The E.W. Scripps Company — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Scripps operates local television stations and national media businesses. Unless otherwise noted, figures below are in millions of dollars.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $358.9 | $320.4 | $773.1 | $597.5 |
| Operating income | $1.6 | $28.4 | $22.5 | $34.0 |
| Income (loss) from continuing operations, net | $(17.5) | $5.8 | $(24.7) | $2.5 |
| Net loss, including discontinued operations | $(22.0) | $(0.4) | $(33.9) | $(7.2) |
| Operating margin | 0.4% | 8.9% | 2.9% | 5.7% |
- Q2 revenue rose 12%; six-month revenue rose 29%. The acquisitions of Cordillera and Nexstar-Tribune stations materially affect comparability. Excluding acquired stations, revenue declined 5.9% in Q2 and increased 4.2% year to date.
- Q2 consolidated core advertising revenue was $182.1 versus $206.5 a year earlier; political advertising increased to $13.4 from $2.1. Retransmission and carriage revenue rose to $144.3 from $93.3.
- Q2 Local Media segment profit fell 41% to $32.3; National Media segment profit fell 15% to $10.3. Segment profit is a non-GAAP operating measure and excludes, among other items, interest, depreciation and amortization.
- Six-month operating cash flow from continuing operations was $81.5, versus $23.2; total operating cash flow, including discontinued operations, was $74.3 versus $9.2. Capital expenditures were $27.0. Cash flow benefited from working-capital changes, including collection of receivables.
- Cash and equivalents were $98.9 at June 30, up from $33.0 at year-end. Long-term debt had $1,997.2 of principal outstanding ($1,952.0 net carrying value); debt fair value was $1,899.3. The $210 revolving facility had $50 drawn and approximately $154 of additional availability. Scripps reported compliance with its covenants.
- Accounts receivable was $347.1; current assets were $616.6 and current liabilities $291.6. Interest expense was $23.0 in Q2 and $48.8 for six months, versus $18.0 and $26.9 in 2019.
Changes, outlook and risks
- COVID-19-related advertiser weakness weighed on Q2 results, especially in April. Management reported advertising improvement from April to May and May to June, but expected core revenue to remain under pressure for the rest of 2020. Political advertising was not expected to be affected by the economic downturn.
- Revenue growth did not translate into higher operating income: costs and expenses rose 21% in Q2, including higher programming, compensation and depreciation and amortization costs. Programming costs increased partly because of network affiliation fees and National Media investment.
- Management expected cost-saving initiatives to provide $75 million of cash savings for full-year 2020, including approximately $40 million in the second half. Measures included capital-spending reductions, hiring and merit-pay freezes, reduced executive compensation and lower discretionary expenses.
- Management said it expected sufficient liquidity for the next 12 months, citing cash flow, government stimulus measures, available revolver capacity and anticipated sale proceeds. It anticipated $14 million in additional tax refunds and $17 million of Social Security tax payments deferred beyond 2020. It did not expect to defer its required $27 million of remaining 2020 qualified pension contributions.
- After quarter-end, Scripps agreed to sell Stitcher for $325 million: $265 million upfront and earnouts of up to $30 million tied to each of 2020 and 2021 results. The deal was expected to close in Q3, subject to customary conditions and regulatory approval. Stitcher generated a Q2 discontinued-operations loss of $4.5 million.
- After quarter-end, Mission Broadcasting exercised an option to buy WPIX for $75 million plus accrued interest; closing was expected later in 2020, subject to FCC approval. Management estimated gross cash proceeds of approximately $345 million during 2020 from the announced Stitcher and WPIX sales.
- DISH’s retransmission extension expired July 25, 2020. Pending renewed terms, Scripps stations in 42 markets were no longer accessible to DISH customers. This creates a risk to retransmission revenue and audience reach.
- COVID-19, prolonged economic weakness, advertising demand, MVPD subscriber losses, rising affiliation fees, debt and covenant requirements, and estimates used in goodwill and FCC-license impairment testing are key risks. Scripps found no impairment was required in Q2, but reported lower discounted cash-flow valuations than at its 2019 annual test; Local Media held 76% of goodwill.
Most important facts for investors to verify
- Whether advertising recovery continued and whether management’s projected $75 million of 2020 savings was achieved.
- Closing, net proceeds and earnout terms for the Stitcher and WPIX sales, including regulatory approval and timing.
- Outcome of DISH retransmission negotiations and the resulting effect on subscribers and revenue.
- Debt, revolver availability and covenant compliance under continued operating weakness.
- Whether cash generation and working-capital benefits were sustainable, given the reported net losses and elevated interest expense.
- Goodwill and FCC-license valuations and the sensitivity of impairment conclusions to future cash flows and discount rates.