E.W. Scripps Company — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; filed May 9, 2014. Scripps operates television, newspaper, syndication and digital media businesses. Dollar figures below are in millions unless noted.
Financial performance
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Revenue | $203.8 | $198.7 | +2.6% |
| Operating income (loss) | $1.9 | $(3.7) | Improved |
| Net loss | $(0.6) | $(2.7) | Improved |
| Net loss per share | $(0.01) | $(0.05) | Improved |
| Operating cash flow | $29.5 | $(10.9) | Improved by $40.4 |
Operating margin was approximately 1.0%, versus negative 1.9% a year earlier; net margin was approximately negative 0.3%, versus negative 1.3%. The $0.1 million income-tax benefit in Q1 2014 compares with a $5.0 million benefit in Q1 2013; effective tax rates were 19.6% and 65.0%, respectively, and were affected by discrete tax items and the relatively small pretax losses.
- Television: Revenue rose 5.4% to $102.1 million and segment profit increased 27.2% to $21.0 million. Growth reflected local advertising, retransmission fees, political advertising and Winter Olympics advertising. Retransmission revenue rose 19.5%.
- Newspapers: Revenue declined 1.0% to $98.5 million, while segment profit rose 44.0% to $8.5 million as costs fell. Advertising and marketing revenue declined 5.4%; subscription revenue grew 6.0% with bundled and digital-only subscriptions and price increases.
- Syndication and other: Revenue increased 37.5% to $3.2 million; segment profit declined 55.6% to $0.2 million.
Cash, debt and liquidity
At March 31, cash and cash equivalents were $187.1 million, down from $221.3 million at year-end. Current assets were $352.4 million and current liabilities $112.7 million, for working capital of $239.7 million. Long-term debt, including the current portion, was $199.5 million; net debt was approximately $12.4 million. The term loan carried a 3.25% rate. The company had no revolver borrowings, reported compliance with its debt covenants, and had $75 million of revolving capacity under its $275 million financing agreement.
Operating cash flow benefited from a $14.6 million working-capital source, including stronger receivable collections. Investing used $47.0 million, including the Newsy acquisition and $11 million deposited in escrow for the pending station purchase. Financing used $16.6 million, including $17.8 million of share repurchases. Management said cash and operating cash flow should cover operating and capital needs for the next 12 months.
Material changes, outlook and risks
- On January 1, Scripps acquired digital video news provider Newsy for $35 million cash. Preliminary purchase accounting included $28.7 million of goodwill, allocated to syndication and other.
- Scripps agreed to acquire two Granite Broadcasting television stations for $110 million cash and expected the transaction to close in Q2 2014. The Detroit station would create a duopoly with WXYZ-TV. The $11 million escrow deposit is included in miscellaneous assets.
- Management expected approximately $20 million of capital expenditures for the remainder of 2014. It also planned to add about 30 digital-only sales professionals by year-end, in addition to 20 hired so far that year.
- Management cited continued secular pressure on print advertising, while describing subscription growth and local-news positioning as areas of progress. Television retransmission revenue was expected to grow substantially as agreements were renegotiated; outcomes depend on negotiations, competition, regulation and industry consolidation.
- The proposed Comcast–Time Warner Cable merger and potential system divestitures could affect subscriber coverage and future retransmission negotiations. The filing said the merger would not affect retransmission revenue in 2014 or 2015; the impact of proposed divestitures depended on transaction timing and contract rates.
- Other stated risks include advertising demand and economic conditions, consumer tastes, newsprint and programming costs, labor relations, technology, competition, interest rates, regulation and reliance on third-party vendors. No material changes to the 2013 annual-report risk factors were reported. Ordinary-course litigation was not expected to result in material loss.
- The board authorized a new share-repurchase program of up to $100 million through December 2016 in May 2014, after quarter-end. During Q1, the company repurchased 988,990 Class A shares for $17.8 million at an average $18.03 per share under the prior authorization.
Important facts for investors to verify
- Whether operating cash flow remains strong after the favorable working-capital contribution, and how cash balances change after the planned station acquisition and share repurchases.
- The closing, financing and integration of the $110 million Granite station acquisition, including its effect on leverage and liquidity.
- Whether retransmission renewals deliver expected revenue growth, particularly given cable-system consolidation and contract negotiations.
- Whether newspaper subscription gains can offset ongoing print-advertising declines, and whether higher digital investment produces revenue growth.
- The sustainability of improved segment profitability and the impact of political and Olympics advertising in the comparison period.