The E.W. Scripps Company (SSP) — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Scripps operates 61 local television stations and nine national networks. Financial amounts below are in U.S. dollars; “Q3” compares the third quarter with Q3 2021, and “YTD” compares the first nine months with the same 2021 period.
Financial performance
| Metric | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 |
|---|---|---|---|---|
| Revenue | $612.1 million | $555.2 million | $1,772.3 million | $1,661.2 million |
| Operating income | $104.0 million | $115.6 million | $264.3 million | $277.1 million |
| Net income | $46.2 million | $58.7 million | $110.4 million | $69.9 million |
| Net income attributable to Scripps shareholders | $33.7 million | $46.1 million | $72.6 million | $33.1 million |
| Diluted EPS attributable to shareholders | $0.38 | $0.50 | $0.80 | $0.37 |
| Operating cash flow | Not provided by quarter | Not provided by quarter | $196.3 million from continuing operations | $150.5 million from continuing operations |
Q3 operating margin was approximately 17.0%, versus 20.8% a year earlier; YTD operating margin was approximately 14.9%, versus 16.7%. YTD interest expense was $114.4 million, down from $126.9 million. Capital expenditures were $35.5 million YTD, making operating cash flow less capital expenditures approximately $160.7 million; this is a simple calculation, not a company-reported measure.
Revenue and segment trends
- Consolidated revenue rose 10.2% in Q3 and 6.7% YTD. Growth reflected political advertising, retransmission fees and Scripps Networks.
- Q3 political revenue was $65.7 million, versus $7.1 million in Q3 2021. YTD political revenue was $96.5 million, versus $11.6 million.
- Q3 core advertising revenue fell 12.2% in Local Media, and total core advertising across the company fell to $371.1 million from $387.6 million. Management cited macroeconomic softness and political-ad displacement.
- Retransmission and carriage revenue grew 8.9% in Q3 to $165.5 million. Rate increases more than offset traditional pay-TV subscriber declines, according to management.
- Local Media segment profit increased 52.3% in Q3 to $99.6 million, helped by political advertising. Scripps Networks segment profit declined 13.6% to $72.0 million as expenses grew faster than revenue.
Cash, debt and liquidity
- Cash and cash equivalents were $38.2 million at September 30, 2022, down from $66.2 million at December 31, 2021. The prior-year balance also included $34.3 million of restricted cash; the restriction ended when escrow proceeds were received in January 2022.
- Long-term debt had $3.049 billion of outstanding principal and a $2.978 billion net carrying value. The company reported $393 million of additional revolving-credit capacity and no revolver borrowings.
- Debt principal declined from $3.211 billion at year-end 2021. Scripps redeemed $123.3 million of senior notes in Q1 and paid an additional $25 million on its 2028 term loan in Q3. The earliest term-loan maturity is October 2024.
- YTD cash flow was $196.3 million from continuing operations, $55.2 million used in investing and $203.4 million used in financing. Financing included debt repayments and $36.0 million of preferred dividends.
- Management said operating cash flow should be sufficient to meet operating needs for the next 12 months under its current business plan. The company reported compliance with financial covenants at quarter-end.
Changes, outlook and risks
- Revenue increased, but operating income declined in both Q3 and YTD as programming and other operating costs rose. YTD cost of revenue increased 12.2%, partly due to higher network-affiliation fees and programming investment.
- Management described national advertising conditions as soft, citing inflation, supply-chain challenges, lower ratings in key monetized demographics and weaker direct-response advertising rates. Local core advertising also weakened in Q2 and Q3.
- No numerical earnings or revenue guidance is provided in the supplied filing text. Management’s stated liquidity outlook covers the next 12 months and is based on its current business plan.
- Variable-rate borrowing creates exposure to rising rates; the filing estimates a 100-basis-point increase in LIBOR would add approximately $16.6 million to annual interest expense on variable-rate borrowings.
- Berkshire Hathaway’s $600 million Series A preferred shares carry an 8% annual dividend when paid in cash, increasing to 9% if dividends are not paid in full in cash. Scripps cannot pay common dividends or repurchase common shares until the preferred shares are redeemed. The preferred shares are redeemable by Scripps beginning in 2026, subject to their terms.
- Management identifies advertising demand and economic conditions among the factors that could cause results to differ from forward-looking expectations. It reported no material change to previously disclosed risk factors in this quarter; the prior-quarter filing had updated the risk concerning attracting and retaining skilled employees.
- Ordinary-course litigation and regulatory proceedings, including defamation and broadcast-license matters, were not expected by the company to result in a material loss. Management reported effective disclosure controls and no material change to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether political-advertising strength can offset continuing weakness in core advertising after the election cycle.
- Progress in Scripps Networks segment profitability as programming, distribution and other costs increase.
- Debt-repayment capacity, upcoming maturities, variable-rate exposure and compliance with credit-facility covenants.
- The cash cost and redemption terms of Berkshire Hathaway’s preferred shares, including the restrictions on common dividends and repurchases.
- The sustainability of management’s 12-month liquidity assessment if advertising demand or broader economic conditions weaken.