Scripps Networks Interactive reports second quarter 2016 financial results

Second quarter 2016 financial highlights:

• Consolidated operating revenues of $892.8 million, a 21.9% increase;
• U.S. Networks advertising revenue of $541.0 million, an 8.9% increase;
• Consolidated operating income of $372.9 million, a 12.3% increase; and
• Adjusted segment profit⁽¹⁾ of $419.3 million, a 13.9% increase.

KNOXVILLE, Tenn., Aug. 09, 2016 -- Scripps Networks Interactive, Inc. (Nasdaq:SNI) today reported second quarter 2016 operating results.

Consolidated operating revenues increased 21.9% during the second quarter of 2016. Consolidated operating income grew 12.3%, and consolidated adjusted segment profit⁽¹⁾ was up 13.9% compared with the prior-year period. The U.S. Networks segment continued to benefit from a strong advertising market. The inclusion of TVN, Poland’s leading multi-platform media business, drove the growth in the company’s International Networks segment. TVN realized mid-single digit revenue growth in local currency for the quarter compared with the prior-year.

Total day ratings for adults 25-54 improved across all six U.S. networks while total impressions grew in the low single-digits. HGTV sustained its strong ratings performance, achieving its highest rated second quarter ever among all key demographics. Food Network’s ratings for total day 25-54 viewers grew 4% compared to the prior year quarter. Travel Channel continued along its growth trajectory, posting double-digit ratings growth. DIY Network and Cooking Channel each saw ratings reach record levels, and Great American Country grew its ratings more than 50%. TVN was ranked the No. 1 channel amongst viewers in its target audience, generating high single-digit improvement over the prior year.

"Scripps Networks Interactive generated another quarter of strong operating performance,” said Kenneth W. Lowe, president, chairman and CEO. “I am particularly proud that we achieved our first ever $500 million quarter in U.S. ad sales, and that the importance advertisers place on our networks has continued with a record breaking upfront. TVN has proven to be a transformative acquisition for the company, converting our International Networks segment into a growing and profitable endeavor. Thanks to the launch of Scripps Lifestyle Studios, digital engagement is at its highest level ever, particularly on social platforms where our audience has grown considerably, driving a substantial increase in digital revenues. Our company remains well positioned to excel in the evolving media landscape.”

Second Quarter Consolidated Results
Consolidated operating revenues for the quarter were $892.8 million, an increase of 21.9% compared with the prior-year period. Consolidated advertising revenues were $646.6 million, an increase of 28.6%, and consolidated distribution revenues were $223.4 million, an increase of 3.8%, compared with the prior-year period.

Second quarter consolidated operating income was $372.9 million, an increase of 12.3% from the prior-year period. Consolidated adjusted segment profit⁽¹⁾ was $419.3 million, an increase of 13.9%. The year-over-year improvement in consolidated operating income and consolidated adjusted segment profit⁽¹⁾ was driven by the increase in operating revenues, which reflects the inclusion of TVN and the growth in advertising revenues from U.S. Networks, offset primarily by increased international operating expenses as a result of the inclusion of TVN and additional programming costs for U.S. Networks.

Second quarter consolidated net income attributable to Scripps Networks Interactive was $184.6 million, or $1.42 per diluted share, compared with $193.7 million, or $1.49 per diluted share, in the same period of the prior year. The decline in consolidated net income was primarily driven by the large gain on derivatives related to the TVN acquisition recognized in the second quarter of last year, additional interest expense recorded in the second quarter of this year associated with the financing for the acquisition of TVN as well as the assumed debt of TVN and the loss on investment realized in the second quarter of this year. Second quarter consolidated adjusted net income⁽¹⁾ increased 7.2% to $205.1 million, and consolidated adjusted diluted earnings per share⁽¹⁾ increased 7.5% to $1.58. The improvement in consolidated adjusted diluted earnings per share⁽¹⁾ during the second quarter was primarily due to improved operating performance, partially offset by an increase in interest expense and lower equity in earnings of affiliates as a result of the sale of the company’s investment in Fox Sports South in the first quarter 2016.

Second Quarter Segment Results

U.S. Networks’ operating revenues for the second quarter of 2016 were $752.3 million, an increase of 5.2%, driven by advertising revenue growth. Advertising revenues for U.S. Networks, which surpassed $500 million in a single quarter for the first time in the company’s history, were $541.0 million, an increase of 8.9%. This improvement reflects the continued strength in the U.S. advertising market for our lifestyle brands along with a low single-digit improvement in impressions. Predominantly as a result of the previously disclosed one-time rate equalization of certain distributor agreements caused by industry consolidation, distribution revenues for U.S. Networks decreased by 3.6% to $196.1 million. Continued erosion in subscribers across the industry also impacted revenue, though the declines were partially offset by negotiated rate increases and additional distribution from new over-the-top entrants.

U.S. Networks’ operating income for the second quarter of 2016 was $378.4 million, an increase of 1.1%. U.S. Networks’ adjusted segment profit⁽¹⁾ was $404.9 million, an increase of 1.1%. This improvement reflects the increase in advertising revenues, offset by an increased investment in programming.

International Networks’ operating revenues for the second quarter of 2016 were $147.0 million compared with $22.1 million in the prior-year quarter. International Networks’ operating income was $18.6 million, and adjusted segment profit⁽¹⁾ was $37.4 million in the second quarter of 2016 compared with operating losses of $13.1 million and adjusted segment losses⁽¹⁾ of $10.1 million in the second quarter of 2015, primarily due to the inclusion of TVN.

Corporate and Other included an operating loss of $24.1 million compared with a loss of $29.3 million in the prior-year quarter. Corporate and Other adjusted segment loss⁽¹⁾ was $22.9 million, compared with an adjusted segment loss⁽¹⁾ of $22.4 million in the prior-year second quarter.

⁽¹⁾ This earnings release includes several metrics, including consolidated segment profit, adjusted segment profit, adjusted net income, adjusted net income per diluted share and free cash flow that are not calculated in accordance with Generally Accepted Accounting Principles in the United States of America ("GAAP"). See the Non-GAAP Financial Measures section of this press release for discussion of consolidated segment profit, adjusted segment profit, adjusted net income, adjusted net income per diluted share and free cash flow and a reconciliation to their respective most comparable financial measure calculated in accordance with GAAP.

Guidance
All guidance is based on current management expectations for consolidated company performance. Based on results seen to date, the company is reiterating all of its previously issued guidance.

Conference Call Information
The senior management team of Scripps Networks Interactive will discuss the company’s second quarter 2016 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 612-288-0337 (international) approximately ten minutes before the start of the call. Callers will need the name of the call, "SNI Second Quarter Earnings Report," and must provide their name and company affiliation. The media and general public may access the conference call on a listen-only basis.

A replay line will be open from 12 p.m. on August 9 until 11:59 p.m. ET on August 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 396788.

A replay of the conference call will also be available online. To access the audio replay online, 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 that could cause actual results to differ materially from the expectations expressed in forward-looking statements, including changes in advertising demand and other economic conditions as well as other reasons described in our Securities and Exchange Commission filings, including those set forth in the Risk Factors section and under the caption entitled “Forward-Looking Statements” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our most recently filed Annual Report on Form 10-K and Quarterly Report on Form 10-Q. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. 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 (Nasdaq: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-Pacific, Europe, the Middle East and Africa. Scripps Networks Interactive is headquartered in Knoxville, Tenn. For more information, please visit http://www.scrippsnetworksinteractive.com.

Non-GAAP Financial Measures

In addition to results prepared in accordance with GAAP provided in this release, the Company has also presented consolidated segment profit, adjusted segment profit, adjusted net income, adjusted net income per diluted share and free cash flow.

The Company evaluates the operating performance of its segments and uses a financial measure referred to as segment profit. Segment profit is defined as operating income (loss) excluding depreciation, amortization and loss (gain) on disposal of property and equipment. Because segment profit is based on operating income (loss), it excludes interest expense, equity in earnings of affiliates, gain (loss) on derivatives, gain (loss) on sale of investments, other miscellaneous non-operating expenses and income taxes.

The Company uses segment profit to assess the operating results and performance of its segments and makes decisions about the allocation of resources to segments using this financial measure. The Company believes segment profit is relevant to investors because it allows them to analyze and evaluate the operating performance of its segments consistent with management. Items excluded from segment profit generally result from decisions made in prior periods and/or by corporate executives rather than the mangers of the segments. Depreciation and amortization charges are a result of decisions made in prior periods regarding the allocation of resources and are, therefore, excluded from segment profit. Also excluded from segment profit are financing, tax structuring and acquisition and divestiture decisions, which are generally made by corporate executives. Excluding these items from the performance measure of our segments enables management to evaluate operating performance based on current economic conditions and decisions made by segment managers in the current period.

The Company defines adjusted segment profit and adjusted net income as segment profit and net income, respectively, excluding the impact of items not recurring in nature and defines adjusted net income per diluted share as net income per diluted share excluding the impact of items not recurring in nature. The Company believes adjusted segment profit, adjusted net income and adjusted net income per diluted share are relevant to investors because it allows them to analyze the performance of segments excluding the impact of items not recurring in nature.

The Company defines free cash flow as cash provided by operating activities less dividends paid to non-controlling interests and additions to property and equipment. The Company measures free cash flow as believes it is an important indicator for management and investors as to its liquidity, including the ability to reduce debt, make strategic investments and return capital to shareholders.

Consolidated segment profit, adjusted segment profit, adjusted net income, adjusted net income per diluted share and free cash flow are non-GAAP measures and should be considered in addition to, but not as a substitute for operating income, net income, net income per diluted share, cash flow from operating activities and other measures of financial performance reported in accordance with GAAP. Since consolidated segment profit, adjusted segment profit, adjusted net income, adjusted net income per diluted share and free cash flow are not measures of financial performance calculated in accordance with GAAP, these non-GAAP measures may not be comparable to similar measures with similar titles used by other companies. Supplemental schedules providing a reconciliation of the non-GAAP measure to its respective most comparable financial measure in accordance with GAAP are included within this press release on the following pages.

Operating Revenues by Network – 2016 and 2015

Contact: Scripps Networks Interactive, Inc.
Investors: Mike Gallentine, 865-560-4473, [email protected]
Media: Dylan Jones, 865-560-5068, [email protected], or
Lee Hall, 865-560-3853, [email protected]