The E.W. Scripps Company — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. The unaudited results reflect a larger business following the 2019 acquisitions of Cordillera and eight Nexstar-Tribune television stations. The filing was signed May 8, 2020.
Financial performance
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Operating revenue | $430.9 million | $292.2 million |
| Operating income | $14.7 million | $0.1 million |
| Net loss | $11.8 million | $6.8 million |
| Net loss per diluted share | $0.15 | $0.08 |
| Cash provided by (used in) operations | $13.7 million | ($13.2 million) |
- Revenue rose 47.5% year over year; excluding acquired stations, it increased 15%. COVID-19 reduced Q1 revenue by an estimated $10 million.
- Operating margin was approximately 3.4%, compared with approximately 0.05% a year earlier. Higher interest expense—$25.8 million versus $8.9 million—contributed to the larger net loss.
- Local Media revenue was $321.8 million and segment profit was $56.0 million. National Media revenue was $107.6 million and segment profit was $11.8 million.
- Revenue mix included $241.0 million core advertising, $18.7 million political advertising, $139.0 million retransmission and carriage, and $32.2 million other revenue. Political revenue benefited from the election cycle.
Financial position and liquidity
- Cash and cash equivalents were $179.6 million at March 31, 2020, up from $33.0 million at year-end. Operating cash flow was positive, while a $175 million revolver draw was the principal source of the increase in cash.
- Long-term debt had $2.125 billion of outstanding principal, including $175 million drawn on the $210 million revolving facility. Net carrying value of long-term debt was $2.078 billion. The company reported about $28 million of additional revolver availability after outstanding borrowings and letters of credit.
- Capital expenditures were $16.2 million; dividends paid were $4.1 million. No shares were repurchased in the quarter, and the company said buybacks were temporarily suspended.
- The company was in compliance with financial covenants. Term loans and unsecured notes have no maintenance covenants; the revolver has a maximum leverage covenant applicable while it is drawn.
Changes, outlook and risks
- Acquisitions drove much of the reported growth and also increased employee, programming, depreciation and amortization costs. Acquisition-related integration costs were $4.9 million.
- Management estimated COVID-19 reduced Local Media core advertising by at least $8 million and National Media revenue by about $1.3 million in Q1. Core advertising fell 40% in April versus March; National Media revenue fell 19%. Management expected core advertising to improve sequentially from April through June, but said revenue would remain under pressure for the rest of 2020.
- Management did not expect retransmission, political advertising and subscription revenue—about half of consolidated revenue—to be significantly affected by the downturn. Increased viewership was not expected to offset lost advertising.
- Cost-saving measures, including reduced capital spending, hiring and pay freezes, lower executive compensation and other expense cuts, were expected to save more than $85 million for full-year 2020, about $75 million in the remaining three quarters. Management anticipated sufficient liquidity for the next 12 months, while warning that a prolonged downturn could require further actions.
- The CARES Act was expected to support liquidity through deferral of $27 million of pension contributions and $17 million of Social Security tax payments, plus a $13.9 million tax refund from NOL carrybacks. The company anticipated delaying 2020 pension contributions until 2021.
- COVID-19-related economic weakness and the decline in the company’s stock price prompted goodwill and FCC-license impairment reviews. No impairment was recorded, but estimated reporting-unit fair values were below the 2019 test values; Local Media represented 73% of company goodwill. Future results depend on uncertain advertising demand, customer payment capacity and pandemic developments.
- Ordinary-course litigation and regulatory matters were not expected to result in material loss. The filing reported no material changes to other previously disclosed risk factors.
Investor verification priorities
- Track advertising demand, especially Local Media core advertising, and compare actual results with management’s April-to-June expectations.
- Monitor revolver usage, covenant headroom, cash flow and the timing of CARES Act tax and payment deferrals.
- Assess integration and operating performance of acquired stations separately from organic growth, and track higher interest and programming costs.
- Review assumptions behind goodwill and FCC-license valuations; the filing notes that different cash-flow and discount-rate assumptions could change impairment conclusions.
- Confirm delivery of announced cost savings and the status of pension contributions, dividends and the suspended share-repurchase program.