The E.W. Scripps Company — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Scripps operates more than 60 local television stations and national news and entertainment networks. Figures below are in millions of dollars unless stated otherwise.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $566.5 | $612.1 | $1,677.1 | $1,772.3 |
| Operating income (loss) | $53.1 | $104.0 | ($551.7) | $264.3 |
| Net income (loss) | ($3.7) | $46.2 | ($692.0) | $110.4 |
| Net income (loss) attributable to Scripps shareholders | ($16.2) | $33.7 | ($729.8) | $72.6 |
| Operating cash flow | Not presented separately | Not presented separately | $49.1 | $196.3 |
Q3 operating margin was approximately 9.4%, versus 17.0% a year earlier. Q3 basic and diluted loss per common share was $0.19, compared with earnings per share of $0.39 basic and $0.38 diluted in Q3 2022. For the nine-month period, loss per share was $8.67, versus earnings per share of $0.85 basic and $0.80 diluted in 2022.
- Revenue mix: Q3 advertising revenue was $355.2, down from $436.8; distribution revenue rose to $203.9 from $167.3. For the first nine months, advertising was $1,078.4 versus $1,249.4, while distribution was $571.3 versus $497.0.
- Segment trends: Q3 Local Media revenue declined 6.7% and segment profit fell 24.8% to $74.9. Scripps Networks revenue declined 8.5% and segment profit fell 31.0% to $49.7. Nine-month segment profit was $201.7 for Local Media and $161.5 for Scripps Networks.
- Cash and investment: Cash was $15.9 at September 30, 2023. Nine-month capital expenditures were $43.8, compared with $35.5 in 2022. Cash and restricted cash decreased $2.2 during the period.
- Debt and liquidity: Outstanding debt principal was $2,964.8, compared with $2,920.8 at year-end 2022; net carrying value was $2,908.4. The company reported $238 of additional revolver borrowing capacity and stated operating cash flow should provide sufficient liquidity for the next 12 months.
- Interest and preferred stock: Q3 interest expense increased to $56.9 from $41.9; nine-month expense rose to $158.0 from $114.4. Preferred dividends were $36.0 for the first nine months. Common dividends and repurchases are prohibited until the preferred shares are redeemed.
Material changes and unusual items
- Revenue fell 7.4% in Q3 and 5.4% year to date. Distribution growth was more than offset by lower political advertising in a non-election year, weaker core advertising, and softness in national advertising. Political revenue fell $56.6 in Q3 and $80.0 year to date.
- In Q2, Scripps recorded a $686.0 non-cash goodwill impairment for Scripps Networks. The filing cites weaker national advertising, a longer-than-expected advertising downturn, and declining linear-TV viewership. The charge drove the nine-month operating and net losses; goodwill declined to $2,234.6 from $2,920.6 at year-end.
- Restructuring costs were $4.7 in Q3 and $29.2 year to date, including a $13.6 write-down of programming assets following the shutdown of TrueReal, $8.9 of severance costs, lease impairment, and other charges.
- Operating cash flow fell $147.1 year over year for the first nine months, reflecting lower segment profit, higher interest paid, and greater cash use from working-capital changes.
- On July 31, Scripps amended its credit agreement, increasing revolving-credit capacity from $400 to $585 and extending maturity to January 2026. It used $283 of revolver borrowing to repay the remaining 2024 term loan. The revolver balance was $340 at September 30, bearing 8.18% interest.
Outlook, risks, and other disclosures
- Management expects the restructuring to generate at least $40 in annual savings, with $20 expected by year-end 2023. The filing does not provide formal revenue or earnings guidance.
- Management described ongoing advertising-market softness and lower linear-TV viewership as pressures on Scripps Networks. A 100-basis-point increase in SOFR would increase annual interest expense on current variable-rate borrowings by approximately $16.2.
- Scripps was in compliance with financial covenants at September 30. The revolving facility’s maximum first-lien net leverage threshold is 5.0 times through December 31, 2024, then steps down. The company has authorization to reduce senior-note principal by up to $500 through March 1, 2026.
- The filing reports no material changes to previously disclosed risk factors. Ordinary-course litigation and regulatory proceedings are not expected to result in material loss. Disclosure controls were concluded to be effective, with no reported material change in internal control over financial reporting.
- After quarter-end, Scripps announced a multi-year agreement to televise Arizona Coyotes games. It also disclosed a Rule 10b5-1 plan adopted by a company executive for potential sales of up to 90,000 Class A shares.
Important facts for investors to verify
- Whether advertising demand, particularly at Scripps Networks, stabilizes and whether distribution-revenue gains continue to offset subscriber losses.
- Whether management achieves the stated restructuring savings and how much of those savings are recurring versus offset by implementation costs.
- Goodwill valuation assumptions and the possibility of further impairment, given the Scripps Networks reporting unit’s limited valuation cushion.
- Variable-rate debt costs, revolver availability, covenant headroom, and the company’s ability to sustain liquidity amid lower operating cash flow.
- The ongoing cash and capital-allocation effects of preferred dividends and the restrictions on common dividends and repurchases.