The E.W. Scripps Company (SSP) — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. Although the request references 2022 Q4, this is an annual filing; the supplied text does not provide a standalone fourth-quarter financial results table.
Business context
Scripps operates 61 local television stations in 41 markets and nine national television networks, with advertising and distribution fees as its principal revenue sources. It is expanding free, ad-supported over-the-air and connected-TV distribution. Scripps launched its sports division in December 2022; in January 2023 it combined national news operations under Scripps News and announced a company-wide restructuring.
Financial highlights
| Metric | FY2022 | FY2021 |
|---|---|---|
| Operating revenue | $2.453 billion | $2.284 billion |
| Operating income | $428.3 million | $400.7 million |
| Net income | $195.9 million | $122.7 million |
| Net income attributable to Scripps shareholders, after preferred dividends | $145.6 million | $73.3 million |
| Diluted earnings per share | $1.62 | $0.81 |
| Cash provided by operating activities | $311.4 million | $237.0 million |
- Revenue rose 7.4%. Political and distribution revenue gains drove growth; core advertising was softer. Operating income increased 6.9%, while net income attributable to shareholders nearly doubled, partly reflecting the comparison with 2021’s warrant-related charge and other unusual items.
- Consolidated revenue comprised $1.757 billion of advertising, $660.3 million of distribution and $35.5 million of other revenue. Advertising represented approximately 72% of revenue.
- Operating margin was approximately 17.5% in 2022, compared with 17.6% in 2021. These percentages are calculated from reported revenue and operating income.
- Local Media revenue increased 13.3% to $1.494 billion and segment profit increased 44.1% to $386.4 million. Political revenue rose substantially in the election year, distribution revenue grew 6.2%, and core advertising declined 5.7%.
- Scripps Networks revenue increased 1.0% to $961.2 million, but segment profit fell 20.3% to $310.3 million as costs rose 15.7%. Management cited higher programming and affiliation costs, investment in new programming and networks, and lower ratings in key demographics.
- Year-end cash was $18.0 million, down from $66.2 million; the company also reported $393 million of available revolving-credit capacity. Current assets were $643.9 million and current liabilities were $485.0 million.
- Outstanding debt principal was $2.921 billion, down from $3.211 billion. Interest expense was $161.1 million, versus $165.2 million. The company reported $311.4 million of operating cash flow and $327.5 million of cash used in financing activities.
Changes, outlook and notable items
- Cash from operations increased $74.4 million year over year. Scripps used cash to repay $100 million of its 2028 term loan and redeem portions of its 2027, 2029 and 2031 notes; the redemptions produced an $8.6 million gain on extinguishment of debt.
- Management said operating cash flow should provide sufficient liquidity for operating needs over the next 12 months, based on its current business plan. It expected the January 2023 restructuring to generate at least $40 million in annual savings; this is a target, not a reported realized saving.
- In February 2023, the board authorized up to $500 million of additional senior-note principal reduction through redemptions or open-market purchases, subject to the authorization’s terms and the company’s capacity to execute it.
- The $600 million Berkshire Hathaway preferred investment carries an 8% annual dividend if paid in cash, rising to 9% if dividends are not paid in full in cash. The preferred terms prohibit common dividends and share repurchases until the preferred shares are redeemed. Redemption by Scripps may begin in January 2026 at 105% of face value plus accrued dividends.
- In 2021, results included an $81.8 million pre-tax gain on the Triton sale and a $99.1 million non-cash warrant charge; these items affect year-over-year comparability. The ION acquisition also makes comparisons with periods before its January 2021 closing less comparable.
- Goodwill impairment testing found Scripps Networks’ estimated fair value only 2.5% above carrying value. Management said a 50-basis-point increase in the discount rate or a $25 million reduction in annual cash flows could eliminate that headroom.
- Key risks include advertising-market weakness and economic sensitivity, audience migration and cord-cutting, retransmission-fee and affiliation renewals, rising programming costs, substantial debt and floating-rate exposure, and regulatory, cybersecurity and workforce risks. A 100-basis-point rise in LIBOR was estimated to increase annual interest expense by approximately $15.8 million.
- The filing reports no litigation expected to result in material loss. Deloitte issued unqualified opinions on the financial statements and internal controls; the Scripps Networks goodwill valuation was identified as a critical audit matter.
Important facts for investors to verify
- Whether core advertising trends and national-network ratings recover, and how much political revenue falls back in the non-election year.
- Progress on the restructuring and whether the expected annual savings of at least $40 million are achieved without impairing operations or revenue.
- Liquidity, covenant compliance, refinancing needs and the effects of higher variable interest rates and the LIBOR-to-SOFR transition.
- Renewal outcomes for retransmission-consent and network-affiliation agreements; approximately 75% of subscribers under Local Media retransmission agreements were subject to negotiation in 2023.
- Scripps Networks’ goodwill valuation assumptions and impairment headroom, as well as performance against management’s cash-flow expectations.
- The cost and terms of the preferred shares, their redemption timing, and the resulting restrictions on common-share dividends and repurchases.