Business context and reporting period
The supplied filing is New Media Investment Group Inc.’s Form 10-K for the fiscal year ended December 31, 2017—not a filing by USA TODAY Co., Inc. The year included 53 weeks, versus 52 weeks in 2016. New Media operated local print, digital, business-services and events assets across 569 markets and 38 states, reaching more than 22 million people weekly.
Financial performance and position
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | $1,342.0 million | $1,255.4 million |
| Operating income | $34.6 million | $61.4 million |
| Net income (loss) | $(0.9) million | $31.6 million |
| Adjusted EBITDA (non-GAAP) | $143.8 million | $126.7 million |
| Operating cash flow | $110.8 million | $98.4 million |
| Capital expenditures | $11.1 million | $10.6 million |
| Cash and cash equivalents at year-end | $43.1 million | $172.2 million |
Revenue grew 6.9%; operating margin fell to about 2.6% from 4.9%, and net margin was about -0.1% versus 2.5%. Debt on the balance sheet was approximately $359.9 million, including current maturities; the filing reports debt fair value of $368.4 million. The revolving facility was undrawn at year-end. Current assets were $263.2 million and current liabilities $203.7 million. Operating cash flow less capital expenditures was approximately $99.7 million. The company paid $1.42 per share in 2017 dividends and $75.6 million in total dividends.
Material changes versus prior period
- Advertising revenue decreased 0.1% to $684.0 million, reflecting continued print advertising declines.
- Circulation revenue rose 12.5% to $474.3 million; management attributed $49.4 million of the $52.8 million increase to acquisitions.
- Commercial printing and other revenue increased 23.3% to $183.7 million, principally from digital marketing services and events. Digital and business-services revenue was $143.4 million, up 15.7%; $71.3 million was attributable to UpCurve.
- Despite higher revenue and Adjusted EBITDA, operating income and net income declined. Results included $27.4 million of goodwill and masthead impairment, $7.1 million of long-lived asset impairment, and a $4.8 million debt-extinguishment loss.
- Cash fell by $129.2 million, largely reflecting acquisition spending, dividends and debt repayments. Acquisitions used $164.2 million net of acquired cash; the company completed acquisitions for an aggregate purchase price of $165.1 million and sold the Mail Tribune for about $14.7 million.
- Fourth-quarter revenue was $394.4 million and net income was $26.4 million, compared with $333.6 million and $14.5 million, respectively, in fourth-quarter 2016.
Outlook, commentary, risks and unusual items
Management provided no specific revenue or earnings guidance. It expected adequate liquidity for working capital, debt service and required capital expenditures for at least 12 months, and forecast 2018 capital expenditures of $14 million to $16 million. Strategy centers on cost reductions, expanding digital marketing and business services, and further acquisitions. Quarterly dividends remain subject to board approval, financial performance and credit-agreement restrictions.
- Key risks include secular migration from print to digital, continuing advertising declines, competition for digital audiences and advertisers, acquisition and integration execution, and newsprint and labor costs.
- Variable-rate debt creates interest-rate exposure: management estimated a 100-basis-point LIBOR increase would raise annual interest expense by about $3.7 million. Debt covenants restrict additional borrowing, investments, asset sales and dividends; the company reported covenant compliance at year-end.
- Goodwill and masthead impairment testing resulted in $25.6 million of goodwill impairment and $1.8 million of masthead impairment in 2017. Further impairment is possible if forecasts or market conditions weaken.
- The company ceased printing at 15 facilities, recording $7.1 million impairment and $2.4 million accelerated depreciation. The pension plans were underfunded; pension and postretirement obligations totaled $25.5 million on the balance sheet.
- Fortress’s acquisition by SoftBank closed in December 2017. The filing identifies possible manager conflicts and uncertainty about effects on the company. The Manager received $10.6 million in management fees and $11.7 million in incentive compensation recognized in 2017.
- After year-end, a February 2018 credit amendment added $50 million of term loans, and the company announced a fourth-quarter dividend of $0.37 per share. Internal-control assessments excluded acquired 2017 businesses, which contributed $90.1 million of revenue and had $184.5 million of assets; management and the auditor otherwise reported effective controls and an unqualified financial-statement opinion.
Most important facts for investors to verify
- Confirm issuer identity: the provided 10-K is for New Media Investment Group Inc., not USA TODAY Co., Inc.
- Assess organic performance separately from acquisition effects and the additional 53rd week, particularly circulation growth and ongoing print advertising declines.
- Reconcile cash depletion, acquisition spending, dividends and debt balances; review interest-rate sensitivity, maturities and covenant headroom.
- Evaluate the sustainability of the dividend against operating cash flow, investment needs and credit-agreement restrictions.
- Review impairment assumptions, acquisition integration and the control-assessment exclusion for recently acquired businesses.