November 3, 2017 Last Updated 8:06 am

Scripps records $26.7M net loss in Q3 earnings report, impairment charge related to ‘Cracked’

The broadcast company E.W. Scripps used to be in print, but not that terribly long ago exited print for broadcast only, the idea being that print would drag the company down in the future. But Scripps reported a loss in its third quarter earnings report, showing that the path to prosperity does not always go through exiting print.

Scripps loss this last quarter is really the result of P&L games: $35.7 million in impairment charges tied to its Cracked brand, as well as some restructuring charges were all that was needed to wipe out any profits.

But one has to wonder about all these spin-offs that have occurred in the last few years, diversified media companies throwing off print and become broadcast-only. With the FCC about to deregulate media, allowing broadcast companies to own newspapers and other media outlets in the same market, will we see some of these broadcast companies buying up local newspapers again?

Or, are these same media owners worried that the backlash against the GOP and Donald Trump might mean more media regulation sometime in the future? Certainly social media companies are worried that their failure to reign in trolls, bots and fake accounts will result in new government regulations.

Here is the third quarter earnings report from The E.W. Scripps Company:

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

For the quarter, the net loss was $26.7 million or 32 cents per share. In the prior-year quarter, net income was $12.5 million or 15 cents per share. The current-year quarter included a non-cash goodwill and intangibles impairment charge for Cracked of $35.7 million as well as $2.4 million of restructuring charges, which increased the net loss by $24 million(net of taxes) or 29 cents per share.

For the quarter, total revenue was $216 million, compared to $233 million in third-quarter 2016, which included $27 million of political revenue.

Business highlights

  • On Oct. 2, 2017, the company closed the acquisition of the audience-targeted Katz broadcast networks. The net purchase price was $292 million. The acquisition was financed with a new $300 million floating-rate term loan, due in 2024.
  • Retransmission revenue increased 20 percent to $64 million in the third quarter. The increase was driven by the renewal at higher rates of two contracts covering 3 million subscribers during the fourth quarter of 2016.
  • Scripps launched a new daytime lifestyle show featuring country music entertainer Kellie Pickler and Emmy Award-winning New York TV personality Ben Aaron. The show began running Sept. 18 on 38 stations across the country as well as cable network CMT.
  • Newsy, the national news network focused on millennial audiences, began a major expansion into the cable and satellite marketplace with Scripps’ acquisition of carriage contracts from the Retirement Living Television (RLTV) cable network.
  • In the third quarter, Scripps began a comprehensive restructuring of its operations intended to position the company for improved performance and continued growth. On Aug. 23, the company announced a new management team to support the local and national media businesses and a reorganization that merges local operations into a new Local Media division and the national content brands into a National Media division. Those changes are effective Jan. 1. The company also appointed Chief Strategy Officer Lisa Knutson as interim chief financial officer.

Commenting on the third-quarter results, Scripps President and CEO Adam Symson said:

“In the third quarter, we began a deep analysis of our operating division and corporate cost structure, our non-core assets and the opportunities for our national content brands. We are committed to improving operating performance in our local media businesses, supporting the growth ahead with our national businesses and serving our audiences with news and information across all media platforms.

“In our television business, we saw core advertising move back into positive territory in the third quarter, factoring out incremental Olympics revenue as well as political for 2016. We have now secured shelf space for our local brands with a half-dozen major over-the-top TV disruptors, including YouTubeTV, Hulu and DirectTV Now, with net economics comparable to that of our cable and satellite platforms.

“In our national businesses, we aim to be the disruptor – capitalizing on consumers’ changing media habits by creating compelling content and distributing it across both traditional and emerging platforms. This focus on consumer behavior, combined with national scale, is setting up these brands for continued healthy revenue growth.

“Among these opportunities is our newest acquisition, the Katz networks, whose national reach and targeted audiences give us access to a deep well of national general-market advertisers. The four networks joined us Oct. 2and are on track to meet their fourth-quarter financial goals.

“We are disappointed by the subpar financial performance at Cracked and the resulting impairment and goodwill write-down. But we are moving quickly to right size the business’s expense structure, curtail investment and bring it to profitability for 2018.

“Newsy and Midroll are both on track to deliver strong revenue growth for the year. Newsy is now nearly fully distributed on the major OTT services and is leveraging that success into gaining carriage on cable and satellite systems in order to participate in that lucrative marketplace. After our recent acquisition of RLTV carriage agreements, we are transitioning the programming to Newsy and expect to further expand its reach to about 40 million cable and satellite subscribers by the end of next year.”

Third-quarter operating results
Revenue decreased 7 percent, to $216 million, compared to the third quarter of 2016.

Costs and expenses for segments, shared services and corporate were $200 million, up from $187 million in the year-ago period, primarily driven by higher network programming fees.

Third-quarter results by segment compared to prior-year amounts were:

Television
In the third quarter of 2017, revenue from our television group was $180 million, down about 9 percent from the prior-year quarter. Political advertising revenue was $1.7 million in the third quarter of 2017, compared to $26.9 million in the third quarter of last year.

Retransmission revenue increased 19.9 percent or $10.6 million.

Core local and national advertising revenue was down 2.8 percent in the third quarter.

Total segment expenses increased 6.4 percent to $148 million, driven by increases in programming fees tied to our network affiliation agreements.

Third-quarter segment profit was $32.1 million, compared to $58.3 million in the year-ago quarter.

Radio
Radio revenue was $17.9 million, down from $19.3 million in the 2016 quarter. Expenses were down 2.5 percent year-over-year.

Segment profit was $1.5 million in the third quarter, down from $2.5 million in the 2016 quarter.

Digital
Digital revenue was $17.8 million, up 13.3 percent from the prior-year period.

Expenses for the digital group were $23.5 million, an increase of $2.1 million from the prior-year period.

Segment loss in the digital division was $5.7 million in the third quarter, compared to $5.6 million in the 2016 quarter.

Financial condition
On Sept. 30, cash and cash equivalents totaled $127 million while total debt was $396 million.

From Jan. 1 through Oct. 31, the company repurchased about 725,000 shares at an average price of $18.76. In November 2016, the 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 Sept. 30, 2016:

In 2017, revenue was $659 million compared to revenue of $670 million in 2016. Retransmission revenue increased $36 million. Political advertising was $5.3 million in 2017 compared to $44.6 million in 2016.

Costs and expenses for segments, shared services and corporate were $591 million, an increase of $36 million, primarily driven by higher network programming fees as well as costs in our digital businesses.

Net loss was $20.1 million or 24 cents per share. In the prior year, net income was $28.9 million or 34 cents per share. The 2017 period includes a $2.4 million non-cash charge to write off deferred loan fees associated with our prior debt, $6.3 million of other income associated with the sale of a small business and an adjustment to a purchase-price earnout, $2.4 million of restructuring charges and a $35.7 million non-cash charge to write down goodwill and intangible assets at Cracked.

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