E.W. Scripps Company — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Scripps operates local television stations and national networks. Comparisons with 2020 are affected by the January 7, 2021 acquisition of ION and by COVID-19-related weakness in 2020 advertising.
Key financial results
Amounts are in millions of dollars except per-share data. Figures are unaudited.
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $565.1 | $358.9 | $1,106.0 | $773.1 |
| Operating income | $104.3 | $1.6 | $161.5 | $22.5 |
| Income (loss) from continuing operations, net | $1.2 | $(17.5) | $4.7 | $(24.7) |
| Net income (loss) | $5.6 | $(22.0) | $11.2 | $(33.9) |
| Net loss attributable to Scripps shareholders | $(6.9) | $(22.0) | $(13.0) | $(33.9) |
| Basic and diluted loss per share | $(0.09) | $(0.27) | $(0.16) | $(0.42) |
| Operating margin, approximate | 18.4% | 0.4% | 14.6% | 2.9% |
- Q2 revenue rose 57.5%; first-half revenue rose 43.1%. Excluding ION and the sold WPIX station, management reported revenue growth of 23% for Q2 and 14% for the first half.
- Q2 operating income improved substantially, but higher interest expense, a warrant-related charge, preferred dividends and other items left a net loss attributable to common shareholders.
- Q2 interest expense was $42.0 million versus $23.0 million; first-half interest expense was $85.9 million versus $48.8 million. The first half also included a $13.8 million debt-extinguishment loss.
- First-half cash from continuing operating activities was $92.2 million, up from $81.5 million. Capital additions were $28.0 million; operating cash flow less those additions was approximately $64.2 million, a simple derived measure.
- Cash and cash equivalents were $86.0 million at June 30, down from $576.0 million at year-end 2020; the year-end balance included $1.05 billion of restricted acquisition cash. Cash declined by $1.54 billion in the first half, primarily reflecting the ION acquisition.
Segments and material changes
- Local Media: Q2 revenue was $324.8 million, up 16%; segment profit was $64.6 million, up 82%. Same-station core advertising increased $52.0 million, while political revenue fell $10.2 million in the quarter, reflecting a non-election year. Retransmission revenue increased.
- Scripps Networks: Q2 revenue was $238.7 million and segment profit was $107.3 million, compared with $66.7 million and $2.2 million, respectively, in the prior-year quarter. The acquisition of ION was a major contributor; legacy network advertising also benefited from higher rates and recovery from 2020 weakness.
- ION contributed $266 million of revenue from its acquisition date through June 30. The $2.65 billion acquisition was funded through cash, debt and Berkshire Hathaway’s $600 million preferred investment. Scripps also divested 23 ION stations to comply with FCC ownership rules.
- First-half results included an $81.8 million pretax gain on the $225 million net-proceeds sale of Triton Digital. The warrant issued with Berkshire Hathaway’s investment generated a $99.1 million first-half noncash charge; after a May amendment, it was reclassified to equity and will no longer be marked to market.
Debt, liquidity and capital
- At June 30, total debt principal was $3.33 billion; net carrying value was $3.24 billion. The company had $86.0 million cash and approximately $393 million of available revolver capacity, with no revolver borrowings. Management said expected operating cash flow should meet operating needs for the next 12 months.
- During Q2, Scripps redeemed $400 million of 2025 notes and made an additional $50 million principal payment on its 2028 term loan. The 2025 notes were redeemed at a premium, contributing to the $13.8 million extinguishment loss.
- The revolving credit facility has a $400 million capacity and a maximum leverage covenant of 4.75 times through Q2 2022, stepping down to 4.5 times thereafter. Scripps reported covenant compliance at June 30 and expected continued compliance. A 100-basis-point increase in LIBOR was estimated to raise annual interest expense by approximately $8.2 million.
- Berkshire Hathaway’s perpetual Series A preferred shares carry an 8% annual dividend when paid in cash, increasing to 9% if dividends are not paid in full in cash. Preferred dividends were $24.2 million in the first half. The associated warrant covers up to approximately 23.1 million Class A shares at $13 per share.
- The preferred terms prohibit common dividends and share repurchases until the preferred shares are redeemed. A separate authorization permits up to $600 million of debt repurchases through March 1, 2023; no shares were repurchased in the first half.
Outlook, risks and unusual items
- No numerical earnings or revenue guidance is provided in the supplied filing text. Management expects sufficient liquidity for the next 12 months based on its current business plan.
- Scripps launched TrueReal and Defy TV on July 1, 2021, and planned to relaunch Newsy as an over-the-air network in October. Newsy’s cable and satellite exit and restructuring resulted in $7.6 million of first-half charges, including asset write-downs.
- Management identified advertising demand and economic conditions, including possible COVID-19 effects, as risks to results. Other exposures include interest rates, MVPD subscriber declines, programming and network affiliation costs, and execution and valuation risks associated with acquisitions and goodwill. Management reported no material change to the risk factors in its 2020 Form 10-K.
- Ordinary-course litigation and regulatory proceedings, including defamation and broadcast-license matters, were not expected to result in material loss. Management reported disclosure controls were effective and no material change to internal control over financial reporting during the period.
Important facts for investors to verify
- How much of reported revenue and segment-profit growth reflects ION and the unusually weak COVID-affected 2020 comparison, versus durable organic growth.
- Whether cash generation can support the enlarged debt burden, interest costs, preferred dividends and required pension contributions; Scripps expected approximately $13.3 million of pension and SERP contributions for the remainder of 2021.
- The eventual impact of ION integration, Newsy’s distribution transition, and recently launched networks on operating costs, advertising revenue and segment profitability.
- Potential dilution and capital-allocation implications of the warrant, preferred-stock redemption terms and restrictions on common dividends and repurchases.
- Progress on debt reduction and covenant headroom, including the facility’s leverage-covenant step-down and variable-rate exposure.