It’s been quite the 12 months for The E.W. Scripps Co. Its reborn Court TV attracted a huge segment of viewers seeking gavel-to-gavel coverage of the Derek Chauvin trial. It completed its merger with West Palm Beach-based ION Media, consolidating the companies’ digital multicast networks. On the final day of Q1 2021, it completed the sale of Triton to iHeartMedia.
These actions were just some of the catalysts that helped Scripps meet or exceed its guidance “by every measure,” President/CEO Adam Symson said as he opened the company’s first quarter earnings call on Friday.
With Scripps Networks President Lisa Knutson offering guidance pointing to 20% growth in Q2 and the scatter network picking up, Scripps’ President and CEO offered strong financial results that show how “OTA and OTT,” as Knutson puts it, are driving the company into 2021 and beyond.
“We are very pleased,” Symson said. “During the first quarter, our Local Media and Scripps Networks divisions capitalized on the resurgence of the local and national TV advertising marketplaces with strong sales execution and drove an exceptionally strong start to the year.”
And, the results came in ahead of not only where the company thought they would be but also Wall Street.
Operating revenue jumped to $540.92 million from $414.22 million. That surpassed the Zacks Consensus Estimate by 2.79%.
Political dollars contributed $18.7 million from the bottom line in Q1 ’21.
Even as operating expenses bulged to $483.7 million, from $393.3 million, Scripps’ net loss attributable to shareholders narrowed to $6.08 million ($0.07 per diluted share), from $11.81 million ($0.15).
Income from continuing operations, net of tax, of $3.5 million, was seen in Q1 ’21; a year ago, a $7.2 million loss from continuing operations was logged.
On an adjusted basis, EBITDA surged to $140.8 million from $58.76 million. That’s the key figure analysts will look at, as adjusted EPS of $0.26, compared to a Q1 2020 adjusted loss per share of $0.10, beat the Zacks Consensus Estimate by 4 cents.
With “significant and sustained momentum,” Symson spoke of how Scripps used the uncertainty of the COVID-19 pandemic to its advantage. The result: Scripps is reinstating its guidance, reinforcing “our confidence that the recovery is here.”
He added that since Election Day 2020, a resurgence in the ad economy has been seen — although audio media company Audacy on Friday revealed many of its core ad segments still lag. “Scripps is ready,” Symson declared.
As world was hunkered down, Scripps focused on its retransmission revenue opportunity and its news strengths, which helped the bottom line, he added.
“Retransmission revenue grew 15% (adjusted combined) as we annualize a big reset in
household rates last year and due to stabilization of pay TV household counts in the most
recent reporting period,” Symson said.
Symson also suggests that viewer fragmentation and the rising cost of paid media and entertainment services could lead to a significant percentage of overwhelmed consumers, tired of managing all of these services. The result: Scripps could benefit from consumers cutting the cord, making the one-time purchase of a digital TV antenna, and consuming free-to-air digital network offerings more than ever.
It’s one reason why the ION Media merger perhaps paints a rosy picture for a new Scripps that no longer has any audio offerings in its stable.
Q2 PREVIEW: REVENUE UP, EXPENSES DOWN IN LOCAL MEDIA
Local Media President Brian Lawlor, speaking on the earnings call featuring questions from numerous key Wall Street media industry financial analysts, shared that Scripps’ broadcast TV stations are pacing up “in the high-teen range” for Q2. He also noted that “significant expense cuts” are in progress.
The big takeaway: For the first time in more than a year, the Automotive category achieved positive growth, with sequential improvements. Lawlor added that Automotive is poised to see “a really good April and still a very good May. Q2 will wind up being a pretty good quarter for automotive.”
Furthermore, the battered Travel & Leisure category was up by nearly 100% in Q1 2021, and like sports betting it is thanks to regional differences in how consumers are getting out of the home — and spending money.
Symson commented, “In Local Media, service-oriented local business advertising continued its momentum from the end of 2020, and we saw significant growth in advertising tied to the number of states legalizing sports betting as well as meaningful new advertising business developed by our sales teams.”
THE LOCAL MEDIA STORY
On an adjusted-combined basis, local media revenue grew to $312.58 million, from $305.78 million.
Core advertising rose 2.3% to $152.14 million, from $148.7 million.
“The COVID-19 pandemic reduced our core advertising revenue by about $8 million in the first quarter of 2020,” Scripps said.
Political advertising revenue in the division was $17.9 million — nearly all of what Scripps earned in Q1.
Retransmission and carriage fees? They grew by 15% to $155.66 million, from $135.59 million. “Scripps renegotiated three large retransmission consent contracts in 2020,” the company said.
This put the segment profit at $55.9 million, slightly lower than the $56.6 million seen one year ago.
NETWORK PROPELLER
Scripps Networks enjoyed a 3% segment profit gain to $95.2 million, from $92.45 million in Q1. This came despite flat operating revenue of $220.38 million, down from $221.97 million a year ago.
“We delivered Q1 margins of more than 40% and expect to maintain margins this year in the 40% range (adjusted combined), other than a dip in the third quarter as we invest in the launch of the new networks Defy TV and True Real and prepare to deploy Newsy over the air,” Symson said. “The foundation of our acquisition of ION and the creation of our OTA powerhouse networks portfolio is growth in free, over-the-air television viewing that consumers pair with subscription streaming services. Television is a high-free-cash-flow business, and Scripps is creating value today from our two highly profitable operating divisions even as we prepare to capitalize on future industry growth.”
DUOPOLY OPPORTUNITY EASIER
Asked by an analyst on the Scripps Q1 earnings call if the FCC’s decision to reverse a Third Circuit remand of the Commission’s cross-ownership rule rewrite, which eliminates the “Eight Voices” test for TV, would lead to greater acquisition opportunities, Symson responded.
“There’s a real opportunity for us to get a second station,” he said. “It’s still a long shot, but not out of the realm of possibility.”
The biggest opportunity: Not two of the “Big Four” affiliates in a single market, but doubling up with an affiliate of The CW Network, MyNetwork TV or an unaffiliated station and expanding local programming, in particular the news department.
Symson also expressed confidence that the FCC will take up the “UHF discount,” without opining on whether or not it is doomed or will be retained.
Scripps’ total liabilities increased to $6.9 billion from $4.86 billion in Q1 2021, with some $3.7 billion in long-term debt rising from $2.92 billion one year ago.
