USA TODAY Co., Inc. (company identified in request) — filing identity note
The supplied Form 10-Q is for New Media Investment Group Inc. (NYSE: NEWM), not a registrant named USA TODAY Co., Inc. It covers the quarter ended September 28, 2014, and was signed October 30, 2014. The financial statements distinguish the post-bankruptcy “Successor Company” from the “Predecessor Company”; fresh-start accounting and acquisitions make direct year-over-year comparisons imperfect. Dollar amounts below are in millions unless noted.
Business context and reporting period
New Media owned and operated local newspapers, websites, mobile sites, directories, and digital marketing services. It reported one aggregated segment and described a strategy of growing digital and consumer revenue, pursuing acquisitions, cutting costs, and distributing a substantial portion of free cash flow as dividends when permitted. The filing reports 372 markets in 27 states and more than 14 million people reached weekly.
Financial performance and position
| Metric | Quarter ended Sep. 28, 2014 | Nine months ended Sep. 28, 2014 |
|---|---|---|
| Revenue | $165.1 | $465.5 |
| Operating income | $4.6 | $8.9 |
| Net loss attributable to New Media | $(4.7) | $(14.7) |
| Adjusted EBITDA, non-GAAP | $15.5 | $39.9 |
| Operating cash flow | Not separately provided for the quarter | $24.0 |
- Quarterly revenue comprised advertising of $96.8, circulation of $49.8, and commercial printing and other of $18.5. Reported revenue increased 31.0% from the prior-year quarter; management attributed $34.0 of the increase to acquisitions. Same-store revenue rose 2.3% for the quarter. For the nine-month period, reported revenue rose 30.7%, largely reflecting acquisitions, while same-store revenue declined 0.3%.
- Quarterly operating margin was approximately 2.8%; nine-month operating margin was approximately 1.9%. Adjusted EBITDA margins were approximately 9.4% and 8.6%, respectively. These are simple calculations from reported figures, not company guidance.
- Cash from operating activities was $24.0 for the nine months, versus cash used of $9.7 in the prior-year period. Investing activities used $74.0, including $71.8 for acquisitions; financing activities provided $153.3. Cash and cash equivalents ended at $135.1, with a further $6.5 of restricted cash.
- At September 28, current assets were $245.5 and current liabilities $97.1 (a calculated current ratio of about 2.5). Restricted cash collateralized insurance letters of credit and certain business operations.
- Debt principal was $240.0: $200.0 of term loans plus $15.0 drawn on a $25.0 revolving facility and $25.0 of incremental term borrowing. The balance sheet reports $232.3 of current and long-term debt after the unamortized original issue discount. The weighted-average interest rate was 7.13%; term loans mature in 2020 and the revolver in 2019. Debt is secured, and the credit agreement includes a maximum 3.25:1 leverage covenant. The company reported covenant compliance.
- In September, New Media issued 7.45 million shares at $16.25 per share, generating approximately $114.9 net proceeds. It paid $8.1 in dividends during the nine months and declared a further $0.27 per-share quarterly dividend after quarter-end.
Material changes versus the prior comparable period
- Reported revenue growth primarily reflects the inclusion of acquired businesses, notably Local Media and The Providence Journal; it should not be read as equivalent organic growth. Same-store revenue was up 2.3% in the quarter but down 0.3% year to date, with same-store advertising down 3.4% over nine months.
- Quarterly net loss narrowed from $129.2 attributable to New Media in the prior-year quarter to $4.7. The prior-year period included a $91.6 impairment charge, $9.8 of reorganization costs, and substantial interest expense, including derivative-related amounts. Nine-month net loss attributable to New Media narrowed from $160.8 to $14.7, but periods are not fully comparable.
- Operating cash flow improved by $33.7 year over year for the nine months. The company refinanced prior facilities in June 2014, raised equity in September, and increased debt to fund acquisitions, including The Providence Journal.
- Fresh-start accounting following the 2013 Chapter 11 emergence reset asset and liability values; acquired operations and changed share counts also affect comparisons.
Outlook, commentary, risks, and unusual items
- Management expected adequate capital and liquidity for working capital, debt obligations, and required capital expenditures for at least 12 months. Estimated 2014 capital expenditures were $5.5–$6.5. No formal earnings or revenue guidance was provided.
- Management cited persistent secular declines in print advertising and circulation, uncertain economic conditions, and migration to digital media. It also said local print advertising remained pressured, while Propel and other digital offerings were growth initiatives. Cost reduction, operational clustering, and acquisitions were central to its plans.
- Management warned that leverage could limit financial flexibility and that weaker operating cash flow could make covenant compliance more difficult. Dividends are discretionary and subject to board approval, financial performance, liquidity, and credit-agreement restrictions.
- Goodwill and mastheads passed the June 2014 impairment assessment, but fair-value headroom for certain reporting units was less than 10% and for certain mastheads less than 3%; management identified them as vulnerable to adverse changes. No new impairment indicators were identified as of September 28.
- The nine-month results included a $9.0 loss on early extinguishment of debt and $2.0 of integration and reorganization costs. The Providence Journal acquisition’s purchase-price allocation was preliminary; the acquired business contributed $6.4 of revenue and $0.8 of net income from acquisition through quarter-end.
- The company increased its deferred-tax valuation allowance by $6.4 during the nine months. Management said ordinary-course legal matters were not expected to have a material adverse effect; it reported no material changes to previously disclosed risk factors or legal proceedings.
- The filing gives inconsistent record dates for the declared $0.27 dividend: November 12 in the financial-statement note and November 11 in MD&A. Both sections state payment on November 20; verify the correct record date.
Most important facts an investor should verify
- Confirm the registrant and ticker: the supplied filing is New Media Investment Group Inc. (NEWM), despite the USA TODAY Co., Inc. request metadata.
- Separate acquisition-driven growth from same-store trends, particularly the continuing advertising decline, and assess whether digital and circulation gains are sustainable.
- Review operating cash flow against acquisition spending, debt service, the leverage covenant, and the capacity to maintain dividends.
- Check final acquisition valuations and subsequent performance of The Providence Journal and other acquired publications, along with impairment headroom for goodwill and mastheads.
- Verify the dividend record date and review the credit agreement’s limits on distributions and required excess-cash-flow repayments.