Scripps(SSP) - 2023 Q1 - Quarterly Report

PART I - Financial Information Financial Statements The unaudited condensed consolidated financial statements for the three months ended March 31, 2023, show a decrease in total assets to $6.40 billion from $6.43 billion at year-end 2022, with a net loss of $18.5 million for the quarter, a significant downturn from $22.4 million net income in the same period of 2022, driven by lower operating revenues and higher interest expenses, and a substantial decrease in cash flow from operations Condensed Consolidated Balance Sheets As of March 31, 2023, total assets were $6.40 billion, a slight decrease from $6.43 billion at the end of 2022, with total liabilities at approximately $4.30 billion and long-term debt at $2.87 billion, while total equity decreased to $2.10 billion from $2.13 billion over the same period Condensed Consolidated Balance Sheet Highlights (As of March 31, 2023) | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total Assets | $6,402,034 | $6,431,005 | | Cash and cash equivalents | $16,476 | $18,027 | | Goodwill | $2,920,574 | $2,920,574 | | Total Liabilities | $4,302,226 | $4,300,180 | | Long-term debt (less current portion) | $2,871,555 | $2,853,793 | | Total Equity | $2,099,808 | $2,130,825 | Condensed Consolidated Statements of Operations For the three months ended March 31, 2023, the company reported a net loss of $18.5 million, compared to a net income of $22.4 million in the prior-year period, as total operating revenues decreased by 6.7% to $527.8 million, and operating income fell sharply to $16.5 million from $71.3 million year-over-year, impacted by lower advertising revenue and $16.5 million in restructuring costs Q1 2023 vs. Q1 2022 Statement of Operations (in thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total operating revenues | $527,778 | $565,706 | | Operating income | $16,482 | $71,277 | | Interest expense | ($48,838) | ($36,499) | | Net income (loss) | ($18,540) | $22,365 | | Net income (loss) per diluted share | ($0.37) | $0.10 | - The company incurred restructuring costs of $16.5 million in Q1 2023, which were not present in the same period of 2022[24] Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities decreased significantly to $15.2 million in Q1 2023 from $37.4 million in Q1 2022, while net cash used in investing activities also decreased due to the absence of acquisitions, and financing activities used less cash mainly because of lower debt repayments compared to the prior year Q1 2023 vs. Q1 2022 Cash Flows (in thousands) | Cash Flow Category | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $15,227 | $37,379 | | Net cash used in investing activities | ($7,921) | ($32,854) | | Net cash used in financing activities | ($8,857) | ($69,979) | | Decrease in cash, cash equivalents and restricted cash | ($1,551) | ($65,454) | Notes to Condensed Consolidated Financial Statements The notes provide detailed information on accounting policies, acquisitions, restructuring charges, debt, and segment performance, highlighting $16.5 million in restructuring costs related to a strategic reorganization and the shutdown of the TrueReal network, a detailed breakdown of the company's $2.94 billion in long-term debt, and performance metrics for the Local Media and Scripps Networks segments - In January 2023, the company initiated a strategic restructuring, incurring $16.5 million in costs in Q1 This included a $13.6 million write-down of programming assets from the shutdown of the TrueReal network[63] - Total outstanding principal on long-term debt was $2.94 billion as of March 31, 2023, consisting of term loans, senior secured notes, and senior unsecured notes[75] Segment Performance (Q1 2023 vs Q1 2022, in thousands) | Segment | Revenue Q1 2023 | Revenue Q1 2022 | Segment Profit Q1 2023 | Segment Profit Q1 2022 | | :--- | :--- | :--- | :--- | :--- | | Local Media | $311,923 | $326,661 | $45,843 | $54,393 | | Scripps Networks | $216,473 | $239,068 | $51,526 | $85,076 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's strategic initiatives, including a major restructuring aimed at achieving over $40 million in annual savings, the launch of Scripps Sports, and new content agreements, with the analysis of financial results highlighting a 6.7% decrease in consolidated revenue due to softness in the advertising market, and both Local Media and Scripps Networks segments seeing declines in revenue and profit, while liquidity remains sufficient for the next 12 months Executive Overview The company, a diverse media enterprise with 61 local TV stations and nine national networks, is positioning itself as a leader in free, ad-supported television, with key strategic moves in early 2023 including a corporate restructuring to create a leaner operating model, the launch of Scripps Sports, and the shutdown of the TrueReal network - A strategic restructuring announced in January 2023 aims to create a leaner operating structure and is anticipated to result in at least $40 million in annual savings[118] - The company launched Scripps Sports in December 2022 to pursue partnerships with sports leagues, conferences, and teams, leveraging its local and national broadcast footprint[117] - On March 27, 2023, the company shut down its TrueReal network, merging some programming with Defy TV and leasing the created spectrum to Jewelry Television[119] Results of Operations Consolidated operating revenues for Q1 2023 fell 6.7% to $527.8 million, primarily due to softness in the advertising market affecting both segments, with the Local Media segment's revenue decreasing 4.5% and a 10.2% drop in core advertising, and the Scripps Networks segment's revenue declining 9.5% due to challenges in the national advertising marketplace and lower linear viewership, while operating expenses were impacted by $16.5 million in restructuring costs and higher interest expense Consolidated Results of Operations (Q1 2023 vs Q1 2022, in thousands) | Metric | Q1 2023 | Q1 2022 | Change | | :--- | :--- | :--- | :--- | | Operating revenues | $527,778 | $565,706 | (6.7)% | | Operating income | $16,482 | $71,277 | (76.9)% | | Net income (loss) | ($18,540) | $22,365 | N/A | - Local Media core advertising revenue decreased 10.2% YoY, while distribution revenue grew 2.4%[139][140] - Scripps Networks revenue fell 9.5% YoY, reflecting softness in the national advertising market and a decline in linear television viewership[144] Liquidity and Capital Resources The company's primary liquidity sources are cash from operations and its revolving credit facility, with $16.5 million in cash and $374 million available under its revolver as of March 31, 2023, which management believes is sufficient to meet operating needs for the next 12 months, despite operating cash flow decreasing to $15.2 million from $37.4 million year-over-year, and a new debt repurchase program for up to $500 million authorized in February 2023 - As of March 31, 2023, the company had $16.5 million of cash on hand and $374 million of additional borrowing capacity under its revolving credit facility[148] - Net cash provided by operating activities decreased by $22.2 million in Q1 2023 compared to Q1 2022, driven by lower segment profit and higher interest payments[150] - A new debt repurchase authorization was approved in February 2023, allowing for the reduction of up to $500 million in senior notes principal through March 1, 2026[90][156] Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to interest rate risk associated with its variable-rate debt under its credit agreement, where a hypothetical 100 basis point (1%) increase in the SOFR would result in an approximate $15.8 million increase in annual interest expense - The company is subject to interest rate risk on its variable rate borrowings A 100 basis point increase in SOFR would increase annual interest expense by approximately $15.8 million[167] Fair Value of Long-Term Debt (As of March 31, 2023, in thousands) | Debt Instrument | Cost Basis | Fair Value | | :--- | :--- | :--- | | Revolving credit facility | $20,000 | $20,000 | | Senior secured notes, due in 2029 | $523,356 | $411,489 | | Senior unsecured notes, due in 2027 | $425,667 | $315,526 | | Senior unsecured notes, due in 2031 | $392,071 | $270,529 | | Term loans (2024, 2026, 2028) | $1,575,034 | $1,532,169 | | Total Long-term debt | $2,936,128 | $2,549,713 | Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of the end of the period and concluded that these controls and procedures are effective, with no material changes to the company's internal controls over financial reporting during the quarter - Based on an evaluation as of March 31, 2023, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective[171] - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[172] PART II - Other Information Legal Proceedings & Risk Factors The company is involved in ordinary course litigation which is not expected to result in material loss, and there have been no material changes to the risk factors disclosed in the 2022 Annual Report on Form 10-K - The company is not involved in any litigation or regulatory proceedings that are expected to result in a material loss[13] - There were no material changes to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K[14] Unregistered Sales of Equity, Defaults, and Mine Safety During the quarter ended March 31, 2023, there were no sales of unregistered equity securities, no defaults upon senior securities, and no mine safety disclosures to report - No sales of unregistered equity securities, defaults upon senior securities, or mine safety disclosures occurred during the first quarter of 2023[15][16][17] Other Information This section provides the voting results from the Annual Meeting of Shareholders held on May 1, 2023, where all director nominees were elected, and proposals regarding the ratification of the independent accountant, advisory vote on executive compensation, and the 2023 Long-term Incentive Plan were approved - At the May 1, 2023 Annual Meeting, shareholders elected all nominated directors and approved all other management proposals, including the ratification of Deloitte & Touche LLP as the independent auditor and an advisory vote on executive compensation[18] Exhibits A list of exhibits filed with this Form 10-Q is provided, including amended articles of incorporation, credit agreements, and officer certifications - The report includes several filed exhibits, such as the Seventh Amendment to the Credit Agreement, Section 302 and 906 Certifications, and the iXBRL formatted financial statements[19]