CINCINNATI – The E.W. Scripps Company (NYSE: SSP) today reported operating results for the third quarter of 2015. Unless otherwise indicated, all operating results comparisons are to the Scripps historical results for the third quarter of 2014, recast to reflect newspapers as discontinued operations.
For the quarter, the net loss from continuing operations was $24.4 million or 29 cents per share. The quarter included a non-cash goodwill and intangibles impairment charge in the digital business of $24.6 million and Journal-related transaction and acquisition integration costs of $4.2 million. These charges reduced net income by $24 million or 31 cents per share.
Since we acquired Newsy in January 2014, it has experienced slower revenue growth than the original revenue models for its website and mobile app as well as its business-to-business video news syndication business. However, the evolution of the over-the-top (OTT) television market has created a distribution platform on which Newsy is gaining significant momentum. Newsy has recently announced four new partners, including Apple TV and Comcast’s Watchable. The investment required to build for the OTT platform combined with the slower revenue growth will diminish Newsy’s near-term cash flow, creating an indication of impairment of goodwill as of Sept 30. Scripps recorded a non-cash charge of $23.9 million to reduce the carrying value of Newsy’s intangible assets.
Third-Quarter Highlights
• Revenues from continuing operations were $190 million, up $67 million from the prior-year’s reported results.
• Retransmission revenue more than doubled in the quarter to $36.3 million.
• We accelerated the rollout of our digital news network, Newsy, across the over-the-top television marketplace and now have agreements with seven OTT platforms, including Apple TV.
• We acquired podcast industry leader Midroll in July for $50 million.
• At the end of September, our cash balance totaled $81 million. Total debt was $404 million.
• From mid-May-Nov. 1, we repurchased 683,359 shares at an average price of $19.11.
Commenting on the results, Scripps Chairman, President and CEO Rich Boehne said:
“Third-quarter performance in our core broadcast television business was aided by a comeback in automotive advertising and a leap in retransmission fees. The increase in retransmission revenue alone offset the decline in political advertising revenue in the off-cycle year.
“In our TV markets we’re setting the stage for 2016, when increases in local news ratings, a 50 percent increase in retransmission fees, and presidential election spending across an expanded footprint of potential swing states should come together for a strong performance.
“Also in the third quarter, we expanded our reach into the fast-growing over-the-top media marketplace with the accelerated rollout of our OTT video news service Newsy. This service aimed at millennial news audiences now also includes OTT distribution on Apple TV, Comcast’s Watchable, Roku, Amazon’s Fire TV, Google Chromecast, PlutoTV and Xumo, with more to come shortly. Our expanded ambition for Newsy, changes in the marketplace, and our commitment to invest in this strategy led us to a pivot in the business model.
“On the audio side of our over-the-top strategy, we purchased Midroll, a leading podcast producer and advertising network, and then launched its subscription-based app, Howl, to strong response. Not only is Midroll a growing content play for mobile-media consumers, it’s also designed to be an alternative advertising model that largely defies ad blocking.
“While working to build value through our current and evolving businesses, we also used our strong balance sheet and cash flow to repurchase shares. We expect our overall financial position to further strengthen as we move through the presidential election year and top our four-year business cycle.”
Third-Quarter Operating Results – Continuing Operations
Operating revenues increased $67 million, or 54 percent, to $190 million, compared to the third quarter of 2014. The increase was primarily a result of the acquisition of the television and radio stations from Journal as well as increases in retransmission revenue. Revenue from acquired operations accounted for approximately $68 million of operating revenues in the quarter.
Retransmission revenues more than doubled to $36 million. Excluding the acquired stations from both periods, retransmission revenues increased $11 million to $26 million. During 2014, we renegotiated retransmission agreements covering more than one-third of cable and satellite television subscribers in our legacy markets, and our 2015 results reflect the renewal of those agreements.
Costs and expenses for segments, shared services and corporate were $167 million, up from $107 million, primarily driven by expenses from the acquired stations and higher programming fees.
Third-Quarter Operating Results – Adjusted Combined Basis
In order to provide more meaningful year-over-year comparisons, we are providing non-GAAP supplemental information for certain revenues and expenses for prior-year periods on an adjusted combined basis.
The adjusted combined revenue and expense information illustrates what the combined Scripps/Journal operations would have been, given the assumptions outlined in the supplemental materials and had the transaction been effective at the beginning of 2014. Refer to the “Supplemental Information” section that begins on page E-7 of the attached tables.
Operating revenues decreased 1 percent to $190 million and include increases in retransmission revenue and 51 percent growth in digital revenues, offset by a $17 million decline in political advertising.
Costs and expenses for segments, shared services and corporate were $167 million, up from $156 million, primarily due to higher programming fees.
Third-quarter results by segment compared to prior-period adjusted combined amounts were:
Television
In the third quarter of 2015, revenue from our television group was $157 million, down $5 million. Retransmission revenues increased $12 million while political advertising revenues decreased $17 million in the off-cycle year.
Advertising revenue broken down by category was:
• Local, flat at $78.8 million
• National, down 2.5 percent to $35 million
• Political, $4.3 million in 2015 compared to $21.3 million in 2014
Retransmission revenue was up 52 percent to $36.3 million.
Total segment expenses increased 9.2 percent to $126 million, driven by increases in programming fees due to the renegotiation of the ABC affiliation agreements for 10 of our stations in December 2014 and our CBS affiliation agreement in Nashville in July.
Third-quarter segment profit in the television division was $31.7 million, compared to $47.2 million in the year-ago quarter.
Radio
Revenue and expenses of $20.4 million and $16.3 million were essentially flat with the prior period.
Segment profit in the radio division was $4.1 million in the third quarter of 2015, compared to $4.5 million in the 2014 quarter.
Digital
Digital revenues were $10.9 million, up $3.7 million from the prior period. Excluding Midroll, revenue increased 25 percent.
Expenses for the digital group were $14.5 million, an increase of $1.7 million from the prior-year period.
Segment loss in the digital division was $3.6 million in the third quarter of 2015, compared to $5.6 million in the 2014 quarter.
Looking ahead
The guidance below is in comparison to the adjusted combined results explained above and outlined beginning on page E-7.
In the fourth quarter of 2015, management expects:
• Television revenue to be down low to mid teens. Political revenue to be about $4 million, compared to $43.9 million in the prior-year period.
• Television expenses to increase about 10 percent, primarily due to higher programming fees.
• Radio revenue to be down mid-single digits.
• Radio expenses to be down low to mid-single digits.
• Digital revenue to be up in the mid-30 percent range.
• Digital expenses to be up nearly 30 percent.
• Expenses for shared services and corporate to be about $11 million.
As we discussed previously, the company offered a lump-sum pension plan buyout, which concluded in October. We anticipate a non-cash charge of about $45 million in the fourth quarter of 2015.
Conference call
The senior management of The E.W. Scripps Company will discuss the company’s third-quarter results during a telephone conference call at 9 a.m. (Eastern) today. Scripps will offer a live webcast of the conference call. To access the webcast, visit www.scripps.com and click on “investors” and then “investor information.” The webcast link can be found on that page under “upcoming events.”
To access the conference call by telephone, dial (800) 230-1059 (U.S.) or (612) 234-9959 (international) approximately five minutes before the start of the call. Investors and analysts will need the name of the call (“Scripps earnings call”) to be granted access. Callers also will be asked to provide their name and company affiliation. The public is granted access to the conference call on a listen-only basis.
A replay line will be open from 11 a.m. Eastern time Nov. 6 until 11:59 p.m. Nov. 20. The domestic number to access the replay is (800) 475-6701, and the international number is (320) 365-3844. The access code for both numbers is 370507.
A replay of the conference call will be archived and available online for an extended period of time following the call. To access the audio replay, visit www.scripps.com approximately four hours after the call, click on “investors,” then “investor information”, and the link can be found on that page under “audio/video links.”
Forward-looking statements This press release contains certain forward-looking statements related to the company’s businesses that are based on management’s current expectations. Forward-looking statements are subject to certain risks, trends and uncertainties, including changes in advertising demand and other economic conditions that could cause actual results to differ materially from the expectations expressed in forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. The company’s written policy on forward-looking statements can be found in its SEC Form 10-K. The company undertakes no obligation to publicly update any forward-looking statements to reflect events or circumstances after the date the statement is made.
About Scripps
The E.W. Scripps Company serves audiences and businesses through a growing portfolio
of television, radio and digital media brands. Scripps is one of the nation’s largest independent TV station owners, with 33 television stations in 24 markets and a reach of nearly one in five U.S. households. It also owns 34 radio stations in eight markets. Scripps also runs an expanding collection of local and national digital journalism and information businesses, including podcast industry leader
Midroll Media, over-the-top video news service Newsy and weather app developer WeatherSphere. Scripps also produces television shows including The List and The Now, runs an award-winning investigative reporting newsroom in Washington, D.C., and serves as the long-time steward of the nation’s largest, most successful and longest-running educational program, the Scripps National Spelling Bee. Founded in 1878, Scripps has held for decades to the motto, “Give light and the people will find their own way.”
Investor contact:
Carolyn Micheli, The E.W. Scripps Company, 513-977-3732, [email protected]
Media contact:
Valerie Miller, The E.W. Scripps Company, 513-977-3023, [email protected]