Business context and reporting period
The E.W. Scripps Company’s unaudited Form 10-Q covers the three months ended March 31, 2021, compared with the first quarter of 2020. Scripps operates local television stations and national television networks. On January 7, 2021, it acquired ION Media Networks for $2.65 billion and reorganized reporting into Local Media, Scripps Networks and Other segments. The quarter includes ION’s results from the acquisition date; comparisons are therefore materially affected by the acquisition.
Financial results and liquidity
Amounts are in millions, except per-share data. Balance-sheet figures compare March 31, 2021 with December 31, 2020.
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Operating revenue | $540.9 | $414.2 |
| Operating income | $57.2 | $20.9 |
| Income (loss) from continuing operations, net of tax | $3.5 | $(7.2) |
| Net income (loss) | $5.6 | $(11.8) |
| Net loss attributable to Scripps shareholders, after preferred dividends | $(6.1) | $(11.8) |
| Basic and diluted loss per share | $(0.07) | $(0.15) |
| Cash from operating activities | $50.1 | $13.7 |
Revenue increased 30.6%; excluding ION and the WPIX station sold in 2020, management reported revenue growth of 5.0%. Operating margin was approximately 10.6%, compared with 5.1% a year earlier (calculated from reported revenue and operating income). The effective tax rate was 85%, affected by discrete tax charges and nondeductible expenses.
Cash and cash equivalents were $538.2 million, down from $576.0 million; there was no restricted acquisition cash remaining. The company had $393 million of additional revolving-credit borrowing capacity and no revolver borrowings. Outstanding debt principal was $3.787 billion ($3.690 billion net carrying value), versus $2.992 billion principal at year-end 2020. The company said it expected operating cash flows to meet operating needs over the next 12 months and expected to comply with its revolving-credit covenant.
Investing activities used $2.455 billion, primarily reflecting ION’s $2.680 billion net cash purchase price, partly offset by $225 million of net proceeds from the Triton sale. Financing activities provided $1.317 billion, including the $800 million term loan and $600 million Berkshire Hathaway preferred investment. A 100-basis-point increase in LIBOR was estimated to increase annual interest expense on variable-rate borrowings by approximately $8.4 million.
Material changes versus the prior comparable period
- Advertising revenue was $362.6 million versus $254.5 million; retransmission and carriage revenue was $156.5 million versus $139.0 million. Political advertising declined to $1.3 million from $18.7 million in a non-election year.
- Local Media revenue fell 3.8% to $312.6 million, reflecting the WPIX sale and lower political revenue; excluding WPIX, management said Local Media revenue rose 3.3%. Local Media segment profit decreased 5.4% to $55.9 million.
- Scripps Networks revenue rose to $213.7 million from $76.8 million, including ION; segment profit increased to $92.2 million from $10.0 million. Legacy network direct-response advertising rates also improved.
- Interest expense rose to $43.9 million from $25.8 million, mainly due to acquisition financing. Acquisition and integration costs were $28.6 million versus $4.9 million; depreciation and amortization increased to $39.5 million from $27.3 million.
- Operating cash flow from continuing operations was $50.1 million versus $18.1 million. Management attributed the increase mainly to higher segment profit, partly offset by higher interest payments and programming investment outlays.
Outlook, commentary, risks and unusual items
- No specific financial guidance was provided. Management said cash flow from operations should provide sufficient liquidity for the next 12 months, based on its current business plan.
- Scripps planned to launch two free, over-the-air national networks on July 1, 2021, expected to reach at least 75% of U.S. television homes. It also planned to shift Newsy from cable and satellite distribution toward over-the-air distribution, with an October launch expected to reach at least 80% of U.S. television homes. Newsy’s restructuring generated a $7.1 million charge in the quarter; further relocation, contract-exit and asset write-down costs were expected.
- The Triton sale generated a pretax gain of $81.8 million. A $67.2 million noncash warrant remeasurement loss was recorded as Scripps’ share price rose; the warrant liability was $248.1 million at quarter-end. The warrant gives Berkshire Hathaway the right to purchase up to 23.1 million Class A shares at $13 per share.
- Berkshire Hathaway’s $600 million Series A preferred investment carries an 8% annual dividend rate when paid in cash, increasing to 9% if dividends are not paid in full in cash. The preferred shares are redeemable by Scripps beginning after five years at 105% of face value, plus accrued dividends. Common dividends and share repurchases are restricted until the preferred shares are redeemed; the company also reported a $100 million share-repurchase authorization, with no repurchases under it.
- Scripps announced its intention to redeem the $400 million 2025 senior notes on May 15, 2021, at 102.563% of principal plus accrued interest, using cash on hand. It expected to contribute approximately $19.8 million during the remainder of 2021 to pension plans.
- Management identified advertising demand, broader economic conditions and COVID-19 impacts as uncertainties. No material changes to previously disclosed risk factors were reported. Ordinary-course litigation and regulatory matters were not expected to result in material loss. Disclosure controls were assessed as effective; ION was excluded from the quarter’s internal-control assessment under SEC guidance.
Important facts for investors to verify
- How ION performs and integrates, including whether expected scale benefits and network growth offset higher debt, programming costs and amortization.
- Debt repayment plans, refinancing and redemption costs, covenant headroom, and the effect of variable interest rates on cash flow.
- The preferred stock’s dividend burden, redemption terms and restrictions, plus potential dilution and fair-value volatility from the Berkshire Hathaway warrant.
- Whether planned network launches and Newsy’s distribution transition meet management’s reach expectations and what additional restructuring costs arise.
- The sustainability of revenue and operating cash flow, particularly political-advertising cyclicality, retransmission trends, and advertising-market conditions.