The E.W. Scripps Company — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are to the three months ended March 31, 2023 unless otherwise noted. Scripps operates local television stations and national news and entertainment networks through its Local Media, Scripps Networks and Other segments.
Key financial results
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Operating revenue | $561.5 million | $527.8 million; up 6.4% |
| Operating income | $43.4 million | $16.5 million |
| Operating margin | 7.7% | 3.1% (calculated from reported figures) |
| Net income (loss) | $1.6 million | $(18.5) million |
| Net loss attributable to Scripps shareholders | $(12.8) million; $(0.15) per diluted share | $(31.1) million; $(0.37) per diluted share |
| Operating cash flow | $45.4 million | $15.2 million |
| Capital expenditures | $22.1 million | $7.8 million |
| Cash and cash equivalents | $30.2 million at March 31, 2024 | $35.3 million at December 31, 2023 |
| Total debt principal | $2.907 billion | $2.951 billion at December 31, 2023 |
Operating cash flow less capital expenditures was approximately $23.3 million, versus $7.4 million in Q1 2023 (calculated from reported figures). Cash declined by $5.1 million during the quarter. The company reported $288 million of additional revolver borrowing capacity. Interest expense rose to $54.9 million from $48.8 million; cash interest paid was $67.3 million.
Business performance and changes
- Local Media: Revenue increased 13.1% to $352.8 million and segment profit rose 43.0% to $65.6 million. Distribution revenue grew 20.8% to $197.5 million, reflecting rate increases after renewals covering about 75% of subscriber households; rate increases more than offset mid-single-digit subscriber declines. Political revenue increased to $15.2 million from $3.5 million, while core advertising fell 3.4% to $136.4 million.
- Scripps Networks: Revenue declined 3.3% to $209.3 million and segment profit declined 3.6% to $49.7 million. Lower ratings in key monetized demographics reduced revenue; expanded connected-TV distribution partly offset the decline. Excluding the low-margin programmatic product being phased out, revenue decreased 0.8%.
- Consolidated revenue drivers: Distribution revenue increased $36.0 million year over year; advertising revenue decreased modestly overall. Cost of revenues rose 6.5%, including higher programming and production costs. New sports rights accounted for $10.1 million of increased programming expense, including rights for the Vegas Golden Knights, Arizona Coyotes and National Women’s Soccer League.
- Restructuring costs were $5.0 million, down from $16.5 million. Q1 2023 included a $13.6 million write-down of programming assets related to the TrueReal network shutdown.
Liquidity, debt and capital structure
At March 31, 2024, Scripps had $290 million drawn on its $585 million revolving credit facility, which matures January 7, 2026, and $6.9 million of letters of credit. The revolver rate was 8.19%. Variable-rate term loans carried rates of 8.00% and 8.44%. The earliest term-loan or notes maturity is in 2026. Scripps was in compliance with its financial covenants. The revolver’s maximum first-lien net leverage limit is 5.0 times through December 31, 2024, stepping down thereafter.
Management said operating cash flow should provide sufficient liquidity for operating needs over the next 12 months. A 100-basis-point increase in SOFR would increase annual interest expense on variable-rate borrowings by approximately $15.7 million. The company has authorization to repurchase up to $500 million of senior secured or unsecured notes through March 1, 2026.
Scripps did not declare or pay the Q1 2024 preferred-stock dividend, compared with $12.0 million paid in Q1 2023, citing flexibility to accelerate debt reduction. Cumulative unpaid preferred dividends were $13.5 million at quarter end; the preferred stock’s stated redemption value was approximately $644 million. If preferred dividends are not paid in full in cash, the dividend rate increases from 8% to 9%. Common dividends and repurchases are prohibited until the preferred shares are redeemed.
Outlook, commentary and risks
- Management expects restructuring to generate more than $40 million in annual savings; $20 million of annualized savings had been achieved by year-end 2023. The restructuring was expected to be substantially complete by mid-2024.
- In April 2024, Scripps began a public process to explore a sale of its Bounce network. The filing provides no sale price or expected timing.
- No specific consolidated revenue or earnings guidance is provided. Management cautions that results are subject to advertising demand and economic conditions. Political advertising demand is typically higher in the third and fourth quarters of even-numbered years.
- Scripps Networks goodwill is particularly sensitive to valuation assumptions: its fair value approximated carrying value after the 2023 impairment test, and a 50-basis-point increase in the discount rate would reduce estimated fair value by about $90 million. Future underperformance or changed assumptions could result in further impairment.
- Other notable items include an $18.1 million pre-tax gain from the February sale of Scripps’ BMI investment, with no recorded carrying value, and an effective tax rate of 70% versus 43% a year earlier. The filing says ordinary-course litigation and regulatory matters are not expected to result in material loss; it reports no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether distribution-rate increases continue to offset subscriber losses, and how upcoming retransmission renewals affect revenue.
- Trends in core and political advertising, including whether weak core advertising and Scripps Networks’ ratings pressure persist.
- Debt reduction, revolver usage, floating-rate exposure and compliance as leverage limits tighten.
- Preferred-dividend arrears, the applicable dividend rate, and the implications for common shareholders and potential redemption.
- Progress and realized savings from restructuring, and any outcome or material terms from the Bounce sale process.
- Whether Scripps Networks’ performance and valuation assumptions create additional goodwill impairment risk.