Scripps(SSP) - 2023 Q3 - Quarterly Report

PART I - Financial Information Financial Statements Unaudited consolidated financial statements for Q3 2023 show a net loss and decreased assets due to goodwill impairment, and declining operating cash flow Condensed Consolidated Balance Sheets Total assets decreased significantly by September 2023, primarily due to a goodwill impairment, leading to a substantial reduction in total equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $15,852 | $18,027 | | Goodwill | $2,234,574 | $2,920,574 | | Total Assets | $5,688,073 | $6,431,005 | | Long-term debt (less current portion) | $2,908,390 | $2,853,793 | | Total Liabilities | $4,271,398 | $4,300,180 | | Retained earnings (deficit) | ($379,036) | $350,715 | | Total Equity | $1,416,675 | $2,130,825 | Condensed Consolidated Statements of Operations The company reported a $692 million net loss for the nine months ended September 30, 2023, primarily due to a $686 million goodwill impairment charge Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Total operating revenues | $1,677,143 | $1,772,274 | | Operating income (loss) | ($551,652) | $264,287 | | Impairment of goodwill | $686,000 | $0 | | Net income (loss) | ($692,022) | $110,353 | | Net income (loss) per diluted share | ($8.67) | $0.80 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly decreased to $49.1 million for the nine months ended September 30, 2023, from $196.3 million in the prior year Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $49,137 | $196,277 | | Net cash used in investing activities | ($44,731) | ($55,183) | | Net cash used in financing activities | ($6,581) | ($203,351) | | Decrease in cash, cash equivalents and restricted cash | ($2,175) | ($62,257) | Notes to Condensed Consolidated Financial Statements Notes detail a $29.2 million restructuring charge, a $686 million goodwill impairment, and the company's $2.9 billion long-term debt structure - In January 2023, the company initiated a strategic restructuring, anticipating at least $40 million in annual savings, with costs totaling $29.2 million for the first nine months of 2023[65][66] - A $686 million non-cash goodwill impairment charge was recognized in Q2 2023 for the Scripps Networks reporting unit, driven by softness in the national advertising market and declining linear TV viewership[79][81] - On July 31, 2023, the company paid off the remaining $283 million principal balance of its 2024 term loan using borrowings from its revolving credit facility[85][98] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a challenging operating environment with a 5.4% revenue decline, a $686 million goodwill impairment, and a restructuring plan for $40 million in annual savings Executive Overview The company focuses on local TV and national networks, launched Scripps Sports, initiated a restructuring for $40 million in annual savings, and recorded a $686 million goodwill impairment - 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[125] - The company launched Scripps Sports to leverage its broadcast reach for partnerships, securing multi-year agreements with the WNBA, Vegas Golden Knights, and Arizona Coyotes[124][127][128][129] - Due to softness in the national advertising market and declining linear TV viewership, the company recorded a non-cash goodwill impairment charge of $686 million for its Scripps Networks business in Q2 2023[130] Results of Operations Consolidated revenue for the first nine months of 2023 fell 5.4% to $1.68 billion, primarily due to lower advertising, resulting in a $551.7 million operating loss Consolidated Results of Operations (in thousands) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Operating revenues | $1,677,143 | $1,772,274 | (5.4)% | | Operating income (loss) | ($551,652) | $264,287 | N/A | | Net income (loss) | ($692,022) | $110,353 | N/A | - The revenue decrease was driven by a decline in political revenues of $80.0 million and lower core advertising, partially offset by a $61.1 million increase in Local Media distribution revenues following contract renewals for 75% of subscriber households[134] - Interest expense increased by $43.6 million for the nine-month period due to higher year-over-year interest rates on variable debt borrowings[139] Business Segment Results Local Media segment profit fell 14.1% due to political advertising decline, while Scripps Networks profit decreased 29.9% from a 7.1% revenue drop Segment Profit (Loss) (in thousands) | Segment | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Local Media | $201,725 | $234,742 | (14.1)% | | Scripps Networks | $161,530 | $230,357 | (29.9)% | - Local Media's performance was impacted by an 82.2% decrease in political advertising revenue year-to-date, partially offset by a 12.3% increase in distribution revenue from new agreements[149][150] - Scripps Networks revenue decreased 7.1% year-to-date due to macroeconomic challenges impacting national advertiser budgets and a decline in linear television viewership[154][155] Liquidity and Capital Resources Liquidity is sourced from operations and a revolving credit facility, with $15.9 million cash and $238 million borrowing capacity, despite decreased operating cash flow - As of September 30, 2023, the company had $15.9 million of cash on hand and $238 million of additional borrowing capacity under its revolving credit facility[159] - Net cash provided by operating activities decreased by $147 million in the first nine months of 2023 compared to 2022, driven by lower segment profit and higher interest payments[161] - The company amended its credit agreement, increasing the Revolving Credit Facility to $585 million, and was in compliance with its maximum first lien net leverage ratio covenant of 5.0 to 1.0 as of September 30, 2023[164][166][90] Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk from variable-rate debt; a 100 basis point SOFR increase would raise annual interest expense by $16.2 million - The company is subject to interest rate risk on its variable-rate debt; a 100 basis point increase in SOFR would increase annual interest expense by approximately $16.2 million[179] Debt Fair Value vs. Carrying Value (in thousands) | Metric | As of September 30, 2023 | | :--- | :--- | | Long-term debt, including current portion (Cost Basis) | $2,964,822 | | Long-term debt, including current portion (Fair Value) | $2,565,051 | Controls and Procedures Management concluded that the company's disclosure controls and procedures are effective, with no material changes to internal controls over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[183] - No material changes were made to the company's internal controls over financial reporting during the quarter[184] PART II - Other Information Legal Proceedings The company is involved in routine litigation and regulatory proceedings, none of which are expected to result in a material loss - The company is involved in ordinary course litigation and regulatory proceedings, none of which are expected to have a material adverse effect[12] Risk Factors No material changes to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K have occurred - No material changes to the risk factors disclosed in the 2022 Form 10-K have occurred[13] Unregistered Sales of Equity Securities and Use of Proceeds The company did not conduct any sales of unregistered equity securities during the quarter ended September 30, 2023 - There were no sales of unregistered equity securities in the third quarter of 2023[14] Other Information Brian Lawlor, President of Scripps Sports, adopted a Rule 10b5-1 trading plan for the potential sale of up to 90,000 Class A common shares - Brian Lawlor, President of Scripps Sports, adopted a Rule 10b5-1 trading plan for the potential sale of up to 90,000 Class A common shares[17]