Scripps(SSP) - 2021 Q2 - Quarterly Report

PART I - Financial Information Financial Statements Unaudited statements for the six months ended June 30, 2021, show significant balance sheet growth and a return to profitability driven by the ION Media acquisition Condensed Consolidated Balance Sheets Total assets grew to $6.56 billion as of June 30, 2021, primarily due to goodwill and intangible assets from the ION acquisition Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $6,562,199 | $4,859,386 | | Cash and cash equivalents | $85,956 | $576,021 | | Goodwill | $2,921,197 | $1,203,212 | | Other intangible assets | $1,956,015 | $975,444 | | Total Liabilities | $4,711,460 | $3,696,121 | | Long-term debt (less current portion) | $3,243,270 | $2,923,359 | | Total Equity | $1,850,739 | $1,163,265 | Condensed Consolidated Statements of Operations Revenues surged 57.5% year-over-year to $565.1 million for the three months ended June 30, 2021, driven by the ION acquisition Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $565,077 | $358,883 | $1,105,998 | $773,106 | | Operating income | $104,255 | $1,550 | $161,473 | $22,474 | | Net income (loss) | $5,644 | $(22,043) | $11,211 | $(33,852) | | Net loss attributable to shareholders | $(6,932) | $(22,043) | $(13,008) | $(33,852) | | Net loss per basic share | $(0.09) | $(0.27) | $(0.16) | $(0.42) | Condensed Consolidated Statements of Cash Flows Net cash from operations was $90.2 million for the six months ended June 30, 2021, while investing activities used $2.47 billion for the ION acquisition Six Months Ended June 30, Cash Flow Summary (in thousands) | Cash Flow Category | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $90,243 | $74,259 | | Net cash used in investing activities | $(2,470,419) | $(20,985) | | Net cash provided by financing activities | $840,131 | $12,705 | | Increase (decrease) in cash | $(1,540,065) | $65,965 | Notes to Condensed Consolidated Financial Statements Notes detail the $2.65 billion ION Media acquisition, a $13.8 million loss on debt extinguishment, and an $81.8 million gain on the sale of the Triton business - On January 7, 2021, the company completed the acquisition of ION Media Networks, Inc for $2.65 billion, financed through cash, debt, and a $600 million preferred equity investment from Berkshire Hathaway[66][67] - The ION acquisition resulted in the recognition of $1.8 billion in goodwill, largely attributed to synergies and economies of scale[73] - The company redeemed all outstanding $400 million of its 5.125% Senior Unsecured Notes due 2025, resulting in a loss on extinguishment of debt of $13.8 million[79][106] - The sale of the Triton business was completed in Q1 2021, generating net proceeds of $225 million and a pre-tax gain of $81.8 million[79][136] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the transformative ION acquisition, which drove a 57% consolidated revenue increase in Q2 2021 and strengthened the company's liquidity position Executive Overview The company completed its transformative $2.65 billion acquisition of ION Media, creating a full-scale national television networks business - Completed the acquisition of ION Media Networks, Inc for $2.65 billion on January 7, 2021, creating a full-scale national television networks business[141] - Launched two new national over-the-air networks, TrueReal and Defy TV, on July 1, 2021, reaching 92% of U.S. television homes at launch[144] - Announced plans to launch the over-the-top news network Newsy on over-the-air television stations in October, incurring restructuring charges of $7.6 million[144][145] Results of Operations Consolidated operating revenues grew 57% in Q2 2021, driven by the ION acquisition and a recovery in core advertising Consolidated Operating Results (in thousands) | Metric | Q2 2021 | Q2 2020 | % Change | | :--- | :--- | :--- | :--- | | Operating revenues | $565,077 | $358,883 | 57.5% | | Operating income | $104,255 | $1,550 | 6626.1% | Local Media Segment Results (in thousands) | Metric | Q2 2021 | Q2 2020 | % Change | | :--- | :--- | :--- | :--- | | Total operating revenues | $324,837 | $279,944 | 16.0% | | Segment profit | $64,643 | $35,457 | 82.3% | Scripps Networks Segment Results (in thousands) | Metric | Q2 2021 | Q2 2020 | % Change | | :--- | :--- | :--- | :--- | | Total operating revenues | $238,735 | $66,652 | 258.2% | | Segment profit | $107,317 | $2,153 | 4884.5% | Liquidity and Capital Resources The company maintained strong liquidity with $86.0 million in cash and $393 million available under its revolving credit facility as of June 30, 2021 - Primary liquidity sources are $86.0 million cash on hand and $393 million of borrowing capacity under the revolving credit facility as of June 30, 2021[180] - In Q2 2021, the company redeemed the $400 million outstanding principal of its 2025 Senior Notes and made an additional $50 million principal payment on its 2028 term loan[189] - The Board authorized a debt repurchase program of up to $600 million, expiring March 1, 2023[190] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure from its variable-rate debt - The company is subject to interest rate risk on its variable-rate borrowings; a 100 basis point increase in LIBOR would raise annual interest expense by approximately $8.2 million[201] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2021, excluding the newly acquired ION Media business - The CEO and CFO concluded that disclosure controls and procedures are effective as of June 30, 2021[206] - The recently acquired ION Media business was excluded from management's report on internal control over financial reporting for the quarter ended June 30, 2021, as permitted by SEC guidance[207] PART II - Other Information Legal Proceedings The company is involved in routine litigation and regulatory proceedings not expected to result in a material loss - The company is not involved in any legal proceedings that are expected to result in a material loss[13] Risk Factors No material changes to the risk factors disclosed in the company's 2020 Annual Report on Form 10-K have occurred - No material changes to risk factors were reported since the 2020 Annual Report on Form 10-K[14] Unregistered Sales of Equity Securities and Use of Proceeds The company issued $600 million in preferred stock and a warrant to Berkshire Hathaway in a private placement - On January 7, 2021, issued 6,000 shares of series A preferred stock and a warrant to purchase ~23.1 million Class A common shares to Berkshire Hathaway for $600 million in a private placement[15] - No shares have been repurchased under the current $100 million authorization, as repurchases are prohibited until all preferred shares issued to Berkshire Hathaway are redeemed[16] Defaults Upon Senior Securities No defaults upon senior securities occurred during the quarter ended June 30, 2021 - No defaults upon senior securities occurred during the quarter[17]