertising rates partly offset growth.
- Programming costs rose $27.9 million year over year, including higher network affiliation fees and spending on new network programming. Scripps Networks’ programming expense rose 33.1%; its segment costs rose 26.8%, outpacing revenue.
- Interest expense declined to $36.5 million from $43.9 million, reflecting debt payments and repurchases. A $1.2 million gain arose from first-quarter note redemptions below par.
- Q1 2021 comparability was affected by an $81.8 million pre-tax gain on the $225 million net-proceeds Triton sale, a $67.2 million noncash warrant charge, $28.6 million of ION acquisition and integration costs, and $7.1 million of restructuring costs. Those items did not recur in Q1 2022. The 2021 quarter also included $2.1 million of after-tax discontinued-operations income.
- Operating cash flow decreased partly because of lower segment profit and $23.3 million more interest paid, partly offset by lower acquisition costs and programming cash outlays. Capital expenditures were $12.7 million, compared with $4.1 million.
Outlook, risks and contingencies
- No quantified revenue, earnings or cash-flow guidance was provided. Management expects available operating cash flow and borrowing capacity to support operating needs over the next 12 months.
- Scripps planned to continue expanding in connected television and promoting over-the-air viewing. It reported $1.2 million of Q1 costs for a planned $20 million national consumer marketing campaign.
- Management cited advertising demand and economic conditions, including local and national market conditions, as factors that could cause results to differ from forward-looking statements. Local Media advertising is affected by political cycles, with political demand typically higher in the third and fourth quarters of even-numbered years. Traditional MVPD subscriber losses remain a retransmission headwind, partly offset by rate increases.
- Variable-rate borrowings expose the company to interest-rate risk; a 100-basis-point increase in LIBOR was estimated to raise annual interest expense by approximately $12.8 million. Scripps reported compliance with its financial covenants and expected to comply with its revolver leverage covenant, which steps down from 4.75x to 4.5x after Q2 2022.
- Berkshire Hathaway’s $600 million Series A preferred shares carry an 8% annual dividend rate when paid in cash, with a 9% rate if dividends are not paid in full in cash. The terms prohibit common dividends and repurchases until the preferred shares are redeemed. The company also has a warrant for up to 23.1 million Class A shares at $13 per share.
- Ordinary-course litigation and regulatory matters, including defamation and broadcast-license proceedings, were not expected to result in material loss. The filing reported no material changes to previously disclosed risk factors or off-balance-sheet arrangements.
Investor verification priorities
- Track whether advertising growth, political revenue and retransmission rate increases persist, and monitor audience ratings and traditional MVPD subscriber declines.
- Assess whether programming and other operating costs—particularly at Scripps Networks—remain ahead of revenue growth and affect segment profitability.
- Verify cash conversion, working-capital trends, debt repayments, revolver usage and covenant headroom as the leverage threshold steps down.
- Review the preferred-stock dividend burden, restrictions on common-share distributions and potential dilution from Berkshire Hathaway’s warrant.
- Evaluate the expected reach, timing and returns of the planned $20 million over-the-air marketing campaign.