Business context and reporting period
The filing is for New Media Investment Group Inc. (NYSE: NEWM), not a registrant named USA TODAY Co., Inc. It covers the quarter ended June 29, 2014. New Media owns local newspaper, digital publishing and marketing-service businesses, including Propel. Results are reported on a successor basis after the 2013 Chapter 11 emergence and fresh-start accounting; comparisons with the 2013 predecessor are therefore not fully comparable. Acquisitions also contributed materially to reported growth.
Financial performance and position
Amounts below are in millions, except per-share data. The company reported net losses in both periods.
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $158.4 | $119.6 | $300.5 | $230.2 |
| Operating income (loss) | $7.4 | $2.3 | $4.3 | $(0.2) |
| Adjusted EBITDA (non-GAAP) | $17.6 | $11.3 | $24.4 | $18.5 |
| Net loss | $(3.3) | $(14.1) | $(10.0) | $(31.6) |
| Operating cash flow | Not provided quarterly | $3.2 | $(1.1) |
Q2 reported revenue increased 32.5%, but acquisitions added $42.8 million; same-store revenue declined 0.5%. For the six months, reported revenue rose 30.5%, including $79.0 million from acquisitions, while same-store revenue fell 1.6%. Same-store advertising revenue declined 3.9% in Q2 and 5.6% for the half, partly offset by growth in commercial printing and other revenue, primarily Propel. Adjusted EBITDA is a company-defined non-GAAP measure and includes adjustments described in the filing.
At June 29, cash and cash equivalents were $31.3 million, with an additional $6.5 million of restricted cash. Current assets were $133.6 million and current liabilities $80.2 million. Total debt was $192.4 million carrying value, including $1.5 million current and $190.9 million long-term; the $200 million term loan principal is reduced on the balance sheet by unamortized original issue discount. Total liabilities were $285.1 million. Cash declined $0.5 million from year-end. Capital expenditures were $1.6 million for the half.
Material changes versus the prior comparable period
- Revenue and Adjusted EBITDA increased substantially on a reported basis, but acquisition contributions exceeded the net reported revenue increase; same-store revenue declined.
- Operating costs rose with acquired businesses, while same-store operating costs fell 2.4% in Q2 and 2.8% for the half. Same-store SG&A increased 3.8% in Q2 and 3.7% for the half.
- Interest expense decreased to $3.8 million in Q2 and $7.6 million for the half, versus $14.5 million and $28.9 million, respectively, in 2013. The company recorded a $9.0 million loss on early debt extinguishment following its June refinancing.
- Operating cash flow improved to $3.2 million for the half, but cash generation was affected by weaker working-capital contribution, including decreases in accrued expenses and accounts payable.
Outlook, commentary, risks and unusual items
- Management expected adequate liquidity for working capital, debt obligations and required capital expenditures for at least 12 months. It forecast 2014 capital expenditures of approximately $5.5–$6.5 million; no earnings or revenue guidance was provided.
- On June 4, the company refinanced prior facilities with a $200 million senior secured term loan due 2020 and a $25 million revolving facility due 2019. The agreement includes a maximum total leverage covenant of 3.25:1.00; the company reported compliance at June 29. The new debt is secured and subject to restrictions, including on dividends. Interest margins are 6.25% over Eurodollar or 5.25% over the base rate for term loans, subject to floors.
- Management described ongoing secular pressure on print advertising and circulation, alongside economic uncertainty. Cost reductions, operational consolidation, digital investment and acquisitions are central to its strategy. It intends to consider distributing a substantial portion of free cash flow as dividends, subject to performance, board approval, liquidity and debt restrictions.
- The annual impairment review found no impairment, but fair-value headroom was less than 10% for several newspaper reporting units and less than 3% for related mastheads. Management warned that weaker conditions or forecasts could trigger future impairment.
- Subsequent events: on June 30, the company completed acquisitions of 20 publications for $15.8 million, funded with $9.8 million cash and $6.0 million revolver borrowings. On July 22, it agreed to acquire The Providence Journal for $46 million, with closing expected before the end of Q3 2014.
- The company cited ordinary-course legal claims and proceedings but said a material adverse effect was remote. Restricted cash of $6.5 million collateralized letters of credit and certain operations.
Important facts for investors to verify
- Confirm the registrant identity: this filing names New Media Investment Group Inc.; the request metadata names USA TODAY Co., Inc.
- Assess how much revenue and earnings growth is attributable to acquisitions versus sustainable same-store performance, particularly ongoing print advertising declines.
- Review the new credit agreement’s leverage covenant, required repayments, cash-flow sweep and dividend limitations, and the effect of subsequent revolver borrowing.
- Evaluate the financing and integration of the June acquisitions and the pending $46 million Providence Journal purchase against liquidity and debt capacity.
- Monitor impairment headroom for newspaper reporting units and mastheads, and distinguish recurring operating performance from the $9.0 million refinancing loss and other Adjusted EBITDA adjustments.