09 November 2015
  • Revenues of $776.1 million, up 20.4 percent
  • Segment profit of $312.3 million, up 15.7 percent
  • Net income attributable to SNI of $0.96 per diluted share, up 3.2 percent
  • Net income attributable to SNI of $1.06, up 14.0 percent, on an adjusted non-GAAP basis

KNOXVILLE, Tenn.--(BUSINESS WIRE)--Nov. 9, 2015-- Scripps Networks Interactive, Inc. (NYSE:SNI) today reported third-quarter 2015 operating results.

"This has been a transformative quarter for Scripps Networks Interactive. Our international business has been bolstered by the successful acquisition of Poland's leading multi-platform media company, TVN. Our networks continue to thrive in the United States, and their success is reflected in strong growth in both advertising and affiliate revenues. With a strategy that enables us to create deeper connections with consumers across the world, we are focused on delivering long-term growth and enhanced shareholder value," said Kenneth W. Lowe, Chairman, President and Chief Executive Officer.

During the quarter, the company successfully completed its acquisition of 100 percent of TVN. TVN is a world-class operation with stellar management that has a proven record of connecting consumers with compelling content in multiple ways. Scripps Networks Interactive is actively integrating TVN's operations and realizing the benefits of its financial results, which drove a nearly 400 percent increase in International Networks' segment revenue and resulted in the first profitable quarter for Scripps' international operations.

Consolidated revenues for the quarter were $776.1 million, an increase of 20.4 percent, or $131.7 million, from the prior-year period. Results for the three-month period ended Sept. 30, 2015, included advertising revenue of $527.9 million, an increase of 22.2 percent, or $95.8 million; and affiliate fee revenue of $224.9 million, an increase of 13.5 percent, or $26.7 million, compared with the prior-year period.

Total segment profit was $312.3 million, an increase of 15.7 percent, or $42.3 million, compared with the prior-year period. This improvement reflects revenues from TVN and growth in both advertising and affiliate fees from the core business, partially offset by increased international operating costs as a result of TVN, and additional programming costs. Also included in operating expenses in the third quarter of 2015 were $8.4 million of transaction and integration expenses related to the TVN acquisition, and $2.8 million of costs related to the previously announced restructuring program. Excluding the impact of the integration and acquisition expenses as well as restructuring charges, segment profit would have been $323.5 million, an increase of 19.8 percent.

Third-quarter net income attributable to Scripps Networks Interactive was $124.6 million, or $0.96 per diluted share, compared with $131.3 million, or $0.93 per diluted share, in the prior year. Earnings in the third quarter of 2015 were negatively impacted by:

  • $5.3 million after tax, or $0.04 per share, of foreign currency effects on TVN funds;
  • $5.2 million after tax, or $0.04 per share, of TVN transaction and integration expenses; and
  • $2.0 million after tax, or $0.02 per share, of restructuring charges.

Excluding the impact of these items, net income attributable to Scripps Networks Interactive would have been $137.6 million, or $1.06 per share.

           

Segment results

 
Three months ended Nine months ended
September 30, September 30,
(in thousands)   2015   2014   Change   2015   2014   Change
Segment operating revenues:
U.S. Networks $ 660,862 $ 622,512 6.2 % $ 2,014,866 $ 1,938,838 3.9 %
International Networks 118,719 23,768 399.5 % 164,872 62,896 162.1 %
Corporate and other     (3,459 )     (1,857 )   (86.3 )%     (13,264 )     (5,430 )   (144.3 )%
Total segment operating revenues   $ 776,122     $ 644,423     20.4 %   $ 2,166,474     $ 1,996,304     8.5 %
Segment profit (loss):
U.S. Networks $ 330,282 $ 294,309 12.2 % $ 1,028,118 $ 962,795 6.8 %
International Networks 10,896 (5,933 ) 283.7 % (5,478 ) (33,827 ) 83.8 %
Corporate and other     (28,851 )     (18,413 )   (56.7 )%     (94,880 )     (68,986 )   (37.5 )%
Total segment profit   $ 312,327     $ 269,963     15.7 %   $ 927,760     $ 859,982     7.9 %
 

U.S. Networks revenues for the third quarter of 2015 were $660.9 million, an increase of 6.2 percent, or $38.4 million, driven by both advertising revenue and affiliate fee growth. Total advertising revenue was $447.8 million, an increase of 5.2 percent, or $22.0 million, reflecting a strengthening in the advertising market. Affiliate fee revenue was $199.2 million, an increase of 6.3 percent, or $11.8 million, primarily driven by annual contractual rate increases, expanded distribution for DIY Network and Cooking Channel with our traditional partners and additional distribution from new OTT entrants.

U.S. Networks segment profit was $330.3 million, an increase of 12.2 percent, or $36.0 million. This reflects revenue growth, partially offset by a slight increase in operating expenses, including $0.9 million of restructuring charges. Excluding these restructuring related costs, segment profit was $331.2 million, an increase of 12.5 percent.

International Networks revenues for the third quarter of 2015 were $118.7 million compared with $23.8 million in the prior-year third quarter, primarily due to the consolidation of TVN operations.

Driven by the consolidation of TVN, International Networks segment profit was $10.9 million, compared with a loss of $5.9 million in the third quarter of 2014.

Corporate and Other included a segment loss of $28.9 million in the third quarter of 2015 compared with a segment loss of $18.4 million in the prior year third quarter. The results include $7.8 million of TVN transaction and integration expenses and $1.9 million of restructuring charges. Excluding these amounts, the segment loss would have been $19.2 million, a slight increase from prior year, reflecting the benefits of the restructuring initiated in the fourth quarter of 2014.

2015 Updated Full-year Guidance

The company now expects full-year revenue to increase approximately 13 percent. Due to the impact of purchase accounting, depreciation and amortization is now expected to be approximately $145 million. Finally, as a result of our 100 percent ownership of TVN, we now expect interest expense to be approximately $110 million.

Conference call

The senior management team of Scripps Networks Interactive will discuss the company's third quarter results during a telephone conference call at 10 a.m. ET today. Scripps Networks Interactive will offer a live webcast of the conference call. To access the webcast, visit www.scrippsnetworksinteractive.com and follow the Investors link at the top of the page. The webcast link can be found next to the microphone icon on the investor relations landing page.

To access the conference call by telephone, dial (800) 230-1059 (U.S.) or (612) 234-9959 (international) approximately ten minutes before the start of the call. Callers will need the name of the call, "SNI Third Quarter Earnings Report," to be granted access. Callers also will be asked to provide their name and company affiliation. The media and general public are granted access to the conference call on a listen-only basis.

A replay line will be open from 12:15 p.m. ET on Nov. 9 until 11:59 p.m. ET on Nov. 23. 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 370757.

A replay of the conference call will also be available online. To access the audio replay, visit www.scrippsnetworksinteractive.com approximately four hours after the call, choose the Investors page, then follow the Audio Archives link at the top of the Investor Relations page.

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 on page F-4 of its 2014 Form 10-K filed with the Securities and Exchange Commission. 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 Networks Interactive

Scripps Networks Interactive (NYSE:SNI) is one of the leading developers of engaging lifestyle content in the home, food and travel categories for television, the Internet and emerging platforms. The company's lifestyle media portfolio comprises popular television and Internet brands HGTV, DIY Network, Food Network, Cooking Channel, Travel Channel and Great American Country, which collectively engage more than 190 million U.S. consumers each month. International operations include TVN, Poland's premier multi-platform media company; UKTV, an independent commercial joint venture with BBC Worldwide; Asian Food Channel, the first pan-regional TV food network in Asia; and lifestyle channel Fine Living. The company's global networks and websites reach millions of consumers across North and South America, Asia, Europe, the Middle East and Africa. Scripps Networks Interactive is headquartered in Knoxville, Tenn. For more information, please visit http://www.scrippsnetworksinteractive.com.

           
SCRIPPS NETWORKS INTERACTIVE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) Three months ended Nine months ended
September 30, September 30,
(in thousands, except per share data)   2015   2014   Change   2015   2014   Change
Operating revenues:
Advertising $ 527,855 $ 432,149 22.1 % $ 1,466,014 $ 1,362,878 7.6 %
Network affiliate fees, net 224,941 198,236 13.5 % 649,166 597,158 8.7 %
Other     23,326       14,038     66.2 %     51,294       36,268     41.4 %
Total operating revenues     776,122       644,423     20.4 %     2,166,474       1,996,304     8.5 %
Operating expenses:
Cost of services, excluding depreciation and amortization of intangible assets 270,150 207,099 30.4 % 664,384 578,418 14.9 %
Selling, general and administrative 193,645 167,361 15.7 % 574,330 557,904 2.9 %
Depreciation and amortization of intangible assets 41,291 31,617 30.6 % 96,319 97,084 (0.8 )%
Loss (gain) on disposal of property and equipment     40       (448 )   108.9 %     2,600       1,047     148.3 %
Total operating expenses     505,126       405,629     24.5 %     1,337,633       1,234,453     8.4 %
Operating income 270,996 238,794 13.5 % 828,841 761,851 8.8 %
Interest expense, net (50,439 ) (12,235 ) (312.3 )% (80,182 ) (36,898 ) 117.3 %
Equity in earnings of affiliates 23,392 17,586 33.0 % 69,627 67,110 3.8 %
Gain (loss) on derivatives 4,037 2,041 97.8 % 47,168 (2,436 ) NM
Miscellaneous, net     (9,543 )     25     NM       (23,198 )     4,307     NM  
Income from operations before income taxes 238,443 246,211 (3.2 )% 842,256 793,934 6.1 %
Provision for income taxes     75,110       75,910     (1.1 )%     266,685       245,175     8.8 %
Net income 163,333 170,301 (4.1 )% 575,571 548,759 4.9 %
Net income attributable to non-controlling interests     (38,774 )     (38,962 )   0.5 %     (133,451 )     (135,330 )   (1.4 )%
Net income attributable to SNI   $ 124,559     $ 131,339     (5.2 )%   $ 442,120     $ 413,429     6.9 %
Net income attributable to SNI common shareholders per basic share of common stock   $ 0.96     $ 0.93           $ 3.41     $ 2.90        
Net income attributable to SNI common shareholders per diluted share of common stock   $ 0.96     $ 0.93           $ 3.39     $ 2.88        
Weighted average basic shares outstanding     129,177       140,738             129,817       142,786        
Weighted average diluted shares outstanding     129,704       141,628             130,434       143,703        
 
   
( in thousands, except share and par value amounts) As of
September 30, December 31,
2015 2014
ASSETS
Current assets:
Cash and cash equivalents $ 247,352 $ 878,164
Accounts receivable, net of allowances: 2015 -$10,175; 2014 -$7,889 773,173 629,775
Programs and program licenses 575,305 477,575
Deferred income taxes 33,556 41,831
Other current assets   55,092     110,816  
Total current assets 1,684,478 2,138,161
Investments 855,503 463,344
Property and equipment, net of accumulated depreciation:
2015 - $300,602; 2014 - $278,552 292,448 226,246
Goodwill 1,797,754 573,119
Other intangible assets, net 1,303,934 595,881
Programs and program licenses (less current portion) 532,193 469,083
Deferred income taxes 46,156 37,265
Other non-current assets   219,189     164,533  
Total Assets $ 6,731,655   $ 4,667,632  
 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 56,113 $ 21,499
Current portion of debt 16,864 884,994
Program rights payable 54,385 36,138
Customer deposits and unearned revenue 92,096 47,929
Employee compensation and benefits 98,764 73,185
Accrued marketing and advertising costs 6,200 3,765
Other liabilities   184,159     90,444  
Total current liabilities 508,581 1,157,954
Debt (less current portion) 4,133,060 1,494,411
Other liabilities (less current portion)   231,995     234,429  
Total liabilities   4,873,636     2,886,794  
Redeemable non-controlling interests   93,178     96,251  
Equity:
SNI shareholders' equity:
Preferred stock, $0.01 par - authorized: 25,000,000 shares; none outstanding
Common stock, $0.01 par:

Class A - authorized: 240,000,000 shares; issued and outstanding: 2015 - 94,615,525 shares; 2014 - 97,789,910 shares

946 978

Voting - authorized: 60,000,000 shares; issued and outstanding: 2015 - 33,950,481 shares; 2014 - 34,317,171 shares

  340     343  
Total 1,286 1,321
Additional paid-in capital 1,354,294 1,359,023
Retained earnings 187,104 79,994
Accumulated other comprehensive loss   (62,732 )   (57,891 )
Total SNI shareholders' equity 1,479,952 1,382,447
Non-controlling interest   284,889     302,140  
Total equity   1,764,841     1,684,587  
Total Liabilities and Equity $ 6,731,655   $ 4,667,632  
 
   
( in thousands ) Nine months ended
September 30,
2015 2014
Cash Flows from Operating Activities:
Net income $ 575,571 $ 548,759
Depreciation and amortization of intangible assets 96,319 97,084
Program amortization 526,825 463,802
Equity in earnings of affiliates (69,627 ) (67,110 )
(Gain) loss on derivatives (47,168 ) 2,436
Program payments (588,052 ) (561,249 )
Dividends received from equity investments 68,278 78,852
Deferred income taxes (43,261 ) (41,131 )
Share-based compensation 29,443 29,659
Changes in certain working capital accounts:
Accounts receivable, net (45,450 ) 29,268
Other assets 11,231 (4,523 )
Accounts payable 5,154 (1,411 )
Customer deposits and unearned revenue 39,743 (26,890 )
Accrued / refundable income taxes 93,748 43,966
Other liabilities (15,157 ) (18,267 )
Other, net   20,923     6,933  
Cash provided by operating activities   658,520     580,178  
Cash Flows from Investing Activities:
Additions to property and equipment (32,091 ) (41,784 )
Collections on note receivable 3,498 3,776
Purchases of long-term investments (32,584 ) (17,042 )
Purchase of subsidiary companies, net of cash acquired (539,309 ) -
Foreign currency call option premium (16,000 ) -
Settlement on derivatives 63,305 -
Other, net   (36,336 )   (5,498 )
Cash used in investing activities   (589,517 )   (60,548 )
Cash Flows from Financing Activities:
Proceeds from debt 3,050,764 120,000
Payments on debt (1,944,525 ) (120,000 )
Deferred loan costs (14,491 ) -
Extinguishment of debt (404,294 ) -
Purchase of non-controlling interest (853,853 ) -
Dividends paid (89,144 ) (85,364 )
Dividends paid to non-controlling interests (154,948 ) (194,856 )
Repurchases of class A common shares (288,502 ) (800,062 )
Proceeds from stock options 8,073 35,118
Other, net   (266 )   (2,417 )
Cash used in financing activities   (691,186 )   (1,047,581 )
Effect of exchange rate changes on cash and cash equivalents   (8,629 )   (1,135 )
Decrease in cash and cash equivalents (630,812 ) (529,086 )
Cash and cash equivalents:
Beginning of year 878,164 686,371
End of period $ 247,352   $ 157,285  
Supplemental Cash Flow Disclosures:
Interest paid, excluding amounts capitalized $ 68,311 $ 38,946
Income taxes paid 258,270 228,184
 

NON-GAAP FINANCIAL MEASURES

Our Chief Operating Decision Maker evaluates the operating performance of our businesses and makes decisions about the allocation of resources to the businesses using a measure we call segment profit. Segment profit excludes interest, income taxes, depreciation and amortization, divested operating units, investment results and certain other items that are included in net income determined in accordance with accounting principles generally accepted in the United States of America ("GAAP").

Items excluded from segment profit generally result from decisions made in prior periods or from decisions made by corporate executives rather than the managers of the businesses. Depreciation and amortization charges are the result of decisions made in prior periods regarding the allocation of resources and are, therefore, excluded from the measure. Financing, tax structure and divestiture decisions are generally made by corporate executives. Excluding these items from the performance measure of our businesses enables us to evaluate operating performance based upon current economic conditions and decisions made by the managers of those businesses in the current period.

In the fourth quarter of 2014, we modified our management reporting structure related to the operating results from our uLive business. In conjunction with this change in our reporting structure, we now report the results of uLive within the U.S. Networks segment rather than within Corporate and Other.

As a result of the acquisition of N-Vision B.V. ("N-Vision"), the majority shareholder of TVN, the international operating segment that was previously not significant, has become significant. Therefore, the Company now has two reportable segments: U.S. Networks, previously referred to as Lifestyle Media, and International Networks. Accordingly, we made changes to the disclosures related to these reportable segments beginning in the third quarter of 2015.

For comparability purposes, prior period and prior year segment results have been recast to reflect the impact of these management reporting changes.

The International Networks segment includes the lifestyle oriented channels available in the United Kingdom, Europe, Middle East, Africa, Asia-Pacific and Latin America. Additionally, the International Networks segment includes TVN.

Corporate and Other includes the results of businesses not separately identified as reportable segments for external financial reporting purposes and will continue to be disclosed separately from the results of the U.S. Networks and International Networks segments. The Company does not allocate corporate employee-related overhead costs to its reportable segments, but rather classifies these expenses within Corporate and Other. However, certain corporate costs, including information technology, pension and other employee benefits and shared service functions, are allocated to our businesses. The allocations are generally amounts agreed upon by management, which may differ from amounts that would be incurred if such services were purchased separately by the businesses.

A reconciliation of segment profit to operating income determined in accordance with GAAP for each business segment is as follows:

  U.S. Networks   International Networks   Corporate and Other   Consolidated
Three Months Ended Three Months Ended Three Months Ended Three Months Ended
September 30 September 30 September 30 September 30
2015   2014 2015   2014 2015   2014 2015   2014
Operating income $ 306,738 $ 266,334 $ (5,961 ) $ (8,973 ) $ (29,781 ) $ (18,567 ) $ 270,996 $ 238,794
Depreciation and amortization of intangible assets 23,516 27,921 16,844 3,040 931 656 41,291 31,617
Loss (gain) on disposal of property and equipment   28   54   13     -     (1 )   (502 )   40   (448 )
Segment profit $ 330,282 $ 294,309 $ 10,896 $ (5,933 ) $ (28,851 ) $ (18,413 ) 312,327 269,963
TVN transaction and integration expenses 48 - 553 - 7,783 - 8,384 -
Restructuring costs   856   -   -     -     1,932     -     2,788   -  
Segment profit excluding acquisition and restructuring costs $ 331,186 $ 294,309 $ 11,449   $ (5,933 ) $ (19,136 ) $ (18,413 ) $ 323,499 $ 269,963  
 

We define free cash flow as cash provided by operating activities less dividends paid to non-controlling interests and acquisitions of property and equipment. We measure free cash flow as we believe it is an important indicator for management and investors as to our liquidity, including our ability to reduce debt, make strategic investments and return capital to shareholders. A reconciliation of free cash flow is as follows:

  Three months ended   Nine months ended
September 30, September 30,
(in thousands)   2015   2014   2015   2014
Segment profit $ 312,327   $ 269,963 $ 927,760   $ 859,982
Income taxes paid (144,349 ) (78,069 ) (258,270 ) (228,184 )
Interest paid (27,179 ) (15,942 ) (68,311 ) (38,946 )
Working capital and other     131,148       88,369       57,341       (12,674 )
Cash provided by operating activities 271,947 264,321 658,520 580,178
Dividends paid to non-controlling interests (19,131 ) (23,553 ) (154,948 ) (194,856 )
Additions to property and equipment     (13,613 )     (15,901 )     (32,091 )     (41,784 )
Free cash flow   $ 239,203     $ 224,867     $ 471,481     $ 343,538  
 

Since segment profit and free cash flow are non-GAAP measures, they should be considered in addition to, but not as a substitute for, operating income, net income, cash flow provided by operating activities and other measures of financial performance reported in accordance with GAAP.

The table below reconciles certain non-GAAP measures related to TVN transaction and integration expenses, TVN derivative contracts, foreign currency effects on TVN funds and restructuring costs with the most directly comparable GAAP financial measures: cost of services, excluding depreciation and amortization of intangible assets, selling general and administrative, net income attributable to SNI and diluted earnings per share.

(in thousands, except per share data)   Three Months ended September 30, 2015
    Cost of services, excluding depreciation and amortization of intangible assets   Selling, general and administrative   Total cost of services and selling, general and administrative expenses   Net income attributable to SNI (A)   Diluted earnings per share
Reported GAAP measure   $ 270,150   $ 193,645   $ 463,795   $ 124,559   $ 0.96
TVN transaction and integration expenses - (8,384 ) (8,384 ) 5,198 0.04
Net gain on TVN derivative contracts - - - 562 -
Foreign currency effects due to TVN funds - - - 5,284 0.04
Restructuring costs (169 ) (2,619 ) (2,788 ) 2,022 0.02
Contract termination costs     -       -       -       -     -
Adjusted non-GAAP measure   $ 269,981     $ 182,642     $ 452,623     $ 137,625   $ 1.06
 
(A) Items tax effected at 38% statutory rate with the exception of foreign currency effects due to TVN funds which has an effective tax rate of 0%.
 

SUPPLEMENTAL FINANCIAL INFORMATION

U.S. Networks earns revenue primarily from the sale of advertising time on our national television networks and interactive platforms, affiliate fees paid by cable and television systems and telecommunication service providers and other distributors that carry our network programming and the licensing of our content to third parties and brands for consumer products, such as videos, books, kitchenware and tools.

Supplemental information for U.S. Networks is as follows:

  Three months ended     Nine months ended  
September 30, September 30,
(in thousands)   2015   2014   Change   2015   2014   Change
   
Operating revenues by brand:
HGTV $ 248,323 $ 233,532 6.3 % $ 757,408 $ 707,344 7.1 %
Food Network 214,216 211,860 1.1 % 659,583 668,826 (1.4 )%
Travel Channel 73,252 73,513 (0.4 )% 230,898 238,481 (3.2 )%
DIY Network 41,138 36,927 11.4 % 127,512 115,278 10.6 %
Cooking Channel 33,487 28,479 17.6 % 99,212 89,006 11.5 %
Great American Country 7,524 7,669 (1.9 )% 22,989 22,622 1.6 %
Digital Businesses 36,308 26,378 37.6 % 95,018 84,221 12.8 %
Other 8,604 5,146 67.2 % 25,975 16,425 58.1 %
Intrasegment eliminations     (1,990 )     (992 )   (100.6 )%     (3,729 )     (3,365 )   (10.8 )%
Total segment operating revenues   $ 660,862     $ 622,512     6.2 %   $ 2,014,866     $

1,938,838

    3.9 %
Operating revenues by type:
Advertising $ 447,788 $ 425,849 5.2 % $ 1,373,218 $

1,343,999

2.2 %
Network affiliate fees, net 199,228 187,385 6.3 % 600,499 565,059 6.3 %
Other     13,846       9,278     49.2 %     41,149       29,780     38.2 %

Source: Scripps Networks Interactive, Inc.

Scripps Networks Interactive, Inc.
Investor Relations:
Mike Gallentine, 865-560-4473
mgallentine@scrippsnetworks.com
or
Media Relations:
Dylan Jones, 865-560-5068
DJones@scrippsnetworks.com
or
Lee Hall, 865-560-3853
LHall@scrippsnetworks.com

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