The E.W. Scripps Company — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Scripps operates 61 local television stations and nine national networks, with revenue primarily from advertising and retransmission fees. Amounts below are in millions of dollars unless noted.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $594.5 | $565.1 | $1,160.2 | $1,106.0 |
| Operating income | $89.0 | $104.3 | $160.3 | $161.5 |
| Net income | $41.7 | $5.6 | $64.1 | $11.2 |
| Net income (loss) attributable to Scripps shareholders | $29.2 | $(6.9) | $39.0 | $(13.0) |
| Diluted EPS attributable to shareholders | $0.32 | $(0.09) | $0.42 | $(0.16) |
| Operating cash flow | Not provided quarterly | Not provided quarterly | $106.6 | $90.2 |
Q2 operating margin was approximately 15.0%, versus 18.4% a year earlier; for the first half it was approximately 13.8%, versus 14.6%. These margins are calculated from reported revenue and operating income. Preferred dividends were $12.6 million in Q2 and $25.2 million in the first half, reducing income attributable to common shareholders.
Revenue, segments and changes versus prior periods
- Q2 revenue increased 5.2%; first-half revenue increased 4.9%. Political advertising and retransmission growth supported Local Media, while Scripps Networks revenue was nearly flat in Q2.
- Q2 Local Media revenue rose 9.5% to $355.8 million and segment profit rose 24.9% to $80.7 million. Retransmission revenue increased 9.4%; core advertising declined 2.0%, which management attributed to softness in the second quarter.
- Q2 Scripps Networks revenue was $238.9 million, up 0.1%, but segment profit fell 31.7% to $73.3 million. Higher programming, staffing and other costs—including spending for two networks launched in 2021—outpaced revenue. Lower ratings in key monetized demographics and weaker direct-response advertising also weighed on results.
- Company cost of revenue rose 14.8% in Q2, primarily from higher network affiliation fees and programming investment. Selling, general and administrative expense rose 7.1%, reflecting higher operating costs as employees returned to offices and stations.
- First-half results included a $1.2 million gain from debt redemptions. The prior-year comparison included an $81.8 million Triton sale gain, $99.1 million of non-cash warrant losses, and higher ION acquisition and restructuring costs. These unusual items affect year-over-year comparability.
Cash, debt and liquidity
- At June 30, cash was $58.2 million. Scripps reported $333 million of additional borrowing capacity under its $400 million revolving credit facility; $60 million was drawn. Management said operating cash flow should be sufficient for operating needs over the next 12 months, based on its current business plan.
- Gross debt principal was $3.14 billion and net carrying value was $3.06 billion, compared with $3.21 billion gross principal at December 31, 2021. First-half financing cash outflow was $101.6 million, including debt redemptions and $24.0 million of preferred dividends.
- First-half operating cash flow increased to $106.6 million from $90.2 million. Capital expenditures were $27.5 million. Cash declined by $42.2 million from year-end, to $58.2 million.
- First-quarter redemptions reduced principal by $123.3 million across the 2027, 2029 and 2031 notes. Variable-rate debt exposes Scripps to interest-rate risk: management estimated a 100-basis-point LIBOR increase would add approximately $16.9 million to annual interest expense.
- Scripps reported compliance with financial covenants at June 30. The revolving facility leverage limit steps down from 4.75 to 4.5 times after Q2 2022; management expected compliance based on its outlook.
Outlook, risks and other notable items
- No numerical revenue, earnings or cash-flow guidance is provided. Management described plans to expand in connected television and promote over-the-air viewing; the campaign cost $3.1 million in the first half. Political advertising demand is typically higher in the third and fourth quarters of even-numbered years.
- Management cited macroeconomic pressure on advertising budgets, including inflation and supply-chain disruption. Traditional MVPD subscriber losses continue to affect retransmission, although rate increases had more than offset those declines to date.
- The filing adds labor availability and retention as a risk: Scripps reported higher turnover and more open positions during the pandemic, with potential wage, revenue, profit and continuity effects. The filing also identifies advertising demand, economic conditions, COVID-19 impacts and interest rates as risks.
- Berkshire Hathaway’s $600 million perpetual preferred shares carry an 8% annual dividend rate when paid in cash (9% if not paid in full in cash). Scripps cannot pay common dividends or repurchase common shares until the preferred shares are redeemed. The company may redeem them beginning in 2026, subject to the stated terms.
- Ordinary-course litigation and regulatory matters, including defamation and broadcast-license proceedings, were not expected to result in material loss. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether Local Media political and retransmission revenue can offset softer core advertising and continued traditional MVPD subscriber losses.
- Whether Scripps Networks can improve profitability as programming and operating costs rise and advertising conditions remain pressured.
- Debt paydown, variable-rate exposure, covenant headroom and the availability of the revolver as the facility’s leverage limit steps down.
- Cash-flow durability after working-capital movements, programming payments, capital expenditures and preferred dividends.
- The ongoing cost of the preferred equity and the restriction it places on common dividends and repurchases.