Business context and reporting period
The supplied filing is a Form 10-Q for New Media Investment Group Inc. (NYSE: NEWM), not USA TODAY Co., Inc. It covers the quarter ended September 24, 2017, and the nine months then ended; comparisons are to the periods ended September 25, 2016. The company operates local print, digital, and business-services businesses across 540 markets and 36 states.
Key financial metrics
Amounts below are in millions, except per-share data.
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $317.2 | $306.8 | $947.6 | $921.8 |
| Operating income | $11.5 | $10.6 | $2.2 | $34.4 |
| Net income (loss) | $(2.0) | $2.8 | $(27.3) | $17.1 |
| Adjusted EBITDA (non-GAAP) | $29.8 | $27.7 | $90.8 | $85.1 |
| Net income (loss) per diluted share | $(0.04) | $0.06 | $(0.52) | $0.38 |
- Q3 operating margin was approximately 3.6% and net margin approximately (0.6%); nine-month margins were approximately 0.2% and (2.9%), respectively.
- Q3 advertising revenue fell 3.2% to $159.5 million; circulation rose 7.7% to $112.8 million; commercial printing and other revenue rose 19.9% to $44.9 million.
- Nine-month advertising revenue declined 4.0% to $482.4 million, while circulation increased 6.9% to $334.2 million and commercial printing and other increased 22.9% to $131.0 million.
- Nine-month operating cash flow was $80.8 million, versus $67.3 million. Investing used $34.2 million and financing used $58.2 million; cash and cash equivalents ended at $160.5 million, down from $172.2 million at year-end 2016.
- At September 24, cash was $160.5 million and restricted cash $3.4 million. Current assets were $352.6 million versus current liabilities of $192.1 million.
- Balance-sheet debt was $361.1 million, comprising $4.5 million current and $356.5 million long-term. The filing reports estimated debt fair value of $370.2 million. The term-loan facility’s weighted-average interest rate was 7.49%; no revolving borrowings were outstanding. The company reported compliance with debt covenants.
Material changes versus prior comparable periods
- Revenue increased 3.4% in Q3 and 2.8% year to date, but growth was driven by circulation pricing and commercial printing, digital marketing, and events; advertising continued to decline.
- Nine-month net loss included $27.4 million of goodwill and masthead impairment and $6.5 million of long-lived-asset impairment, with no comparable charges in 2016. The company also recorded a $4.8 million debt-extinguishment loss.
- Adjusted EBITDA increased 7.7% in Q3 and 6.7% for the nine-month period, but this non-GAAP measure excludes impairments, interest, taxes, and other items; it is not a substitute for GAAP earnings or cash flow.
- Nine-month operating cash flow improved, while acquisition spending fell to $41.7 million from $107.7 million in the prior-year period. Dividends paid were $56.0 million, up from $44.2 million.
Outlook, commentary, risks, and unusual items
- Management expected adequate resources to meet working-capital needs, debt obligations, and capital expenditures for at least 12 months. Expected 2017 capital expenditures were $11–$13 million. No formal earnings guidance was provided.
- The company continued cost reductions and print-facility consolidation, ceasing printing at 12 facilities during the first nine months. It recorded $6.5 million in impairment and $2.4 million in accelerated depreciation related to the closures.
- Management cited ongoing newspaper-industry revenue and profitability declines, secular migration from print to digital, and economic uncertainty. Further deterioration in forecasts or market multiples could require additional impairment charges.
- The July 2017 credit amendment added $20 million of term loans and extended term-loan maturity to July 2022 and revolving-facility maturity to July 2021. Fees and expenses were approximately $6.6 million.
- In June, the company sold the Mail Tribune for approximately $14.7 million and recorded a pretax gain of approximately $5.4 million. In October, after quarter-end, it completed a $120 million cash acquisition of 48 Morris Communications publications and related digital assets; preliminary allocation and pro forma information were not available in the filing.
- The company announced a post-quarter Q3 dividend of $0.37 per share, versus $0.35 for each of the first two 2017 quarters. Future dividends remain subject to board approval, financial performance, liquidity, and credit-agreement restrictions.
- Key risks include declining print advertising and circulation, economic concentration in regional markets, leverage and covenant restrictions, refinancing and interest-rate exposure, acquisition integration, execution of digital growth plans, impairment risk, pension funding, and potential conflicts related to the Fortress management agreement. Fortress’s pending merger with SoftBank was also identified as a risk.
- The company recorded a $9.7 million increase in its deferred-tax valuation allowance during the nine months. Management said current legal proceedings were not expected to have a material adverse effect, while noting that outcomes are inherently uncertain.
Important facts for investors to verify
- Confirm the issuer identity: the provided 10-Q is for New Media Investment Group Inc., not USA TODAY Co., Inc.
- Assess whether circulation and non-print revenue growth can offset continuing advertising declines and whether reported cost savings are sustainable.
- Review the assumptions behind the $27.4 million impairment and the potential for further impairment of goodwill and mastheads.
- Evaluate debt-service capacity, covenant headroom, cash needs for the Morris acquisition, and the sustainability of dividends alongside acquisition and repurchase activity.
- Track integration and expected returns from the Morris acquisition, and verify the eventual purchase-price allocation and pro forma results when available.