August 3, 2017 Last Updated 8:20 am

Scripps touts Katz acquisition in Q2 report, revenue rises 2%

The E.W. Scripps Company used to be a player in the newspaper business, and hence a company to look at when earnings season comes around. The company’s press people make sure TNM gets the earnings report when release, which is very much appreciated.

But Scripps traded its newspapers for the broadcast properties of Journal Communications, which then sold itself off to Gannett. That leaves Scripps out of print, but still in the digital ad space, of course.

Scripps shares are below their peak seen in April, but well above the 52-week low seen last fall. Debt is the issue here, but now that the company is out of print investors are sure to stick with the stock more loyally than companies that remain in the print newspaper game.

Here is the Q2 report for The E.W. Scripps Company:


CINCINNATI, Ohio – August 3, 2017 — The E.W. Scripps Company today reported operating results for the second quarter of 2017.

For the quarter, net income was $8.5 million or 10 cents per share. Unusual items added 2 cents per share. In the prior-year quarter, net income was $11.5 million or 14 cents per share. The 2017 quarter includes a $2.4 million non-cash charge to interest expense to write off deferred costs associated with our refinancing and $5.1 million of other income, primarily from the sale of our newspaper syndication business.

For the quarter, total revenue was $232 million compared to $228 million in second-quarter 2016.

Business highlights 

  • The company announced on Aug. 1 plans to acquire the Katz networks – four fast-growing, audience-targeted broadcast networks, for $302 million. Because Scripps was already a 5 percent owner in a portion of the business, the net purchase price is $292 million. Each network reaches more than 80 percent of U.S. television households and provides national advertising scale. The deal is expected to close Oct. 2.
  • In June, the company exited the newspaper syndication business in a deal worth about $3 million with longtime partner Universal Uclick. Scripps sold the newspaper syndication rights for some popular comic strips and assigned other syndication rights to Universal Uclick for the comics in which Scripps owns the copyrights, including “Big Nate,” “Marmaduke” and “Nancy.”
  • Retransmission revenue increased 24 percent to $66 million in the second quarter. For the year, retransmission revenue is expected to increase 20 percent and become about 35 percent of television division revenue.
  • Digital revenue grew 27 percent in the second quarter, driven by growth at our industry-leading podcast company, Midroll, and our next-generation national news network, Newsy.
  • In April, the company closed an offering of $400 million of new senior unsecured notes maturing in 2025. The notes have a coupon rate of 5.125 percent. Proceeds from the offering were used to repay a term loan, to pay related fees, and for general corporate purposes. Since this is a refinancing, the company did not significantly increase the total amount of debt outstanding.

Commenting on the second-quarter results, Scripps Chairman, President and CEO Rich Boehne said:

“The acquisition of the four Katz networks provides Scripps with a new platform for national advertising. This young, fast-growing company has built four broadcast networks – Bounce, Grit, Escape and Laff – that each target an audience demographic desirable to advertisers seeking national scale.

“Company founder Jonathan Katz is a creative and forward-looking entrepreneur who six years ago saw the opportunity for focused networks distributed over the air that could serve viewers in tandem with emerging over-the-top services.

“At the same time as we looked ahead to new ways of engaging television viewers, we said goodbye to our last ties to the newspaper business. For more than 100 years, newspaper comics were an important and valuable part of our company. Scripps brought many iconic strips to kitchen tables around the world. Although very small in recent years, the comics syndication business served us well for many years.

“In our largest business, broadcast television, we are anticipating the launch of our newest original program, Pickler & Ben, on Sept. 18. We partnered with country music star Faith Hill to produce the show, starring country singer Kellie Pickler and New York journalist Ben Aaron in a daily talk-show program. We have had good success with our original programming strategy, with RightThisMinute in its seventh season and The List in national syndication. This is another show that helps us build value, save money on syndicated costs and garner more advertising revenue.

“In our digital division, our next-generation national news network Newsy saw a 25 percent increase in views on the over-the-top platform, where it is distributed across all the major services. And our podcast company Midroll added several dozen new shows to its distribution and ad sales network, including the acclaimed podcast Welcome to Night Vale and the owned and operated show LeVar Burton Reads. Midroll now owns or represents more than 300 podcasts to a growing range of high-quality advertisers.”

Second-quarter operating results

Revenue was up 2 percent to $232 million compared to the second quarter of 2016.

Costs and expenses for segments, shared services and corporate were $196 million, up from $186 million in the year-ago period, primarily driven by higher network programming fees as well as increased costs in our digital businesses.

Second-quarter results by segment compared to prior-period amounts were:

Television

In the second quarter of 2017, revenue from our television group was $193 million, up about 1 percent compared to the prior-year quarter. Retransmission revenue increased $12.6 million, and political advertising revenue declined $5.9 million in the second quarter of 2017.

Advertising revenue broken down by category was:

  • Local, down 3.8 percent to $85 million
  • National, down 5.8 percent to $36 million
  • Political, $2.5 million, compared to $8.4 million in 2016

Core local and national advertising revenue was down 4.4 percent in the second quarter, and

retransmission revenue was up 23.6 percent to $66.1 million.

Total segment expenses increased 3.7 percent to $144 million, driven by increases in programming fees tied to our network affiliation agreements.

Second-quarter segment profit was $49.8 million, compared to $53.3 million in the year-ago quarter.

Radio

Radio revenue was $17.2 million, down from $18.2 million in the 2016 quarter. Expenses were flat year-over-year.

Segment profit in the radio division was $2.9 million in the second quarter, down from $3.9 million in the 2016 quarter.

Digital

Digital revenue was $19.3 million, up 27.2 percent from the prior period.

Expenses for the digital group were $23.5 million, an increase of $3.6 million from the prior-year period.

Segment loss in the digital division was $4.2 million in the second quarter, compared to $4.7 million in the 2016 quarter.

Financial condition

On June 30, cash and cash equivalents totaled $150 million while total debt was $405 million.

From Jan. 1 through July 31, we repurchased about 400,000 shares at an average price of $19.20. In November 2016, our board of directors authorized a $100 million share repurchase program that expires at the end of 2018.

Year-to-date results

The following comparisons are to the year-to-date period ending June 30, 2017.

In 2017, revenue was $443 million compared to revenue of $437 million in 2016. Retransmission revenue increased $25 million. Political advertising was $3.5 million in 2017 compared to $17.7 million in 2016.

Costs and expenses for segments, shared services and corporate were $391 million, an increase of $22 million, primarily driven by higher network programming fees as well as increased costs in our digital businesses.

Net income was $6.6 million or 8 cents per share. In the prior-year, net income was $16.4 million or 19 cents per share. The 2017 quarter includes a $2.4 million non-cash charge to interest expense to write off deferred costs associated with our refinancing and $5.1 million of other income, primarily from the sale of our newspaper syndication business.

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