Scripps Networks Interactive reports full year and fourth quarter 2017 operating results

Full Year 2017 Financial Highlights:

• Record consolidated operating revenues of $3.6 billion, an increase of 4.7%;
• Consolidated income from operations before income taxes of $1.3 billion, an increase of 2.6%;
• Consolidated adjusted segment profit⁽¹⁾ of $1.5 billion, an increase of 2.2%;
• Consolidated net income attributable to Scripps Networks Interactive of $623.9 million, a decrease of 7.4%; and
• Consolidated adjusted net income⁽¹⁾ attributable to Scripps Networks Interactive of $752.6 million, an increase of 16.9%.

Fourth Quarter 2017 Financial Highlights:

• Record consolidated operating revenues of $956.1 million, an increase of 7.6%;
• Consolidated income from operations before income taxes of $325.9 million, an increase of 72.2%;
• Consolidated adjusted segment profit⁽¹⁾ of $371.1 million, an increase of 9.0%;
• Consolidated net income attributable to Scripps Networks Interactive of $65.9 million, an increase of 26.5%; and
• Consolidated adjusted net income⁽¹⁾ attributable to Scripps Networks Interactive of $181.9 million, an increase of 46.2%.

KNOXVILLE, Tenn., Feb. 26, 2018 (GLOBE NEWSWIRE) -- Scripps Networks Interactive, Inc. (Nasdaq:SNI) today reported operating results for the full year and fourth quarter 2017.

In 2017, HGTV was ranked the No. 1 ad-supported cable network for upscale women 25-54 in sales prime for the eleventh consecutive year and was the No. 2 cable network for women 25-54. Food Network finished 2017 as the No. 8 cable network for women 25-54, and 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 share of audience by 5% for viewers 16-49 in 2017.

In the fourth quarter of 2017, both HGTV and Food Network ranked in the top-10 for advertising supported cable networks for women 25-54 in sales prime, and Travel Channel delivered a 5% improvement in its adult 25-54 sales prime ratings. TVN was the No. 1 media company for the 16-49 demographic for the fourth quarter, growing its audience share by 2%.

Scripps Lifestyle Studios, the digital content division of Scripps Networks Interactive, delivered a record-breaking year, generating more than 19 billion global video views on various digital platforms, nearly three times more than the previous year. Video views benefited in part from the inclusion of millennial-targeted food content brand, Spoon University, the launch of the new food-focused digital brand, Genius Kitchen, and expansion of the Scripps Lifestyle Studios offering to international markets.

Kenneth W. Lowe, Chairman, President and Chief Executive Officer, said, “Scripps Networks Interactive finished a pivotal 2017 year with a strong fourth quarter, executing on our strategic objectives and delivering financially with record revenue and growing segment profit. We reached new consumers through the thousands of compelling experiences created by Scripps Lifestyle Studios. We invested in our core business as well as our fast-growing digital offerings, allowing us to capitalize on the popularity of our powerful lifestyle brands across the globe. And, of course, we announced our merger with Discovery Communications, creating an unmatched opportunity to deliver our real-life content to a greater number of audiences.”

Lowe continued, “We have great momentum as we head into 2018. Our incredible teams remain intently focused on doing what we do best: creating great lifestyle content that connects with audiences through ideas, information and inspiration. We are excited about the prospects for the combination with Discovery and are diligently working toward finalizing the transaction to bring these two great companies together.”

Full Year 2017 Consolidated Results
Consolidated operating revenues for 2017 were $3.6 billion, an increase of 4.7% compared with the prior year. Advertising revenues were $2.5 billion, an increase of 3.7%, and distribution revenues were $955.4 million, an increase of 6.8% compared with the prior year.

Consolidated income from operations before income taxes for 2017 was $1.3 billion, an increase of 2.6% compared with the prior year. Consolidated adjusted segment profit⁽¹⁾ was $1.5 billion, an increase of 2.2% compared with the prior year. The improvement in consolidated income from operations before income taxes reflects an increase in operating revenues, higher foreign currency transaction gains, lower interest expense and a decline in goodwill and other intangible asset write-downs compared with the prior year. These favorable variances were partially offset by increased investments in programming, marketing and data as well as merger related expenses.

Consolidated net income attributable to Scripps Networks Interactive for 2017 decreased 7.4% to $623.9 million, or $4.76 per diluted share, compared with the prior year, primarily driven by the negative variances mentioned in the prior paragraph as well as a higher effective tax rate driven by the impact of tax law changes enacted in the U.S. and Poland. These unfavorable variances were partially offset by an increase in operating revenues, higher foreign currency transaction gains, lower interest expense and a decline in goodwill and other intangible asset write-downs. Consolidated adjusted net income⁽¹⁾ attributable to Scripps Networks Interactive increased 16.9% to $752.6 million, or $5.74 per diluted share, reflecting an increase in operating revenues, higher foreign currency transaction gains, and lower interest expense compared with the prior year. These favorable variances were partially offset by increased investments in programming, marketing and data.

Fourth Quarter 2017 Consolidated Results
Consolidated operating revenues for the fourth quarter of 2017 were $956.1 million, an increase of 7.6% compared with the prior year period. Advertising revenues were $678.1 million, an increase of 5.7%, and distribution revenues were $244.3 million, an increase of 10.5% compared with the prior year period.

Consolidated income from operations before income taxes for the fourth quarter of 2017 was $325.9 million, an increase of 72.2% compared with the prior year period. Consolidated adjusted segment profit⁽¹⁾ was $371.1 million, an increase of 9.0% compared with the prior year period. The improvement in consolidated income from operations before income taxes reflects an increase in operating revenues, higher foreign currency transaction gains, lower interest expense and a decline in goodwill and other intangible asset write-downs compared with the prior year period. These favorable variances were partially offset by increased investments in programming, marketing and data as well as merger related expenses.

Consolidated net income attributable to Scripps Networks Interactive for the fourth quarter of 2017 increased 26.5% to $65.9 million, or $0.50 per diluted share, compared with the prior year period, primarily driven by an increase in operating revenues, higher foreign currency transaction gains, lower interest expense and a decline in goodwill and other intangible asset write-downs. These favorable variances were partially offset by increased investments in programming, marketing and data and merger related expenses as well as a higher effective tax rate driven by the impact of tax law changes enacted in the U.S. and Poland. Consolidated adjusted net income⁽¹⁾ attributable to Scripps Networks Interactive increased 46.2% to $181.9 million, or $1.38 per diluted share, reflecting an increase in operating revenues, higher foreign currency transaction gains and lower interest expense compared with the prior year period. These favorable variances were partially offset by increased investments in programming, marketing and data.

Fourth Quarter 2017 Segment Results

U.S. Networks’ operating revenues for the fourth quarter of 2017 were $758.7 million, an increase of 3.8% compared with the prior year period. Advertising revenues were $529.9 million, an increase of 1.3% compared with the prior year period, reflecting the continued strength in pricing in the U.S. advertising market for our lifestyle brands, partially offset by lower impressions delivered. U.S. Networks’ distribution revenues were $213.6 million, an increase of 10.5% compared with the prior year period. This improvement was driven by annual rate increases and includes an adjustment related to a distribution agreement negotiated in the fourth quarter of 2017, which contributed 400 basis points of growth. Also contributing to the increase were revenues generated from over-the-top and non-linear distribution platforms, partially offset by subscriber declines.

U.S. Networks’ income from operations before income taxes for the fourth quarter of 2017 was $323.2 million, an increase of 4.9% compared with the prior year period. U.S. Networks’ adjusted segment profit⁽¹⁾ was $338.9 million, an increase of 3.1% compared with the prior year period. The improvement in both U.S. Networks’ income from operations before income taxes and adjusted segment profit⁽¹⁾ was primarily driven by an increase in operating revenues partially offset by increased investments in marketing and data compared with the prior year period.

International Networks’ operating revenues for the fourth quarter of 2017 were $203.7 million, an increase of 23.2% compared with the prior year period, reflecting positive foreign currency effects and an increase in operating revenues. Operating revenues at TVN increased 11.7% in local currency compared with the prior year period.

International Networks’ income from operations before income taxes for the fourth quarter of 2017 was $56.6 million compared with a loss of $30.9 million in the prior year period. The improvement in International Networks’ income from operations before income taxes was primarily driven by an increase in operating revenues, higher foreign currency gains and a decline in goodwill and other intangible asset write-downs, partially offset by an increase in operating expenses compared with the prior year period. International networks’ adjusted segment profit⁽¹⁾ was $54.8 million, an increase of 33.9% compared with the prior year period. The improvement in International Networks’ adjusted segment profit⁽¹⁾ was primarily driven by an increase in operating revenues and higher foreign currency gains, partially offset by an increase in operating expenses compared with the prior year period.

⁽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
Due to the pending merger with Discovery Communications, Scripps Networks Interactive will not issue full year 2018 guidance.

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, Inc.
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 and 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 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-down, interest expense, net, 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.