The E.W. Scripps Company — Q2 2019 Form 10-Q
Business context and reporting period. Scripps is a media company with Local Media television stations and National Media businesses including Katz, Stitcher, Newsy and Triton. This filing covers the quarter and six months ended June 30, 2019. Results include acquisitions completed in 2019 and Triton, acquired in late 2018, so reported growth is not wholly organic.
Unless otherwise stated, amounts below are USD millions. Comparisons are with the corresponding 2018 period.
Key financial metrics
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $337.5 | $283.4 | $629.7 | $537.6 |
| Operating income | $22.2 | $22.5 | $22.3 | $21.8 |
| Net income (loss) attributable to Scripps shareholders | $(0.4) | $5.7 | $(7.2) | $(20.7) |
| Basic and diluted EPS | $(0.01) | $0.06 | $(0.09) | $(0.25) |
| Interest expense | $18.0 | $9.3 | $26.9 | $18.0 |
- Q2 operating margin was approximately 6.6%, versus 7.9% a year earlier; six-month operating margin was approximately 3.5%, versus 4.1%.
- Continuing-operations net loss for the first half was $7.2 million, compared with $0.1 million of income in 2018. The prior-year total net loss included a $21.4 million loss from discontinued radio operations.
- Cash from continuing operating activities was $9.2 million in the first half, down from $17.6 million. The filing attributes the decline mainly to working-capital outflows and higher interest payments.
- First-half investing cash outflow was $661.1 million, primarily reflecting acquisitions; financing cash inflow was $841.4 million, primarily from new borrowings.
- At June 30, cash and cash equivalents were $56.5 million and restricted cash was $240.0 million, segregated for the pending Nexstar-station acquisition. Total current assets were $721.1 million and current liabilities were $218.6 million.
- Outstanding debt principal was $1,577.8 million, versus $696.3 million at December 31, 2018. Net carrying value was $1,548.5 million. Debt included $400 million of 2025 notes, term loans and $120 million drawn on a $150 million revolving facility. The company reported compliance with its financial covenants.
Material changes versus prior periods
- Revenue rose 19.1% in Q2 and 17.1% in the first half. Excluding acquired operations, revenue increased 5% and 6%, respectively.
- Local Media revenue grew 11% in Q2 and 8.6% year to date, but excluding acquired stations it declined 4% and 1%. Higher retransmission revenue was offset by lower core and political advertising. Core advertising comparisons were affected by the absence of the 2018 NBA Finals in Cleveland, and year-to-date comparisons also reflected 2018 Olympics and Super Bowl advertising.
- National Media revenue grew 44% in both periods, reflecting Triton and growth across other brands. National Media segment profit increased to $6.6 million in Q2 from $2.0 million.
- Q2 operating income was broadly flat despite higher revenue: employee, programming and other expenses increased, along with acquisition-related costs and depreciation and amortization. Interest expense nearly doubled in Q2, reflecting increased borrowings.
- The company acquired Raycom stations effective January 1, 15 Cordillera stations on May 1, and Omny Studio on June 10. These acquisitions expanded the station footprint and National Media audio capabilities.
Outlook, risks and unusual items
- The $580 million acquisition of eight television stations from Nexstar was pending at quarter-end and expected to close in Q3 2019, subject to regulatory and other approvals. Management expected Scripps to operate 60 stations in 42 markets, reaching about 31% of U.S. television households, after closing.
- On July 26, 2019, after quarter-end, a subsidiary issued $500 million of 5.875% senior unsecured notes due 2027. Proceeds were placed in escrow pending acquisition conditions. The revolving facility capacity was expected to increase to $210 million upon the acquisition closing.
- Management stated that cash, operating cash flow and available borrowing capacity should be sufficient for operating and capital needs over the next 12 months. The company intended to continue regular quarterly dividends, subject to quarterly Board review and financial conditions.
- Management identified advertising demand and economic conditions as uncertainties. Local Media is exposed to local and national advertising cycles; political advertising is typically higher in the third and fourth quarters of even-numbered years. Network affiliation fees were increasing and could continue to rise. Floating-rate borrowings expose earnings and cash flows to interest-rate changes.
- New 2027 notes are effectively subordinated to secured debt to the extent of collateral value, and their guarantees and escrow structure carry additional risks before release. The filing also discusses potential fraudulent-transfer challenges, change-of-control repurchase obligations, and the possibility that escrow funds could be delayed or unavailable in bankruptcy.
- Acquisition and integration costs were $2.8 million in Q2 and $6.3 million in the first half; restructuring costs were $1.0 million and $1.9 million, respectively. The company expected approximately $12.8 million of pension and SERP contributions in the remainder of 2019.
- Ordinary-course litigation and regulatory matters were not expected to result in material loss. Management reported effective disclosure controls and no material changes to internal control over financial reporting.
Important facts for investors to verify
- Whether the Nexstar-Tribune transaction closed as expected, and the final purchase price, financing mix and resulting leverage.
- How much of reported revenue and National Media growth is sustainable organically, separate from acquisitions, and whether local advertising recovers.
- Cash conversion and working-capital trends, including the timing of retransmission receivables, alongside higher interest costs and floating-rate debt exposure.
- Compliance with debt covenants, remaining revolver availability and the effect of acquisition financing on liquidity and debt-service capacity.
- Whether retransmission growth and National Media expansion can offset programming, affiliation, personnel and integration cost increases.