The E.W. Scripps Company — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Scripps operates 61 local television stations and national news and entertainment networks. The filing presents distribution revenue under a new caption and reclassifies 2022 amounts for comparability.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Operating revenue | $527.8 million | $565.7 million |
| Operating income | $16.5 million | $71.3 million |
| Operating margin | 3.1% | 12.6% |
| Net income (loss) | $(18.5) million | $22.4 million |
| Net income (loss) attributable to Scripps shareholders | $(31.1) million | $9.8 million |
| Basic and diluted EPS | $(0.37) | $0.11 basic; $0.10 diluted |
| Operating cash flow | $15.2 million | $37.4 million |
Revenue declined 6.7% year over year. Advertising revenue was $352.1 million, down from $398.5 million; distribution revenue grew to $166.6 million from $157.6 million. Operating expenses increased to $511.3 million from $494.4 million, including $16.5 million in restructuring costs. Interest expense rose to $48.8 million from $36.5 million, primarily due to higher rates on variable-rate debt.
Local Media revenue fell 4.5% to $311.9 million and segment profit fell 15.7% to $45.8 million. Core advertising declined 10.2%; distribution revenue increased 2.4%, as rate increases more than offset traditional MVPD subscriber losses. Scripps Networks revenue declined 9.5% to $216.5 million, while segment profit fell 39.4% to $51.5 million, reflecting softer advertising, higher programming costs and higher ratings-service costs.
Cash, debt and liquidity
Cash was $16.5 million at March 31, 2023, down from $18.0 million at year-end. Operating activities provided $15.2 million; investing activities used $7.9 million and financing activities used $8.9 million. Capital expenditures were $7.8 million. Cash interest paid was $62.0 million.
Debt principal totaled $2.936 billion, compared with $2.921 billion at December 31, 2022; the balance-sheet carrying value, net of discounts and issuance costs, was $2.890 billion, including current debt. Scripps had $20 million drawn on its $400 million revolver and reported $374 million of additional borrowing capacity. The revolver rate was 9.50% at quarter-end. The company reported compliance with financial covenants. Management said operating cash flow should be sufficient for operating needs over the next 12 months, based on its current business plan.
Changes, outlook and risks
- Management announced a strategic restructuring in January, targeting at least $40 million of annual savings, with $20 million expected by year-end 2023. The filing does not provide a completion schedule or full estimate of restructuring charges; management said it was still evaluating the plan’s total costs.
- Scripps shut down the TrueReal network in March and recorded a $13.6 million write-down of programming assets. Certain programming was combined with Defy TV, and the company began leasing the freed spectrum to Jewelry Television.
- Management cited inflation and consumer uncertainty as contributors to advertising-market softness. Expanded connected-TV distribution partly offset weaker linear advertising and viewership at Scripps Networks.
- At quarter-end, approximately 50% of subscribers covered by retransmission-consent agreements remained subject to negotiation in 2023. A renewal completed during the quarter covered 26% of subscriber households.
- Variable-rate debt creates rate exposure: a 100-basis-point increase in SOFR would increase annual interest expense by approximately $15.8 million. Scripps also noted that the Scripps Networks reporting unit had only 2.5% fair-value headroom over carrying value in its 2022 goodwill test; a 50-basis-point higher discount rate or $25 million lower annual cash flows could eliminate that headroom.
- The board authorized up to $500 million of senior-note principal reductions through redemptions or open-market purchases, expiring March 1, 2026. No formal consolidated revenue or earnings guidance is provided in the supplied filing text.
- Ordinary-course litigation and regulatory matters, including defamation and broadcast-license proceedings, were not expected to result in material loss. The company reported no material changes to the risk factors in its 2022 Form 10-K.
Important facts for investors to verify
- Whether advertising conditions and segment profitability stabilize, particularly at Scripps Networks.
- Progress toward the $40 million annual savings target, including timing, implementation costs and realized savings.
- Outcomes of the remaining 2023 distribution-contract negotiations and the effect of subscriber trends and rate increases.
- Debt service, refinancing and covenant capacity as variable interest rates and the October 2024 earliest term-loan maturity approach.
- Whether the Scripps Networks goodwill valuation assumptions remain supportable if cash flows weaken or discount rates rise.