The company raises free cash flow guide for second time this year due to successful ION integration combined with local sales execution

CINCINNATI, Nov. 5, 2021 /PRNewswire/ -- In the third quarter of 2021, The E.W. Scripps Company (NASDAQ: SSP) reported 18% year-over-year, adjusted combined increases in both local core and national networks advertising revenue, fueled by strong sales execution in the midst of the return of the advertising marketplace.

Highlights:

• Local Media core advertising in Q3 surpassed third-quarter 2019 levels, driven by significant new business, demand for our connected TV advertising products and the rise of the sports betting category.
• Scripps Networks delivered adjusted-combined revenue growth of 18% in the quarter and is on track to deliver a margin of 40% for the full year as its bundled national networks resonate with general market and direct-response advertisers.
• Scripps' longtime national news network Newsy is now available free over-the-air to 92% of U.S. television homes in addition to its ubiquitous distribution on connected TV (CTV) platforms, streaming services and free ad-supported (FAST) services such as Sony TV Plus and Pluto. On Oct. 1, Newsy became the only free ad-supported news network available on connected TV and over the air.
• The Scripps National Spelling Bee will air its televised national finals exclusively on the ION and Bounce networks in primetime on June 2, 2022. For the first time as a televised event, the nearly 100-year-old iconic American educational program will be available everywhere, to everyone with a TV --- free over the air, on cable and satellite and on connected televisions and streaming services.
• Scripps made a $10 million investment in esports company Misfits Gaming Group. The investment allows Scripps to distribute Misfits' content through its linear and over-the-top television platforms in Florida and across the U.S. The partnership between Scripps and Misfits also will increase Florida advertisers' access to Misfits' large and growing young esports and gaming audiences.
• The company has paid down $500 million of debt year to date through Sept. 30 and intends to use excess cash flow to pay down additional debt in future quarters.

"Investors should take note of the growing financial value of our differentiated strategy, focused on leadership in the free television marketplace. In a year without a major national election season, we again raised our free cash flow guidance range for this year – from $240 million to $260 million up to $255 million to $265 million– driven by the strength of our local and national brands, sales execution and the rebounding advertising marketplace," Scripps President and CEO Adam Symson said.

"We've made fast work of the transformation of the company after the ION acquisition and expanded our portfolio, now with nine national networks that reach more than 90% of the nation's 122 million TV households – most recently with the relaunch of Newsy over the air in addition to being on all major connected TV platforms.

"At the same time, Scripps is focused on growing scale in the connected TV marketplace through an aggressive launch schedule for most of our networks on CTV platforms. All 40 of our local news brands are already available through the major CTV platforms, garnering material new revenue that helped us beat Wall Street's core advertising revenue estimates in the third quarter.  

"We continue to place a high priority on our people by fostering inclusive, respectful and rewarding workplaces that drive a high-performance culture and engender employee loyalty in a challenging employee economy. This and all of our strategies position us well for ongoing business growth, future free cash flow generation and the ability to continue reducing our debt." 

Operating resultsEffective with the close of the ION acquisition on Jan. 7, the company realigned its internal reporting structure and changed the reporting of its businesses' operating results to reflect this new structure. Operating results are now reported under Local Media, Scripps Networks and Other segment captions. The Scripps Networks segment is comprised of our nine national networks. The operating results of our divested Triton business and the other businesses that were reported in our National Media segment are aggregated into the Other segment caption.

Unless otherwise indicated, all comparisons below are to as-reported results.

Total third-quarter company revenue was $555 million, an increase of 13% or $62 million from the prior-year quarter, reflecting the impact of the ION acquisition.

Costs and expenses for segments, shared services and corporate were $427 million, up from $350 million in the year-ago quarter, reflecting the impact of the ION acquisition and higher affiliation fees for both our broadcast television stations and national networks.

Income from continuing operations attributable to the shareholders of Scripps was $45.8 million or 49 cents per share. Pre-tax costs for the quarter included acquisition and related integration costs of $251,000 and $1.9 million of restructuring costs. We had a $32.6 million gain on the sale of our Denver KMGH television station building. These items increased income from continuing operations by $22.9 million, net of taxes, or 25 cents per share. In the prior-year quarter, income from continuing operations was $64 million or 76 cents per share. Pre-tax costs for the prior-year quarter included $10.9 million of acquisition and related integration costs that decreased income by $8.2 million, net of taxes, or 10 cents per share.

Third-quarter 2021 as-reported results by segment compared to prior-period amounts:

Local MediaRevenue from Local Media was $331 million, down 19%.

Core advertising revenue increased 10% to $167 million.

Political revenue was $7.1 million, compared to $96.4 million in the prior-year quarter, which included a presidential election race.

Retransmission revenue decreased 1.2% to $153 million.

Segment expenses increased 2.6% to $266 million, primarily driven by network affiliation fees.

Segment profit was $65.4 million, compared to $148 million in the year-ago quarter.

Scripps NetworksThird-quarter revenue from Scripps Networks was $227 million. Expenses for Scripps Networks were $143 million. Segment profit was $83.3 million.

Third-quarter 2021 adjusted-combined results by segment compared to prior-period amounts:In order to provide more meaningful year-over-year comparisons, we are providing non-GAAP supplemental information for certain revenues and expenses for the prior-year periods on an adjusted-combined basis.

The adjusted-combined revenue and expense information illustrates what the historical results of Scripps would have been, given the assumptions outlined in the supplemental materials and had the transactions been effective at the beginning of 2020. Refer to the "Supplemental Information" section that begins on page E-8 of the attached tables.

Local Media – Adjusted-Combined BasisAdjusted-combined revenue from Local Media was $331 million, down $60.1 million or 15% from the prior-year quarter.

Core advertising rose 18% to $167 million. Weakened economic conditions due to the COVID-19 pandemic slowed advertiser spending in 2020.

Political advertising revenue was $96.4 million in the third quarter of 2020, which included a presidential election race, compared to $7.1 million in the current period.

Retransmission revenue increased 1.5%.

Segment expenses increased 9.7%.

Segment profit was $65.4 million, compared to $149 million in the year-ago quarter.

Scripps Networks – Adjusted-Combined BasisAdjusted-combined revenue from Scripps Networks was $227 million, up $34.3 million or 18% from the prior-year quarter.

Segment expenses increased 11%.

Segment profit was $83.3 million, compared to $63.6 million in the year-ago quarter.

Financial conditionOn Sept. 30, cash and cash equivalents totaled $106.5 million. That amount includes $34.3 million in proceeds from the sale of the KMGH building in Denver that will be restricted until January 2022. Total debt was $3.3 billion.

On Jan. 7, the company executed an $800 million term loan with its bank group and issued $600 million of series A preferred shares to Berkshire Hathaway, Inc. The proceeds from these transactions, in combination with the $1.05 billion of bonds issued on Dec. 30, 2020, and cash on hand, provided the financing for the ION acquisition. Under the terms of Berkshire Hathaway's preferred equity investment, Scripps is prohibited from paying dividends and purchasing its shares until all preferred shares are redeemed.

On May 15, the company redeemed $400 million 2025 senior notes for a redemption price equal to 102.563% of the aggregate principal amount. During the year, we made additional principal payments on the 2028 term loan totaling $100 million.

Year-to-date operating resultsThe following comparisons are for the period ending Sept. 30, 2021:

In 2021, revenue was $1.7 billion, which compares to revenue of $1.3 billion in 2020. Political revenue was $132 million in 2020.

Costs and expenses for segments, shared services and corporate were $1.2 billion, up from

$1 billion in the year-ago period, reflecting the impact of the ION acquisition and higher affiliation fees.

Income from continuing operations attributable to the shareholders of Scripps was $26.3 million or 29 cents per share. The 2021 period included an $81.8 million gain from the sale of Triton, a $13.8 million loss on extinguishment of debt, a $99.1 million non-cash adjustment due to the increase in the fair value of the outstanding common stock warrant liability, acquisition and related integration costs of $35.6 million, $9.4 million of restructuring costs and a $32.6 million gain on the sale of our Denver KMGH television station building. These items decreased income from continuing operations by $54.1 million, net of taxes, or 62 cents per share. In the prior-year period, income from continuing operations was $39.3 million or 47 cents per share. Pre-tax costs for the prior year included $16.1 million of acquisition and related integration costs that decreased the income from continuing operations by $12 million, net of taxes, or 15 cents per share.

Looking aheadComparisons for our segments are to the same period in 2020 on an adjusted-combined basis. Supplemental quarterly adjusted-combined financial results were provided in our 2020 year-end earnings release.

Conference callThe senior management of The E.W. Scripps Company will discuss the company's quarterly results during a telephone conference call at 9:30 a.m. Eastern today. To access the live webcast, visit http://ir.scripps.com and find the link under "upcoming events."

To access the conference call by telephone, dial (844) 867-6169 (U.S.) or (409) 207-6975 (international) and give the access code 3859521 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. The public is granted access to the conference call on a listen-only basis.

A replay line will be open from 1:30 p.m. Eastern timeNov. 5 until midnight Nov. 19. The domestic number to access the replay is (866) 207-1041 and the international number is (402) 970-0847. The access code for both numbers is 2401632.

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 http://ir.scripps.com/ approximately four hours after the call, and the link can be found on that page under "audio/video links."

Forward-looking statementsThis document 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. Such forward-looking statements are made as of the date of this document and should be evaluated with the understanding of their inherent uncertainty. A detailed discussion of principal risks and uncertainties, including those engendered by the COVID-19 pandemic, that may cause actual results and events to differ materially from such forward-looking statements is included in the company's Form 10-K, on file with the SEC, in the section titled "Risk Factors." The company undertakes no obligation to publicly update any forward-looking statements to reflect events or circumstances after the date such statements are made.

About ScrippsThe E.W. Scripps Company (NASDAQ: SSP) is a diversified media company focused on creating a better-informed world. As the nation's fourth-largest local TV broadcaster, Scripps serves communities with quality, objective local journalism and operates a portfolio of 61 stations in 41 markets. The Scripps Networks reach nearly every American through the national news outlets Court TV and Newsy and popular entertainment brands ION, Bounce, Grit, Laff, Court TV Mystery, Defy TV and TrueReal. Scripps is the nation's largest holder of broadcast spectrum. Scripps runs an award-winning investigative reporting newsroom in Washington, D.C., and is the longtime steward of 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."

Notes to Results of Operations

1. SEGMENT INFORMATION

We determine our business segments based upon our management and internal reporting structures, as well as the basis on which our chief operating decision maker makes resource-allocation decisions. 

Effective with the January 7, 2021 close of the ION acquisition, we realigned our internal reporting structure and changed the reporting of our businesses' operating results to reflect this new structure. Under the new structure, our operating results are reported under Local Media, Scripps Networks and Other segment captions.

Our Local Media segment includes our 61 local broadcast stations and their related digital operations. It is comprised of 18 ABC affiliates, 11 NBC affiliates, nine CBS affiliates and four FOX affiliates. We also have 12 CW affiliates - four on full power stations and eight on multicast; five independent stations and 10 additional low power stations. Our Local Media segment earns revenue primarily from the sale of advertising to local, national and political advertisers and retransmission fees received from cable operators, telecommunications companies, satellite carriers and over-the-top virtual MVPDs.

Our Scripps Networks segment, which includes the recently acquired ION business, is comprised of  nine national television networks that reach nearly every U.S. television home through free over-the-air broadcast, cable/satellite, over-the-top and digital distribution. These operations earn revenue primarily through the sale of advertising.

The operating results of our recently sold Triton business, and the other national businesses that were previously reported in our National Media segment, are aggregated with our remaining business activities in the Other segment caption.

Our respective business segment results reflect the impact of intercompany carriage agreements between our local broadcast television stations and our national networks. We also allocate a portion of certain corporate costs and expenses, including information technology, certain employee benefits and shared services to our business segments. These intercompany agreements and allocations are generally amounts agreed upon by management, which may differ from an arms-length amount.

Our chief operating decision maker evaluates the operating performance of our business segments and makes decisions about the allocation of resources to our business segments using a measure called segment profit. Segment profit excludes interest, defined benefit pension plan amounts, income taxes, depreciation and amortization, impairment charges, divested operating units, restructuring activities, investment results and certain other items that are included in net income (loss) determined in accordance with accounting principles generally accepted in the United States of America.

3. EARNINGS PER SHARE ("EPS")

Unvested awards of share-based payments with rights to receive dividends or dividend equivalents, such as our RSUs, are considered participating securities for purposes of calculating EPS. Under the two-class method, we allocate a portion of net income to these participating securities and, therefore, exclude that income from the calculation of EPS for common stock. We do not allocate losses to the participating securities.

4. NON-GAAP INFORMATION

In addition to results prepared in accordance with GAAP, this earnings release discusses free cash flow, a non-GAAP performance measure that management and the company's Board of Directors uses to evaluate the performance of the business. We also believe that the non-GAAP measure provides useful information to investors by allowing them to view our business through the eyes of management and is a measure that is frequently used by industry analysts, investors and lenders as a measure of valuation for broadcast companies.

Free cash flow is calculated as non-GAAP Adjusted EBITDA (as defined below), plus reimbursements received from the FCC for repack expenditures, less capital expenditures, preferred stock dividends, interest payments, income taxes paid (refunded) and contributions to defined retirement plans.

Adjusted EBITDA is calculated as income (loss) from continuing operations, net of tax, plus income tax expense (benefit), interest expense, losses on extinguishment of debt, defined benefit pension plan expense (income), share-based compensation costs, depreciation, amortization of intangible assets, loss (gain) on business and asset disposals, mark-to-market losses (gains), acquisition and integration costs, restructuring charges and certain other miscellaneous items.

ADJUSTED COMBINED SUPPLEMENTAL INFORMATION

Due to the effect that the ION acquisition and WPIX television station disposition has on our segment operating results, and to provide meaningful period over period comparisons, we are presenting supplemental non-GAAP (Generally Accepted Accounting Principles) information for certain financial results on an adjusted combined basis. The adjusted combined financial results have been compiled by adding, as of the earliest period presented, the impact from the acquired ION television stations' historical revenue, employee compensation and benefits, programming and other expenses to Scripps' historical revenue, employee compensation and benefits, programming and other expenses captions reported within the Scripps Networks segment. Similarly, WPIX's historical revenue, employee compensation and benefits, programming and other expenses have been subtracted, as of the earliest period presented, from Scripps' historical revenue, employee compensation and benefits, programming and other expenses captions historically reported within our Local Media segment. These historical results are adjusted for certain intercompany adjustments and other impacts that would result from the companies operating under the ownership of Scripps as of the earliest period presented.

Effective with the January 7, 2021 close of the ION acquisition, we realigned the Company's internal reporting structure and changed the reporting of our businesses' operating results to reflect this new structure. Under the new structure, our operating results are reported under Local Media, Scripps Networks and Other segment captions. The Scripps Networks segment includes the recently acquired ION business as well as eight other national television networks. Our recently sold Triton business and other national businesses that were previously reported in our National Media segment are aggregated with our remaining business activities in the Other segment caption.

Management uses the adjusted combined non-GAAP supplemental information for purposes of evaluating the Company's segment results. The company therefore believes that the non-GAAP measure presented provides useful information to investors by allowing them to view the company's businesses through the eyes of management, facilitating comparison of Local Media and Scripps Networks results across historical periods and providing a focus on the underlying ongoing operating performance of our segments.

The company uses the adjusted combined non-GAAP supplemental information to supplement the financial information presented on a GAAP historical basis. This non-GAAP supplemental information is not to be considered in isolation from, or as a substitute for, the related GAAP measures, and should be read only in conjunction with financial information presented on a GAAP basis.

The adjusted combined financial results contained in the following supplemental information is for informational purposes only. These results do not necessarily reflect what the historical results of Scripps would have been if the acquisition of ION or sale of WPIX had occurred on January 1, 2020. Nor is this information necessarily indicative of the future results of operations of the combined entities.

The adjusted combined financial information is not pro forma information prepared in accordance with Article 11 of SEC regulation S-X, and the preparation of information in accordance with Article 11 would result in a significantly different presentation.

Non-GAAP reconciliation

Below is a reconciliation of Scripps historical reported revenue and segment profit for its Local Media segment to the adjusted combined revenue and adjusted combined segment profit for the Local Media segment following the sale of WPIX.

Non-GAAP reconciliation

Below is a reconciliation of Scripps historical reported revenue and segment profit for its Scripps Networks segment to the adjusted combined revenue and adjusted combined segment profit for the Scripps Networks segment following the acquisition of ION.

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SOURCE The E.W. Scripps Company