Business context and reporting period
New Media Investment Group Inc. (NYSE: NEWM) filed this unaudited Form 10-Q for the quarter ended June 28, 2015. The filing describes a local-media and newspaper publisher operating across 492 markets in 32 states, with print, web, mobile, and digital marketing products. The request metadata names USA TODAY Co., Inc.; that does not match the registrant identified in the filing.
Unless otherwise noted, financial figures below are in millions of dollars. Comparisons are with the three or six months ended June 29, 2014, as applicable.
Financial performance and position
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $299.5 | $158.4 | $550.1 | $300.5 |
| Operating income | $19.5 | $7.4 | $22.1 | $4.3 |
| Net income (loss) | $11.2 | $(3.3) | $5.1 | $(10.0) |
| Adjusted EBITDA (non-GAAP) | $36.9 | $17.6 | $55.2 | $24.4 |
| Operating margin | 6.5% | 4.7% | 4.0% | 1.4% |
| Net margin | 3.7% | (2.1%) | 0.9% | (3.3%) |
For the six months, advertising revenue was $320.8 million, circulation $172.8 million, and commercial printing and other $56.5 million. Same-store revenue declined 3.5% in Q2 and 2.0% for the half-year; same-store advertising fell 5.9% and 3.6%, respectively. Management attributed pressure chiefly to print advertising declines and secular and economic conditions; circulation price increases partly offset print volume declines.
Six-month operating cash flow was $51.2 million, compared with $3.2 million a year earlier. Investing used $428.7 million, primarily for $425.5 million of acquisitions; financing provided $266.5 million, including equity issuance and borrowings. Cash and cash equivalents fell to $12.7 million from $123.7 million at year-end; restricted cash was $7.0 million. Current assets were $206.3 million and current liabilities $163.0 million.
At June 28, total debt carrying value was $386.6 million, including $3.5 million current debt and $383.1 million long-term debt, net of $10.4 million unamortized original issue discount. The filing reports $397.1 million of scheduled outstanding principal and $29.0 million drawn on the revolving facility. The credit agreement’s weighted-average interest rate was 7.07%; the company reported compliance with its covenants. Stockholders’ equity was $612.0 million.
Material changes and unusual items
- Reported Q2 revenue rose 89.0% and first-half revenue 83.1%, largely because of acquisitions; the filing attributes $141.1 million of Q2 and $244.9 million of first-half revenue increases to acquired businesses. Same-store revenue declined in both periods.
- Major 2015 acquisitions included Halifax Media ($285.5 million purchase price), Stephens Media ($110.8 million), and central Ohio publications ($47.0 million). Acquisition purchase-price allocations remained preliminary for certain transactions.
- First-half debt increased alongside acquisitions. The company issued 7.0 million shares in January, generating approximately $150.1 million net proceeds, and paid $28.0 million in dividends. Dividends declared were $0.63 per share for the first half; a $0.33-per-share second-quarter dividend was announced after quarter-end.
- Integration and reorganization costs were $3.6 million for the first half, principally severance and consolidation costs. No early-extinguishment loss was recorded in 2015; the prior-year periods included a $9.0 million loss related to debt refinancing.
- The filing reports no goodwill impairment in its second-quarter annual assessment, but says Large Daily Newspapers and Ventures had less than 10% valuation headroom and certain mastheads less than 3%, leaving them exposed to adverse changes in forecasts or market conditions.
Outlook, commentary, and risks
Management expected 2015 capital expenditures of $11.5 million to $13.5 million, primarily for print-operation consolidation and system upgrades, and stated it expected adequate liquidity for at least the next 12 months. It aims to grow consumer and small-business revenues, including through Propel digital marketing services, pursue acquisitions, reduce costs, and distribute a substantial portion of free cash flow as dividends, subject to performance, board approval, and debt restrictions. No quantified earnings or revenue guidance was provided.
Risks highlighted include continued declines in same-store print advertising and profitability, shifts to digital media, economic weakness, leverage and debt-service requirements, covenant constraints, and possible future goodwill or masthead impairment. The company said ordinary-course litigation was not expected to have a material adverse effect; it reported no material changes to previously disclosed legal proceedings or risk factors.
Key facts for investors to verify
- Confirm the intended issuer: the supplied metadata says USA TODAY Co., Inc., while the filing is for New Media Investment Group Inc. (NEWM).
- Assess how much reported growth and cash generation came from acquired operations versus same-store performance, and whether acquisition synergies offset ongoing print declines.
- Review debt balances, interest costs, maturities, leverage-covenant calculations, and the impact of future required debt repayments on dividends and acquisition capacity.
- Monitor cash conversion and liquidity after the large acquisition outflows, including working-capital movements and remaining revolver availability.
- Track preliminary acquisition valuations, goodwill and masthead valuation headroom, and any subsequent impairment indicators.
- Evaluate the sustainability of the $0.33 quarterly dividend against free cash flow, debt terms, and management’s stated capital priorities.