Business Context and Reporting Period
The E.W. Scripps Company (Scripps) is a diverse media enterprise operating more than 60 local television stations and national news and entertainment networks. This Form 10-Q covers the quarterly period ended June 30, 2024. The company is organized into three reportable segments: Local Media, Scripps Networks, and Other. During the period, Scripps continued a strategic restructuring initiated in 2023, which was substantially completed by the end of Q2 2024, resulting in over $40 million in annualized savings.
Key Financial Metrics
| Metric | Q2 2024 (3 Months) | Q2 2023 (3 Months) | YTD 2024 (6 Months) | YTD 2023 (6 Months) |
|---|---|---|---|---|
| Total Operating Revenues | $573.6 million | $582.8 million | $1,135.1 million | $1,110.6 million |
| Operating Income | $55.7 million | ($621.2 million) loss | $99.1 million | ($604.7 million) loss |
| Net Income (Loss) | $1.4 million | ($669.8 million) loss | $3.1 million | ($688.4 million) loss |
| Net Loss Attributable to Common Shareholders | ($13.0 million) | ($682.4 million) | ($25.8 million) | ($713.5 million) |
| Net Cash Provided by Operating Activities | N/A | N/A | $71.8 million | $24.9 million |
| Cash and Cash Equivalents (End of Period) | $26.7 million | $39.3 million | $26.7 million | $39.3 million |
| Total Debt (Principal) | $2.90 billion | $2.95 billion | $2.90 billion | $2.95 billion |
Note: Q2 2023 results were significantly impacted by a $686 million non-cash goodwill impairment charge related to the Scripps Networks reporting unit.
Material Changes vs. Prior Period
- Revenue Trends: Q2 2024 revenues decreased 1.6% year-over-year, driven by a $30.8 million decline in core advertising and a $1.3 million drop in distribution revenue. These were partially offset by a $25.6 million surge in political advertising revenue due to the election cycle. Year-to-date revenues increased 2.2%, driven by political and distribution growth.
- Profitability: Operating income improved significantly to $55.7 million in Q2 2024 compared to a $621.2 million loss in Q2 2023. The prior year loss was primarily due to the $686 million goodwill impairment charge, which did not recur in 2024.
- Cost Structure: Cost of revenues increased 3.2% in Q2 2024, largely due to new sports rights fees (WNBA, NWSL, NHL) totaling $12.6 million for the quarter. Selling, general, and administrative (SG&A) expenses decreased 1.8% due to restructuring savings.
- Restructuring: Restructuring costs were $1.0 million in Q2 2024, a significant decrease from $8.0 million in Q2 2023. Year-to-date costs were $6.0 million compared to $24.5 million in the prior year.
- Debt and Liquidity: The company reduced its revolving credit facility drawdown by $40 million during the first six months of 2024. Cash on hand decreased to $26.7 million from $35.3 million at year-end 2023.
Guidance, Outlook, and Risks
- Management Commentary: Management highlighted the completion of the strategic restructuring, achieving over $40 million in annual savings. The company is focusing on growth in the connected television (CTV) marketplace and over-the-air broadcasting.
- Strategic Initiatives: In April 2024, Scripps began exploring the sale of its Bounce multi-cast network. In July 2024, the company announced a multi-year agreement to televise Florida Panthers NHL games.
- Dividends: The company did not declare or pay preferred stock dividends for the first two quarters of 2024, despite having sufficient liquidity. This decision was made to prioritize deleveraging and paying down traditional bank debt. Cumulative undeclared preferred dividends totaled $27.3 million as of June 30, 2024.
- Risks and Contingencies:
- Goodwill Sensitivity: The Scripps Networks reporting unit remains sensitive to changes in assumptions regarding fair value. A 50 basis point increase in the discount rate could reduce the fair value of this unit by approximately $90 million.
- Interest Rate Risk: A 100 basis point increase in SOFR would increase annual interest expense on variable rate borrowings by approximately $15.6 million.
- Legal Proceedings: The company is involved in ordinary course litigation, including defamation actions and broadcast license renewals, none of which are expected to result in material loss.
Investor Verification Checklist
- Preferred Stock Dividends: Verify the impact of the $27.3 million in accrued, unpaid preferred dividends on future cash flow and the prohibition on common stock dividends/repurchases until redemption.
- Debt Covenants: Confirm continued compliance with the maximum first lien net leverage ratio (5.0x through Dec 31, 2024) given the high debt load of $2.9 billion.
- Political Advertising Volatility: Assess the sustainability of revenue growth given the significant reliance on political advertising ($29.5 million in Q2 2024 vs. $3.8 million in Q2 2023), which is cyclical and election-year dependent.
- Goodwill Impairment Risk: Monitor the fair value of the Scripps Networks reporting unit, which is currently close to its carrying value and sensitive to discount rate changes.
- Asset Sale Progress: Track the status of the potential sale of the Bounce network announced in April 2024.