Scripps Networks Interactive reports third quarter 2017 operating results

Third Quarter 2017 Financial Highlights:

• Consolidated operating revenues of $825.5 million;
• Consolidated income from operations before income taxes of $233.5 million;
• Consolidated adjusted segment profit⁽¹⁾ of $303.4 million;
• Consolidated net income per diluted share attributable to SNI shareholders of $0.95; and
• Consolidated adjusted net income⁽¹⁾ per diluted share attributable to SNI shareholders of $1.05.

KNOXVILLE, Tenn., Nov. 01, 2017 (GLOBE NEWSWIRE) -- Scripps Networks Interactive, Inc. (Nasdaq:SNI) today reported third quarter 2017 operating results.

For the third quarter of 2017 compared with the prior year period, HGTV maintained its No. 1 position among ad-supported cable networks for women 25-54 in sales prime and ranked 5th for adult 25-54 viewers. However, the network’s ratings declined 7% for adult 25-54 viewers in sales prime. Food Network finished the quarter ranked 11th for women 25-54 viewers, and its adult 25-54 sales prime ratings were down 7%. Travel Channel delivered a 5% improvement in its adult 25-54 sales prime ratings. TVN, a leading multi-platform media business in Poland, grew its ratings 3% for the urban 16-49 audience group in the quarter.

Scripps Lifestyle Studios continued its growth in the third quarter, generating nearly 5.3 billion global video views on various digital platforms compared with 1.3 billion in the third quarter of 2016. Current quarter video views include those from recently acquired Spoon University and the international networks. Additionally, Scripps Lifestyle Studios reached more than 460 million users, improving nearly 85% compared to the prior year quarter.

“At a time of rapid transformation in the media industry, we continue to execute on our strategic goals to strengthen the core business, expand our reach and monetize audiences. Our brands deliver the compelling content and programming that viewers love and trust, and with each passing quarter, we are building stronger community with consumers across a multitude of devices and platforms around the world,” said Kenneth W. Lowe, Chairman, President and Chief Executive Officer. “Scripps Lifestyle Studios delivered another record-breaking quarter, further solidifying our digital businesses as an increasingly important growth driver for the company. With the launch of Genius Kitchen, our newest food-focused digital brand, which offers more than 150 hours of immersive content, Scripps Lifestyle Studios is well-positioned to deliver even more impactful digital assets to our audiences.”

Lowe continued, “For 23 years Scripps Networks Interactive has been one of the most trusted and respected content producers in the media industry. We continue to be excited to merge with Discovery Communications in an unmatched opportunity to satisfy consumers’ desires for new and innovative content and to offer more engaging experiences across the world and on emerging channels and platforms.”

Third Quarter 2017 Consolidated Results
Consolidated operating revenues for the third quarter of 2017 were $825.5 million, an increase of 2.8% over the prior year period. Advertising revenues were $567.4 million, an increase of 2.0%, and distribution revenues were $233.1 million, an increase of 5.1%, over the prior year period.

Consolidated income from operations before income taxes in the third quarter of 2017 was $233.5 million, a decrease of 9.4% compared with the prior year period. Consolidated net income attributable to Scripps Networks Interactive in the third quarter of 2017 was $124.1 million, or $0.95 per diluted share, a decrease of 15.2% compared with the prior year period. The decrease in both consolidated income from operations before income taxes and consolidated net income attributable to Scripps Networks Interactive was primarily driven by merger related expenses and higher marketing costs, an increase in cost of services attributed to investments in programming and lower foreign currency transaction gains, partially offset by the growth in operating revenues and a decrease in interest expense.

Consolidated adjusted segment profit⁽¹⁾ in the third quarter of 2017 was $303.4 million, a decrease of 4.5% compared with the prior year period. Consolidated adjusted net income⁽¹⁾ attributable to Scripps Networks Interactive in the third quarter of 2017 was $136.7 million, or $1.05 per diluted share, a decrease of 12.5% compared with the prior year period. The decrease in both consolidated adjusted segment profit⁽¹⁾ and consolidated adjusted net income⁽¹⁾ attributable to Scripps Networks Interactive was primarily driven by the expected increase in programming and marketing costs, partially offset by the growth in operating revenues.

U.S. Networks’ operating revenues for the third quarter of 2017 were $692.4 million, an increase of 0.9% over the prior year quarter. Advertising revenues were $474.8 million, a decrease of 0.6% compared to the prior year quarter, reflecting lower advertising impressions delivered and an inventory mix shift in the quarter. U.S. Networks’ distribution revenues were $203.5 million, an increase of 4.7% compared with the prior year quarter, driven by negotiated annual rate increases and revenues generated from over-the-top distribution platforms, partially offset by subscriber declines.

U.S. Networks’ income from operations before income taxes in the third quarter of 2017 was $293.0 million, a decline of 4.4% compared with the prior year quarter. U.S. Networks’ adjusted segment profit⁽¹⁾ in the third quarter of 2017 was $308.6 million, a decrease of 5.7% compared with the prior year quarter. The decrease in both U.S. Networks’ income from operations before income taxes and adjusted segment profit⁽¹⁾ was primarily driven by the expected increase in programming and marketing costs, slightly offset by the growth in operating revenues.

International Networks’ operating revenues for the third quarter of 2017 were $139.4 million, an increase of 13.1% compared with the prior year quarter, driven by positive foreign currency effects and an increase in advertising revenues at TVN. Total revenues at TVN increased 4.0% in local currency for the quarter.

International Networks’ income from operations before income taxes in the third quarter of 2017 was a loss of $5.9 million compared with income of $23.0 million in the prior year quarter, primarily driven by foreign currency gains recognized in the third quarter of 2016. International networks’ adjusted segment profit⁽¹⁾ in the third quarter of 2017 was $15.9 million compared with $15.0 million in the prior year quarter.

⁽¹⁾ This earnings release contains several metrics, including consolidated segment profit (loss), consolidated adjusted segment profit (loss), adjusted net income (loss), adjusted net income (loss) 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"). Refer to the Non-GAAP Financial Measures section of this press release for discussion of consolidated segment profit (loss), consolidated adjusted segment profit (loss), adjusted net income (loss), adjusted net income (loss) 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 actual results experienced to date, excluding merger related expenses, the company is reiterating all of its previously issued guidance. For more information, refer to the full year guidance reconciliation table at the end of this press release.

Conference Call Information
Due to the pending merger with Discovery Communications, Scripps Networks Interactive will not hold a conference call for investors in connection with the issuance of this earnings release.

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 Reports 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, Inc. (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 includes leading TV and entertainment brands HGTV, Food Network, Travel Channel, DIY Network, Cooking Channel and Great American Country. Its digital division Scripps Lifestyle Studios, creates compelling content for online, social and mobile platforms. 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 Network. 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.

Where to Find Additional Information
This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. This communication may be deemed to be solicitation material in respect of the proposed merger between Discovery Communications, Inc., “Discovery” and Scripps Networks Interactive, Inc., “Scripps”. In connection with the proposed merger, Discovery has filed a registration statement on Form S-4, containing a joint proxy statement/prospectus with the Securities and Exchange Commission (the “SEC”), which was declared effective by the SEC on October 19, 2017. INVESTORS AND SECURITY HOLDERS ARE ADVISED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS, BECAUSE IT CONTAINS IMPORTANT INFORMATION. Investors and security holders may obtain a free copy of the joint proxy statement/prospectus and other documents filed by Discovery and Scripps with the SEC at http://www.sec.gov. Free copies of the joint proxy statement/prospectus and each company’s other filings with the SEC may also be obtained from the respective companies. Free copies of documents filed with the SEC by Scripps will be made available free of charge on Scripps’ investor relations website at http://ir.scrippsnetworksinteractive.com. Free copies of documents filed with the SEC by Discovery will be made available free of charge on Discovery’s investor relations website at www.corporate.discovery.com.

Participants in the Solicitation
Scripps and its directors and executive officers, and Discovery and its directors and executive officers, may be deemed to be participants in the solicitation of proxies from the holders of Scripps Class A common shares and common voting shares in respect of the proposed merger. Information about the directors and executive officers of Scripps is set forth in Scripps’ proxy statement for its 2017 annual meeting of shareholders, which was filed with the SEC on March 29, 2017. Information about the directors and executive officers of Discovery is set forth Discovery’s proxy statement for its 2017 annual meeting of shareholders, which was filed with the SEC on April 5, 2017. Investors may obtain additional information regarding the interest of such participants by reading the joint proxy statement/prospectus regarding the proposed merger.

Contact: Scripps Networks Interactive, Inc.
Investors: Mike Gallentine, 865-560-4473, MGallentine@scrippsnetworks.com;
Media: Dylan Jones, 865-560-5068, DJones@scrippsnetworks.com; or
Kristin Alm, 865-560-4316, KAlm@scrippsnetworks.com

Non-GAAP Financial Measures
In addition to results prepared in accordance with GAAP provided in this press release, the company has also presented consolidated segment profit (loss), consolidated adjusted segment profit (loss), adjusted net income (loss), adjusted net income (loss) per diluted share and free cash flow.

The company evaluates the operating performance of its businesses and uses a financial measure referred to as segment profit (loss). Consolidated segment profit (loss) is the aggregate of the segment profit for each of our two reportable segments. Segment profit (loss) is defined as income (loss) from operations before income taxes, excluding depreciation, amortization, goodwill write-downs, interest expense (income), equity in earnings of affiliates, gain (loss) on derivatives, gain (loss) on sale of investments, other miscellaneous non-operating expenses and income taxes, which are included in net income (loss) determined in accordance with GAAP.

The company uses segment profit (loss) to assess the operating results and performance of its businesses and makes decisions about the allocation of resources to businesses using this financial measure. The company believes segment profit (loss) is relevant to investors because it allows them to analyze and evaluate the operating performance of its segments consistent with management. 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 (loss). Also excluded from segment profit (loss) 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 businesses enables management to evaluate operating performance based on current economic conditions and decisions made by the managers of the businesses in the current period.

The company defines consolidated adjusted segment profit (loss) and adjusted net income (loss) as segment profit (loss) and net income (loss), respectively, excluding the impact of items not routine in nature and defines adjusted net income (loss) per diluted share as net income (loss) per diluted share, excluding the impact of items not routine in nature. The company believes consolidated adjusted segment profit (loss), adjusted net income (loss) and adjusted net income (loss) per diluted share are relevant to investors because it allows them to analyze the performance of segments excluding the impact of items not routine in nature or core to regular business operations.

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 (loss), consolidated adjusted segment profit (loss), adjusted net income (loss), adjusted net income (loss) per diluted share and free cash flow are non-GAAP measures and should be considered in addition to, but not as a substitute for, income (loss) from operations before income taxes, net income (loss), net income (loss) per diluted share, cash flow from operating activities and other measures of financial performance reported in accordance with GAAP. Since consolidated segment profit (loss), consolidated adjusted segment profit (loss), adjusted net income (loss), adjusted net income (loss) 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.