Business context and reporting period
The supplied 10-Q is for New Media Investment Group Inc. (NYSE: NEWM), not an issuer named USA TODAY Co., Inc. It covers the quarter ended September 29, 2019, and compares results with the three and nine months ended September 30, 2018. New Media operated local print and digital media, marketing services and events businesses, reported as one segment. Its proposed acquisition of Gannett would add USA TODAY and the USA TODAY NETWORK.
Financial results and position
Amounts below are in millions, except per-share data. The filing reports the following:
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $376.6 | $380.4 | $1,168.6 | $1,110.0 |
| Operating income (loss) | $(1.9) | $2.6 | $8.8 | $32.9 |
| Net income (loss) | $(19.0) | $(5.9) | $(25.7) | $5.2 |
| Adjusted EBITDA, non-GAAP | $22.8 | $29.2 | $80.8 | $99.6 |
Operating margin was approximately negative 0.5% in Q3 2019 versus 0.7% a year earlier; for the nine-month periods it was 0.8% versus 3.0%. Adjusted EBITDA margin was approximately 6.0% in Q3 versus 7.7%, and 6.9% for nine months versus 9.0%. Basic and diluted loss per share were $0.31 in Q3 and $0.41 for the nine-month period, compared with losses of $0.10 and earnings of $0.09, respectively, in the prior-year periods.
Q3 revenue fell 1.0%: advertising declined 5.1% to $167.4 million, while circulation was nearly flat at $146.3 million and commercial printing and other rose 8.5% to $63.0 million. Nine-month revenue increased 5.3%, with circulation up 6.9% and commercial printing and other up 16.2%; advertising was up 0.7%. Management attributed revenue growth mainly to acquisitions, with underlying print advertising pressure from secular shifts and a difficult retail environment.
Cash provided by operations was $98.5 million for the first nine months, up from $72.0 million. Investing used $46.6 million, including $49.7 million for acquisitions; financing used $72.9 million, including $68.9 million of dividends. Cash, cash equivalents and restricted cash ended at $31.8 million, of which $28.6 million was unrestricted cash. Current assets were $242.8 million against current liabilities of $263.6 million.
At September 29, gross borrowings were approximately $442.0 million: $434.0 million term debt and $8.0 million revolver borrowings. The credit facilities’ weighted-average interest rate was 8.56%; $31.5 million remained available on the revolver, and the company reported covenant compliance. Long-term debt on the balance sheet was $433.7 million, net of discounts and financing costs. Operating lease liabilities totaled $116.8 million following adoption of the new lease accounting standard.
Material changes versus prior period
- Despite higher nine-month revenue, operating income and adjusted EBITDA declined, and the company shifted from nine-month net income to a net loss.
- Q3 acquisition costs rose to $12.2 million from $0.6 million, primarily due to the proposed Gannett transaction. Nine-month acquisition costs were $15.3 million versus $1.9 million.
- New Media acquired local publications and related businesses for approximately $45.9 million in 2019, compared with approximately $205.8 million of 2018 acquisitions.
- Lease accounting added $109.2 million of right-of-use assets and $116.8 million of lease liabilities to the September 2019 balance sheet; prior-year balance-sheet amounts were not restated.
Outlook, transaction, risks and unusual items
On August 5, 2019, New Media agreed to acquire Gannett for $12.06 per share, comprising $6.25 cash and 0.5427 New Media shares. At announcement, the transaction was valued at approximately $1.4 billion; Gannett shareholders were expected to own approximately 49.5% of the combined company. The HSR waiting period had expired and European Commission clearance was announced October 23, 2019, but shareholder approvals and other closing conditions remained. The company expected closing before December 31, 2019, without assurance.
Apollo had committed to a proposed $1.792 billion first-lien term loan to fund the transaction and refinance debt. The proposed fixed rate was 11.5%, increasing to 12% if closing occurred more than six months after the commitment date; the term would be five years, with fees of 6.5% of principal at closing. Definitive documentation was not finalized, financing remained subject to conditions—including at least $40 million of combined-company unrestricted cash—and the merger agreement had no financing condition. New Media estimated approximately $80 million of merger-related severance and change-in-control payments, primarily related to Gannett pension plans.
Management expected adequate resources for working capital, debt service and capital expenditures for at least 12 months, and forecast 2019 capital expenditures of $12–$13 million. It continued cost-reduction measures and expected industry pressures, including declining print advertising and circulation, to persist. Key risks include merger completion and integration, refinancing and higher transaction debt costs, dividend sustainability, acquisition execution, and potential impairment. The annual impairment review found less than 10% fair-value cushion for the Newspaper reporting unit and certain mastheads; no impairment was recorded. The company declared a $0.38-per-share Q3 dividend, payable November 12, 2019. Legal proceedings were not expected by management to have a material adverse effect, though future outcomes could be material.
Important facts investors should verify
- Confirm the issuer identity: this filing is New Media Investment Group’s 10-Q; USA TODAY appears as part of the proposed Gannett acquisition.
- Check merger approvals, final financing terms, closing conditions, cash requirements and integration costs against subsequent filings.
- Assess underlying revenue and profitability trends separately from acquisition contributions and transaction/reorganization expenses; review the company’s non-GAAP Adjusted EBITDA reconciliation.
- Monitor debt service, covenant headroom, revolver availability and whether the planned transaction financing materially increases interest burden.
- Evaluate cash generation against dividends, capital spending and the company’s stated liquidity outlook, as well as impairment sensitivity and pension obligations.