10-Q: E.W. Scripps Company Reports Mixed Q2 2024 Results Amidst Strategic Restructuring

E.W. Scripps Company's second quarter results show a decrease in core advertising revenue offset by political advertising gains and increased distribution revenue, while the company continues its strategic restructuring.

Summary

• The E.W. Scripps Company reported a decrease in operating revenues of 1.6% for the second quarter of 2024, totaling $573.6 million, compared to $582.8 million in the same period last year.
• This decrease was primarily due to a $30.8 million decline in core advertising revenue and a $1.3 million decrease in distribution revenue, partially offset by a $25.6 million increase in political advertising revenue.
• For the first six months of 2024, operating revenues increased by 2.2% to $1.135 billion, driven by a $38.1 million increase in political revenue and a $34.7 million increase in distribution revenue, partially offset by a $45.5 million decrease in core advertising revenue.
• The company's cost of revenues increased by 3.2% in the second quarter and 4.9% in the first six months of 2024, primarily due to new sports rights fees totaling $12.6 million in Q2 and $22.7 million year-to-date.
• Selling, general, and administrative expenses decreased by 1.8% in the second quarter and 1.3% in the first six months of 2024.
• Restructuring costs were $1.0 million in Q2 and $6.0 million year-to-date, compared to $8.0 million and $24.5 million in the same periods of 2023, respectively.
• The company reported a net loss attributable to shareholders of $13.0 million for the second quarter and $25.8 million for the first six months of 2024.
• The company has a $585 million revolving credit facility, with $290 million outstanding as of June 30, 2024, and is in compliance with its financial covenants.
• The company did not declare or pay dividends on its preferred stock for the second quarter of 2024, which provides better flexibility for deleveraging and maximizing the paydown of traditional bank debt.

Sentiment

Score: 4

Explanation: The document presents mixed results with a net loss and declining core advertising revenue, but also highlights positive aspects like increased political advertising and cost savings from restructuring. The overall sentiment is cautiously negative due to the financial losses and challenges in the traditional advertising market.

Positives

• Political advertising revenue saw a significant increase of $25.6 million in the second quarter of 2024.
• Distribution revenues increased by $34.7 million for the first six months of 2024.
• The company's strategic restructuring efforts have resulted in over $40 million in annual savings, with $20 million achieved by the end of 2023.
• The company received $18.1 million in pre-tax cash proceeds from the sale of its equity ownership in Broadcast Music, Inc. (BMI).
• The company is in compliance with its financial covenants.

Negatives

• Core advertising revenue decreased by $30.8 million in the second quarter of 2024.
• Distribution revenue decreased by $1.3 million in the second quarter of 2024.
• The company reported a net loss attributable to shareholders of $13.0 million for the second quarter of 2024.
• Scripps Networks revenues decreased by 9.7% in the second quarter of 2024.
• The company did not declare or pay dividends on its preferred stock for the second quarter of 2024.
• The company's effective income tax rate was 65% for the six months ended June 30, 2024, impacted by non-deductible expenses and other factors.

Risks

• The company is exposed to interest rate risk associated with its credit agreement, as borrowings bear interest at SOFR plus a margin.
• A 100 basis point increase in SOFR would increase annual interest expense on variable rate borrowings by approximately $15.6 million.
• The company's financial performance is subject to economic conditions, particularly in the automotive and services categories, and the volume of political advertising.
• The company's Scripps Networks segment is experiencing lower ratings in key monetized demographics, impacting advertising revenue.
• The company's goodwill and intangible assets are subject to impairment testing, and changes in assumptions could result in impairment charges.
• The company is involved in litigation and regulatory proceedings, although none are expected to result in material loss.

Future Outlook

The company believes its cash flow from operations will provide sufficient liquidity to meet its operating needs for the next 12 months and will continue efforts to build awareness, grow the broadcast marketplace and improve consumers over-the-air television experiences through its Tablo product.

Management Comments

• Lisa Knutson was named chief operating officer, assuming responsibility for the Local Media and Scripps Networks operating divisions, and was tasked with leading the company's restructuring efforts.
• The restructuring effort was substantially completed by the end of the 2024 second quarter and has resulted in more than $40 million in annual savings.
• The company is exploring the sale of its Bounce multi-cast television network.
• The company did not declare or pay dividends on its preferred stock for the second quarter of 2024, which provides better flexibility for deleveraging and maximizing the paydown of traditional bank debt.

Industry Context

The company is operating in a dynamic media landscape with increasing cord-cutting and growth in streaming services, which is impacting traditional advertising revenue. The company is focusing on over-the-air broadcasting and connected TV to adapt to these changes. The company is also leveraging its local stations and national networks to reach a wide audience.

Comparison to Industry Standards

• The decrease in core advertising revenue is a trend seen across the traditional media industry as audiences shift to digital platforms.
• The increase in political advertising revenue is typical for an election year, and the company's performance in this area is in line with industry expectations.
• The company's focus on over-the-air broadcasting and connected TV is a strategic move to compete with streaming services, similar to other media companies.
• The company's restructuring efforts to reduce costs are also a common practice in the industry to improve profitability.
• The company's debt levels and leverage ratios are comparable to other companies in the media sector, but the company is focused on deleveraging.

Legal Proceedings

• The company is involved in litigation and regulatory proceedings arising in the ordinary course of business, such as defamation actions and governmental proceedings primarily relating to renewal of broadcast licenses, none of which is expected to result in material loss.

Stakeholder Impact

• Shareholders are impacted by the net loss and the decision not to pay preferred stock dividends.
• Employees are impacted by the ongoing restructuring efforts and potential job changes.
• Customers are impacted by the company's focus on over-the-air broadcasting and connected TV.
• Suppliers and creditors are impacted by the company's financial performance and debt levels.

Next Steps

• The company will continue its efforts to build awareness, grow the broadcast marketplace and improve consumers over-the-air television experiences through its Tablo product.
• The company will continue to explore the sale of its Bounce multi-cast television network.
• The company will focus on deleveraging and maximizing the paydown of traditional bank debt.

Key Dates

Keywords

advertising, television, broadcasting, media, restructuring, political advertising, distribution revenue, sports rights, financial results, Scripps Networks, Local Media, debt, preferred stock, revolving credit facility