Business context and reporting period
Registrant: The filing is New Media Investment Group Inc.’s Form 10-K for the 52-week fiscal year ended December 25, 2016, not a filing by “USA TODAY Co., Inc.” as stated in the request metadata. New Media owned local newspapers and related print, digital and business-service assets across 538 markets and 36 states. Its portfolio included 631 print publications, 538 websites and Propel, its digital marketing-services business.
Financial performance
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Revenue | $1,255.4 million | $1,195.8 million |
| Operating income | $61.4 million | $103.4 million |
| Net income | $31.6 million | $67.6 million |
| Adjusted EBITDA (non-GAAP) | $126.7 million | $175.6 million |
| Cash from operations | $98.4 million | $115.3 million |
| Cash capital expenditures | $10.6 million | $10.2 million |
FY 2016 operating margin was approximately 4.9% and net margin approximately 2.5%. The filing reports Q4 revenue of $333.6 million, operating income of $27.0 million and net income of $14.5 million; Q4 2015 revenue was also $333.6 million, while reported operating income and net income were $66.7 million and $56.4 million.
At year-end, cash and cash equivalents were $172.2 million, restricted cash $3.4 million, current assets $370.3 million and current liabilities $195.9 million (current ratio approximately 1.9). Debt carrying value was $353.2 million, including $14.4 million current and $338.9 million long-term; scheduled principal outstanding was $362.8 million before unamortized discount and financing costs. The revolving facility was undrawn. The term debt’s weighted-average rate was 7.19%; management reported compliance with debt covenants.
Material changes versus the prior comparable period
- Revenue increased 5.0%, but acquisitions contributed $82.1 million; same-store revenue fell $32.8 million, or 2.5%.
- Same-store advertising declined $63.0 million, or 8.4%. Same-store circulation rose $10.2 million, or 2.5%, and commercial printing and other revenue rose $20.0 million, or 15.6%.
- Reported operating income fell to $61.4 million from $103.4 million. FY 2015 included a $57.1 million gain on the sale of the Las Vegas Review-Journal; FY 2016 recorded a $3.6 million loss on asset sales/disposals. FY 2015 also included a $4.8 million masthead impairment.
- Net income and Adjusted EBITDA declined; operating cash flow was down $17.0 million. FY 2016 cash used in acquisitions was $137.5 million, compared with $431.1 million in FY 2015.
- Digital and business-services revenue grew 13.7% to $123.9 million; Propel accounted for $53.0 million. Circulation revenue growth included $32.0 million from acquisitions.
Outlook, risks and unusual items
- Management expected adequate liquidity for working capital, borrowing obligations and required capital expenditures for at least the next 12 months. It forecast 2017 capital expenditures of $11–13 million, mainly for print-operation consolidation and system upgrades; this is a forecast, not an earnings or revenue outlook.
- Management’s strategy is to expand digital marketing and business services, improve consumer and SMB revenue, reduce costs, pursue acquisitions and return a substantial portion of free cash flow through dividends. The board retains discretion, and credit-agreement restrictions apply. The announced Q4 2016 dividend was $0.35 per share.
- Key risks include secular print-advertising and circulation pressure, local economic weakness, digital competition and uncertain returns from Propel, acquisition/integration risk, leverage and covenant restrictions, interest-rate exposure, and reliance on the externally appointed Fortress manager. The filing noted Fortress’s announced pending merger with a SoftBank affiliate.
- Management reported pension and postretirement plans underfunded by $26.1 million at year-end and estimated 2017 cash requirements of approximately $2.2 million. A 100-basis-point LIBOR change was estimated to affect annual interest expense by about $3.5 million.
- Subsequent events: the company paid $10 million of Advantage Florida debt on December 30, 2016; acquired Wooster Republican Printing Company for $21.2 million plus working capital on January 31, 2017; and announced the $15.0 million sale of the Medford Mail Tribune, expected to close in Q1 2017.
- Ernst & Young issued unqualified opinions on the financial statements and internal controls. Management and the auditor excluded internal controls of the 2016 acquisitions from the year-end controls assessment; those acquired businesses represented $184.9 million of assets and $113.2 million of revenue.
Most important facts for investors to verify
- Confirm the issuer identity: the supplied filing is for New Media Investment Group Inc., not USA TODAY Co., Inc.
- Separate acquisition-driven growth from continuing trends; review same-store advertising declines and the contribution and profitability of Propel.
- Reconcile debt principal with its balance-sheet carrying value, scheduled payments, covenants and dividend capacity.
- Assess cash generation after acquisitions, dividends, capital expenditures and pension funding, rather than relying on Adjusted EBITDA alone.
- Review acquisition integration, the pending Medford disposition, pension assumptions, impairment sensitivity and the status of controls at acquired businesses.