Business context and reporting period
The E.W. Scripps Company’s Form 10-K covers the fiscal year ended December 31, 2021; it is not a standalone fourth-quarter report. Scripps operates 61 local television stations in 41 markets and nine national networks. Results are affected by political-advertising cycles, retransmission fees, and the acquisition of ION.
Scripps acquired ION on January 7, 2021, for $2.65 billion and sold 23 ION stations to meet FCC ownership limits. It also sold Triton Digital in March 2021 for $225 million net proceeds, launched Defy TV and TrueReal, and relaunched Newsy as an over-the-air news network in October.
Key financial results
| Metric | 2021 | 2020 |
|---|---|---|
| Operating revenue | $2.284 billion | $1.857 billion |
| Operating income | $400.7 million | $303.5 million |
| Income from continuing operations, net of tax | $115.9 million | $153.6 million |
| Net income attributable to Scripps shareholders | $73.3 million | $269.3 million |
| Cash from operating activities | $237.0 million | $277.4 million |
| Capital expenditures | $60.7 million | $44.9 million |
Revenue rose 22.9%, and operating margin was approximately 17.6%, versus 16.3% in 2020. The revenue increase largely reflects ION, acquired during 2021; excluding ION and the WPIX station sold in 2020, revenue declined 2.9%. Lower political advertising in the non-election year more than offset growth in core advertising and retransmission revenue. Net income attributable to shareholders fell substantially, in part because 2020 included a large gain from discontinued Stitcher operations. The filing does not provide a single consolidated gross-margin measure.
Local Media revenue was $1.319 billion, down 11.3%, and segment profit was $268.1 million, down 39.6%, mainly reflecting a $242 million same-station decline in political revenue. Same-station core advertising revenue rose 17% to $663.9 million and retransmission revenue increased 3.9% to $617.3 million. Scripps Networks revenue was $951.9 million and segment profit was $389.3 million; comparisons are substantially affected by ION’s inclusion for 2021 only.
Liquidity, debt, and capital
At year-end, Scripps reported $66.2 million of unrestricted cash and $34.3 million of restricted cash. It had no revolver borrowings and reported $393 million of additional borrowing capacity under its $400 million revolving facility. Management said operating cash flow should cover operating needs for the next 12 months under its current business plan.
Outstanding debt principal was $3.211 billion, compared with $2.992 billion at year-end 2020. Debt included $1.7 billion of term loans and approximately $1.5 billion of senior notes. Interest expense increased to $165.2 million from $93.0 million. The company made $125 million of additional term-loan principal payments and redeemed its $400 million 2025 notes, plus portions of its 2027 and 2031 notes. The revolving facility’s maximum leverage covenant was 4.75 times through the second quarter of 2022, then steps down to 4.5 times; Scripps reported covenant compliance and expected to remain compliant.
Berkshire Hathaway provided $600 million of preferred financing for ION and received a warrant to buy up to 23.1 million Class A shares at $13 per share. Preferred dividends are 8% annually if paid in cash, rising to 9% if not paid in full in cash. While the preferred shares remain outstanding, Scripps cannot pay common dividends or repurchase common shares.
Changes, outlook, risks, and unusual items
- Consolidated operating cash flow declined $40.4 million despite higher segment profit, reflecting higher interest and tax payments, acquisition costs, and programming cash outlays.
- Investing activities used $2.456 billion, principally due to the ION acquisition. Triton’s sale produced a reported pretax gain of $81.8 million; the Denver KMGH building sale produced a $32.6 million gain.
- Reported 2021 results included $40.4 million of ION acquisition and integration costs, $9.4 million of Newsy restructuring charges, a $15.3 million debt-extinguishment loss, and a $99.1 million non-cash warrant charge. The warrant was reclassified to equity after a May 2021 amendment and is no longer marked to market each reporting period.
- The effective tax rate was 38.1%, including the effect of non-deductible items associated with preferred issuance costs and warrant remeasurement. Scripps reported continuing-operations income of $115.9 million, but 2021 net income also included $6.8 million from discontinued operations.
- No specific revenue or earnings guidance is provided in the supplied filing text. Management’s liquidity assessment is based on its current business plan, not a numerical earnings forecast.
- Key risks include advertising cyclicality and economic weakness; audience fragmentation and streaming; retransmission and network-affiliation renewals; FCC regulation and station-license renewal; acquisition integration; cybersecurity; and substantial debt, variable interest rates, and refinancing or covenant risk. The company also noted COVID-19-related uncertainty. Ordinary-course litigation was not expected to result in material loss.
Important facts for investors to verify
- How much of reported growth and Scripps Networks profitability is attributable to ION, and how comparable pro forma results differ from reported results.
- Whether Local Media can offset the non-election-year political revenue decline through core advertising and retransmission growth, including upcoming retransmission agreement expirations.
- Debt-service capacity, variable-rate exposure, covenant headroom, and the cost and restrictions associated with Berkshire Hathaway’s preferred financing.
- Underlying earnings and cash generation after separating acquisition costs, restructuring, asset-sale gains, debt-redemption costs, and the non-cash warrant charge.
- Assumptions supporting the value of ION-related goodwill and intangible assets, and the potential effect of impairment or weaker-than-expected performance.