The E.W. Scripps Company — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. The filing was signed August 4, 2023. Scripps operates 61 local television stations and national news and entertainment networks, with Local Media and Scripps Networks as its principal segments.
Financial results
Amounts below are in millions except per-share data. Comparisons are with the corresponding 2022 period.
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $582.8 | $594.5 | $1,110.6 | $1,160.2 |
| Operating income (loss) | $(621.2) | $89.0 | $(604.7) | $160.3 |
| Net income (loss) | $(669.8) | $41.7 | $(688.4) | $64.1 |
| Net loss attributable to Scripps shareholders | $(682.4) | Net income $29.2 | $(713.5) | Net income $39.0 |
| Basic EPS | $(8.10) | $0.34 | $(8.49) | $0.46 |
| Interest expense | $52.3 | $36.0 | $101.1 | $72.5 |
| Operating cash flow | Not separately presented for the quarter | $24.9 | $106.6 |
- Revenue mix, Q2: Advertising was $371.1 million, down from $414.1 million; distribution was $200.9 million, up from $172.2 million. For the first half, core advertising fell 8.4% to $715.8 million and distribution revenue rose 11.4% to $367.5 million.
- Segment performance, Q2: Local Media revenue was $352.2 million and segment profit was $81.0 million, compared with $355.8 million and $80.7 million. Scripps Networks revenue was $231.2 million and segment profit was $60.3 million, compared with $238.9 million and $73.3 million.
- Cash flow, first half: Operating activities provided $24.9 million; investing activities used $26.7 million, including $25.8 million of capital expenditures; financing activities provided $23.1 million. Cash increased $21.3 million to $39.3 million.
- Debt and liquidity at June 30: Total debt principal was $2.981 billion, with a net carrying value of $2.919 billion. Cash was $39.3 million, and management reported $323 million of additional revolver borrowing capacity. The company was in compliance with its financial covenants.
- Balance sheet: Total assets were $5.703 billion, down from $6.431 billion at year-end 2022, primarily reflecting a $686 million goodwill impairment. Total equity fell to $1.428 billion from $2.131 billion.
Material changes and unusual items
- Q2 and first-half revenue declined 2.0% and 4.3%, respectively. Management attributed the pressure mainly to softer advertising demand amid macroeconomic uncertainty. Distribution growth partly offset advertising weakness.
- The company recorded a $686 million non-cash goodwill impairment for Scripps Networks after weaker national advertising, declining linear-TV viewership and lower expected future cash flows. Scripps Networks’ first-half segment profit fell 29.4% year over year.
- Interest expense increased $16.3 million in Q2 and $28.6 million in the first half, reflecting higher rates on variable-rate borrowings. A 100-basis-point rise in SOFR was estimated to increase annual interest expense by approximately $15.7 million.
- Restructuring costs were $8.0 million in Q2 and $24.5 million in the first half. These included a $13.6 million first-quarter write-down of programming assets associated with the TrueReal shutdown, severance and other reorganization costs.
- First-half operating cash flow fell $81.7 million year over year. Management cited lower segment profit, higher interest paid and increased cash investment in programming, partly offset by lower working-capital cash use and lower income-tax payments.
Outlook, risks and contingencies
- The January 2023 restructuring is expected to produce at least $40 million in annual savings, including $20 million expected by year-end 2023. The filing does not provide formal revenue or earnings guidance.
- Management said operating cash flow should provide sufficient liquidity for operating needs over the next 12 months and expects compliance with the revolver leverage covenant based on its current outlook.
- On July 31, 2023, after quarter-end, Scripps amended its credit agreement, increasing revolver capacity from $400 million to $585 million. It borrowed $283 million on the revolver to repay the remaining principal on its term loan due in 2024. The amended facility matures January 7, 2026 and includes a maximum first-lien net leverage covenant that steps down over time.
- Key risks include advertising-market weakness, continued declines in linear-TV viewing, subscriber losses at traditional distributors, and sensitivity of variable-rate debt to interest rates. Around 25% of subscribers under retransmission consent agreements remained subject to negotiation during 2023.
- The company reported ordinary-course litigation and regulatory proceedings, none expected to result in a material loss. It disclosed no material changes to the risk factors in its 2022 Form 10-K.
- Preferred-stock dividends totaled $24.0 million in the first half. Scripps cannot pay common dividends or repurchase common shares until the preferred shares are redeemed. The preferred shares carry an 8% annual dividend rate when paid in cash.
Most important facts for investors to verify
- Whether advertising softness and linear-viewership declines persist, and how they affect Scripps Networks’ revenue, profitability and future impairment risk.
- Progress toward the stated restructuring savings, including timing and costs required to achieve them.
- Post-amendment revolver utilization, liquidity, covenant headroom and the effect of replacing the 2024 term loan with variable-rate revolver borrowings.
- Renewal outcomes for remaining retransmission consent agreements and whether rate increases continue to offset distributor subscriber losses.
- The cash-flow trajectory, debt service burden and preferred-stock obligations; the filing does not provide a clear quantified forecast for future free cash flow.