Business context and reporting period
This 10-Q is for New Media Investment Group Inc. (formerly GateHouse Media), for the three months ended March 30, 2014; the supplied filing is not a USA TODAY Co., Inc. filing. New Media owns local newspapers, websites, mobile sites, directories and digital marketing services, operating in 356 markets across 24 states. It emerged from Chapter 11 in November 2013, adopted fresh-start accounting and became separately publicly traded in February 2014.
Comparisons are between the Successor Company in Q1 2014 and the Predecessor Company in Q1 2013. Fresh-start accounting, acquisitions and the inclusion of Local Media mean the periods are not directly comparable.
Financial performance and position
Amounts below are in millions, except per-share data and percentages.
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Revenue | $142.0 | $110.6 |
| Operating loss | $(3.1) | $(2.5) |
| Net loss | $(6.7) | $(17.5) |
| Loss per share, diluted | $(0.22) | $(0.30) |
| Adjusted EBITDA, non-GAAP | $6.7 | $7.1 |
| Operating cash flow | $1.5 | $0.2 |
- Q1 revenue rose 28.4% year over year, including $36.2 million from acquisitions. Same-store revenue declined 2.8%; same-store advertising fell 7.5%, circulation fell 0.6%, and commercial printing and other revenue rose 24.2%.
- Operating loss equaled approximately 2.2% of revenue; Adjusted EBITDA equaled approximately 4.7%. The filing reports no GAAP operating profit. Adjusted EBITDA is non-GAAP and includes management-identified one-time or non-cash expenses of $2.4 million in Q1 2014.
- Cash from operations was $1.5 million; investing used $8.7 million, including $8.0 million for acquisitions, and financing used $2.7 million. Cash and cash equivalents fell $9.9 million to $21.9 million. Restricted cash was $6.5 million and collateralized letters of credit and certain operations.
- At March 30, total debt carrying value was approximately $182.0 million, comprising $4.7 million current and $177.3 million long-term debt. The facilities included first- and second-lien GateHouse loans and Local Media debt; scheduled principal payments rise substantially in 2018 and 2019. Debt fair values are Level 3 estimates.
- Total assets were $670.7 million, total liabilities $282.0 million and stockholders’ equity $388.7 million. Current assets of $119.3 million exceeded current liabilities of $90.4 million. Cash plus restricted cash was $28.4 million, although restricted funds were not freely available.
Material changes and management commentary
- Reported revenue growth reflected acquisitions, while same-store revenue declined. Management attributed advertising weakness principally to print declines in local retail and classified categories, secular digital migration and a weak, uncertain economy. Print circulation volume also declined, partly offset by selective price increases.
- Same-store operating costs declined 3.4%, reflecting cost reductions and operating consolidation; same-store selling, general and administrative expense increased 3.7%.
- Interest expense fell to $3.8 million from $14.4 million, primarily due to the 2013 debt restructuring. Net loss from continuing operations narrowed to $6.7 million from $17.4 million.
- New Media acquired two daily and three weekly publications in Victorville, California, for approximately $7.9 million, including estimated working capital. Its fair-value allocation remained preliminary.
- On February 13, Newcastle completed the spin-off; New Media began NYSE trading as NEWM on February 14. The FIG LLC management agreement became effective, and the company recorded $0.8 million in management fees in the quarter; none had been paid by quarter-end.
Outlook, risks and unusual items
- Management expected adequate liquidity for working capital, debt obligations and required capital expenditures for at least the next 12 months. Planned 2014 capital expenditures were approximately $5.5–$6.5 million. No specific revenue or earnings guidance was provided.
- Management described first and third quarters as historically weaker for advertising, with second and fourth quarters stronger. It expected this seasonality to continue.
- The company said it intends to pursue local-media acquisitions and digital growth, including Propel, and may distribute a substantial portion of free cash flow as dividends. Dividends are subject to Board approval, financial performance, available cash and debt-agreement restrictions.
- Debt agreements impose leverage, fixed-charge coverage, EBITDA, capital spending and other covenants. The company reported compliance at March 30, 2014, but warned that declining cash flows could make covenant compliance more difficult. Management also cited leverage as a constraint on financial flexibility.
- Other risks include continuing print advertising and circulation declines, economic weakness, seasonal revenue patterns, impairment risk if forecasts or market multiples deteriorate, and exposure to changing interest rates. A $6.25 million-notional interest-rate swap was entered into in February 2014.
- Restructuring costs were $0.4 million for the quarter; the remaining restructuring reserve was $1.4 million, expected to be paid within 12 months. A $2.3 million increase in the tax valuation allowance was recorded; the reported income-tax benefit was $0.6 million.
- The filing reported no material changes to previously disclosed legal proceedings or risk factors. Management considered a material adverse outcome from current legal matters remote.
Important facts for investors to verify
- Confirm filing identity: this document is for New Media Investment Group Inc., not USA TODAY Co., Inc.
- Assess the underlying trend using same-store results, especially the 7.5% decline in advertising, separately from acquisition-driven reported growth.
- Review debt maturities, borrowing costs, covenant headroom and revolving-credit availability; confirm restricted cash is excluded from freely available liquidity.
- Evaluate cash generation against planned capital expenditures, acquisition spending, restructuring payments and any prospective dividends.
- Check the final purchase accounting for the Victorville acquisition, tax-asset realizability and assumptions supporting goodwill and masthead values.
- Interpret the year-over-year comparison cautiously because fresh-start accounting, acquisitions and the predecessor/successor transition limit comparability.