Business context and reporting period
The filing is an unaudited Form 10-Q for New Media Investment Group Inc. and subsidiaries, for the quarter and six months ended July 1, 2018; the comparable periods ended June 25, 2017. The filing identifies New Media Investment Group Inc. as the registrant, notwithstanding the request metadata naming USA TODAY Co., Inc. The company operated local print and digital media, publishing and business-services assets across 572 markets and 37 states. It completed 11 acquisitions in the first half of 2018.
Key financial metrics
Amounts below are in millions of dollars unless stated otherwise.
| Metric | Q2 2018 | Q2 2017 | First half 2018 | First half 2017 |
|---|---|---|---|---|
| Revenue | $388.8 | $322.9 | $729.6 | $630.4 |
| Operating income (loss) | $23.3 | ($6.6) | $30.4 | ($9.6) |
| Net income (loss) | $11.7 | ($21.7) | $11.0 | ($25.4) |
| Adjusted EBITDA, non-GAAP | $43.6 | $39.7 | $70.4 | $61.0 |
| Operating cash flow | Not stated | Not stated | $57.6 | $49.6 |
Q2 operating and net margins were approximately 6.0% and 3.0%, respectively; first-half margins were approximately 4.2% and 1.5%. Adjusted EBITDA is a company-defined non-GAAP measure and is not a substitute for GAAP results or cash flow.
- Q2 revenue comprised advertising of $187.6 million, circulation of $144.5 million, and commercial printing and other of $56.7 million.
- At July 1, cash and cash equivalents were $73.8 million; restricted cash was $3.1 million. Current assets were $299.5 million and current liabilities $227.7 million.
- Debt carrying value was approximately $408.2 million, including $12.1 million current and $396.1 million long-term. The filing estimates debt fair value at $416.3 million. The revolver was undrawn; the main term loans mature July 2022. Weighted-average interest rate was 8.34%.
- First-half investing cash outflow was $142.1 million, including $149.6 million for acquisitions, partly offset by asset-sale proceeds. Financing cash inflow was $115.2 million, including $111.1 million net equity proceeds and $49.8 million in term-loan borrowings; dividends paid were $42.2 million.
Material changes versus prior comparable periods
Revenue increased 20.4% in Q2 and 15.7% in the first half, primarily due to acquisitions. Management also reported ongoing declines in print advertising categories and print circulation volumes; circulation price increases in selected markets partly offset volume declines. For the first half, revenue from advertising rose 8.6%, circulation 24.0%, and commercial printing and other 21.0%.
Operating income and net income improved from losses in 2017. Comparisons benefited from the absence of prior-year goodwill and masthead impairment charges ($27.4 million) and, for the first half, long-lived asset impairment ($6.5 million). Costs also rose with acquisitions, while management cited lower costs in remaining operations. Adjusted EBITDA increased 9.8% for Q2 and 15.4% for the first half.
Outlook, risks and unusual items
- Management expected adequate liquidity for working capital, debt obligations and required capital expenditures for at least the next 12 months. It forecast 2018 capital expenditures of $14–$16 million. No earnings or revenue guidance was provided.
- Management described continued secular pressure on print advertising and circulation, and plans to reduce costs, preserve cash flow, expand digital and small-business services, and pursue acquisitions. Results are seasonal, with Q2 and Q4 historically stronger.
- First-half acquisitions had an aggregate purchase price of $150.2 million, funded from cash on hand; purchase-price allocations were preliminary. A February 2018 public offering of 6.9 million shares generated approximately $110.7 million net proceeds.
- Asset dispositions generated a $3.3 million pretax gain on a Massachusetts property sale; total net gains on asset sales/disposals were $4.0 million for the first half. The company declared a $0.37-per-share Q2 dividend after quarter-end, payable August 21, 2018.
- Debt agreements impose leverage and other covenants that restrict, among other things, additional debt, asset sales and dividends. The company reported compliance at quarter-end. Management highlighted leverage and cash-flow sensitivity as risks.
- Goodwill and masthead impairment tests recorded no impairment in 2018, but the filing notes limited valuation headroom in certain areas and potential future charges if cash-flow expectations or market multiples weaken. Key assumptions included revenue declines near-term, 1% terminal growth and 16%–17% discount rates.
- Additional risks include industry and regional economic weakness, newsprint price increases and tariffs, acquisition integration, execution of digital growth and cost savings, pension funding, and conflicts and fees under the Fortress-affiliated management agreement. The filing reported no material expected adverse effect from current or threatened legal proceedings, while noting outcomes are uncertain.
- The company adopted revenue-recognition guidance in 2018; gross-to-net presentation reduced reported Q2 and first-half revenue and operating costs by $1.5 million and $2.9 million, respectively, without changing accumulated deficit at adoption. Management expected lease-accounting adoption to materially affect the balance sheet.
Most important facts for investors to verify
- Confirm the registrant and corporate identity: this filing names New Media Investment Group Inc., not USA TODAY Co., Inc.
- Separate acquisition-driven growth from underlying performance, especially the continuing print advertising and circulation trends.
- Review debt principal, interest costs, the $8 million Alabama debt maturity in March 2019, covenant headroom and dividend restrictions.
- Assess the sustainability of dividends against operating cash flow, acquisition spending, debt service and capital expenditure needs.
- Examine acquisition integration, preliminary purchase-price valuations, and sensitivity of goodwill and masthead valuations to forecast assumptions.
- Reconcile GAAP earnings and operating cash flow with Adjusted EBITDA and account for asset-sale gains and prior-year impairments when comparing periods.