Business context and reporting period
The E.W. Scripps Company is a media company operating Local Media and National Media businesses. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2019, compared with the same periods in 2018. The company completed several television-station acquisitions in 2019, substantially changing the scale of its operations and debt.
Financial results and key metrics
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Operating revenue | $349.8 million | $302.7 million | $979.4 million | $840.3 million |
| Operating income | $0.5 million | $40.3 million | $22.8 million | $62.2 million |
| Net income (loss) attributable to Scripps shareholders | $(21.9) million | $19.1 million | $(29.1) million | $(1.6) million |
| Operating cash flow from continuing operations | Not provided separately | Not provided separately | $11.0 million | $64.9 million |
- Revenue rose 15.5% in Q3 and 16.6% year to date. Reported growth includes acquired businesses; excluding acquired operations, revenue declined 6.0% in Q3 and increased 2.0% year to date.
- Operating margin, calculated from reported figures, was approximately 0.1% in Q3 2019 versus 13.3% in Q3 2018, and 2.3% versus 7.4% for the nine-month periods.
- Q3 retransmission and carriage revenue was $97.1 million, up from $79.7 million; advertising revenue was $220.0 million, up from $205.6 million. Political advertising was $5.0 million versus $40.0 million, reflecting the non-election-year comparison.
- Local Media Q3 segment profit fell to $49.7 million from $67.4 million; National Media segment profit increased to $5.3 million from $2.8 million.
- At September 30, 2019, cash was $86.5 million, total debt principal was $1.975 billion, and net debt was approximately $1.889 billion. At December 31, 2018, cash was $107.1 million and debt principal was $696.3 million.
- Current assets were $534.2 million and current liabilities were $244.2 million. The $210 million revolving facility had $20 million drawn; $6.0 million of letters of credit were also outstanding under it.
Material changes versus the prior comparable period
- Revenue and assets expanded following acquisitions of Raycom stations, 15 Cordillera stations, eight Nexstar-Tribune stations, and Omny Studio. The three station acquisitions were reported at approximately $1.182 billion in aggregate purchase price; the company also acquired a Stuart, Florida station for $23.6 million.
- Acquisition-related integration costs were $16.7 million in Q3 and $23.0 million year to date, versus $0.3 million year to date in 2018. Higher depreciation and amortization also reflected acquired assets.
- Interest expense increased to $26.5 million in Q3 from $9.0 million, and to $53.5 million year to date from $27.0 million, following acquisition financing.
- Operating cash flow from continuing operations decreased to $11.0 million from $64.9 million year to date. The filing attributes the decline to lower segment profit, about $22 million of additional interest payments, and a $44 million year-over-year adverse change in working-capital cash flows.
- Investing activities used $1.254 billion of cash year to date, primarily for acquisitions. Financing activities provided $1.223 billion, largely from debt issuance.
Outlook, commentary, risks and unusual items
- Management said its priorities were integrating acquired stations and paying down debt. It expects cash, operating cash flow and available borrowing capacity to meet operating and capital needs over the next 12 months.
- The company intends to continue regular quarterly dividends, subject to board review; it paid $0.05 per share each quarter. Share repurchases were suspended while the company pays down debt, despite $49.7 million remaining under the authorization, which expires March 1, 2020.
- Management noted that network-affiliation fees have been rising and may continue to rise over the next several years. It also cited advertising demand and economic conditions as risks to results; political advertising is typically substantially higher in third and fourth quarters of even-numbered years.
- Variable-rate borrowings expose the company to interest-rate changes. It reported compliance with financing covenants at September 30, 2019 and no required excess-cash-flow debt repayment at that date.
- The company had spent $33.3 million on FCC spectrum repacking and received $5.5 million in reimbursements by September 30. It expects spending to continue through 2020 and views the FCC fund as sufficient, while noting possible reimbursement disagreements.
- Management said ordinary-course litigation and regulatory proceedings were not expected to result in material loss. No material risk-factor changes were reported beyond those updated in the June 2019 quarterly filing.
- No formal financial guidance was provided. The filing reports a $21.9 million Q3 shareholder net loss, $16.7 million of Q3 acquisition/integration costs, and substantial new acquisition debt as notable items.
Important facts for investors to verify
- How much of reported revenue and segment growth is attributable to acquired operations, and whether acquired stations deliver expected integration benefits.
- Debt-reduction pace, interest expense, variable-rate exposure, covenant headroom and availability under the revolver.
- Underlying Local Media performance excluding acquisitions, especially political-advertising comparisons, retransmission trends and affiliation-fee increases.
- Whether National Media revenue growth converts into sustained segment profit as content, staffing and marketing costs rise.
- Operating cash-flow recovery, working-capital movements and the timing of retransmission collections and FCC repack reimbursements.
- Whether ongoing dividends remain supportable alongside debt reduction and planned capital needs.