E.W. Scripps Company — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. Amounts below are in millions unless otherwise noted. Comparisons are affected by the April 1 acquisition of Journal’s broadcast business and the spin-off of Scripps’ newspapers; reported periods are not fully comparable.
Business context
Scripps operates television, radio, digital and syndication businesses. On April 1, it acquired Journal’s broadcast group, including 12 television and 34 radio stations, in a transaction valued at $636 million, paid with Scripps shares. On the same date, its newspaper business was spun off and combined with Journal’s newspapers as Journal Media Group. Scripps also acquired podcast company Midroll Media on July 22 for $50 million cash plus a potential $10 million earnout.
Key financial results
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $198.1 | $119.7 | $321.2 | $225.0 |
| Operating loss | ($15.7) | ($2.1) | ($25.3) | ($6.4) |
| Continuing-operations net loss | ($13.0) | ($2.8) | ($21.1) | ($7.0) |
| Net loss, including discontinued operations | ($31.4) | ($3.2) | ($36.5) | ($3.8) |
| Basic and diluted loss per share | ($0.37) | ($0.06) | ($0.52) | ($0.07) |
Q2 revenue rose 65.5%; management attributed $72 million of the increase to acquired operations. Television revenue increased 50.3%, driven by acquisitions and retransmission fees; same-station retransmission revenue more than doubled year over year. Digital revenue rose 58%, while the segment remained loss-making. Radio contributed $19.4 million in revenue and $4.9 million in segment profit following the acquisition. Q2 operating margin was approximately negative 7.9%, versus negative 1.8% a year earlier.
Acquisition and integration costs were $30.0 million in Q2 and $32.7 million for the first half, including costs related to the newspaper spin-off and Journal transaction. Q2 discontinued operations included a $30 million non-cash newspaper disposal impairment; the reported discontinued-operations loss was $18.4 million after tax.
Cash flow, debt and liquidity
- Cash and cash equivalents were $101.4 million at June 30, down from $158.5 million at year-end 2014. Current assets were $332.1 million and current liabilities $97.1 million.
- First-half operating cash flow was negative $63.0 million overall: negative $69.6 million from continuing operations and positive $6.6 million from discontinued operations. Continuing operating cash flow was pressured by an $81.9 million working-capital outflow, including receivables, transition-service balances, taxes and payment timing.
- Capital expenditures were $8.8 million in the first half. Investing cash outflow was $14.0 million overall.
- Debt, including current maturities, was $407.1 million, compared with $198.0 million at December 31, 2014. The balance included a $396.5 million term loan and $10.6 million in subordinated notes. The term loan’s June 30 rate was 3.5%; the notes bear 7.25% interest.
- The amended facility provides a $100 million revolving credit line, with no revolver borrowings reported. Scripps said it was compliant with covenants and expected cash, operating cash flow and available borrowing capacity to meet operating and capital needs for the next 12 months.
- Financing included $200 million of new debt proceeds and $117.8 million of debt payments. Scripps paid a roughly $60 million special dividend in connection with the transaction and repurchased $2.7 million of shares in the first half.
Outlook, risks and other notable items
No quantified revenue or earnings guidance was provided. Management cited advertising demand and economic conditions, consumer tastes, program costs, labor relations, technology, competition, interest rates, regulation and reliance on vendors as factors that could cause results to differ from expectations. Management also noted that results are not necessarily indicative of future periods.
Journal acquisition accounting remained preliminary, including the allocation of $448.8 million of goodwill. Scripps classified the KNIN station in Boise as held for sale and expected its $14.5 million sale to close by year-end, subject to regulatory approval. The $100 million share-repurchase authorization had $97.3 million remaining at June 30. Two lawsuits related to the Journal transaction were dismissed; ordinary-course litigation and broadcast-license proceedings were not expected to result in material loss. The filing reported no material change to previously disclosed risk factors, no defaults on senior securities, and effective disclosure controls.
Important facts for investors to verify
- How much of reported revenue and segment growth reflects the Journal and Granite acquisitions versus organic performance, and how acquisition costs and synergies develop.
- Whether retransmission-fee growth is sustained and how contract renewals, network fees and political-advertising cycles affect margins.
- The drivers and expected duration of negative continuing operating cash flow, including settlement of the $18 million transition-services receivable and other working-capital movements.
- Debt repayment capacity, variable-rate exposure, covenant headroom and liquidity after the Midroll acquisition and transaction-related cash uses.
- Final Journal purchase-price allocation, including goodwill and intangible-asset valuations, and completion of the KNIN disposition.
- Potential tax or indemnification consequences under the newspaper spin-off agreements, and the status of the company’s deferred tax assets and pension obligations.