Business context and reporting period
This is New Media Investment Group Inc.’s unaudited Form 10-Q for the three months ended March 31, 2019, compared with the three months ended April 1, 2018. The filing describes a local-media, publishing, digital-marketing and events business operating across 617 markets and 39 states. The request metadata names USA TODAY Co., Inc., but the filing itself identifies New Media Investment Group Inc. as the registrant.
Financial results and liquidity
| Metric | Q1 2019 | Comparable 2018 period |
|---|---|---|
| Revenue | $387.6 million | $340.8 million |
| Operating income (loss) | $(1.4) million | $7.1 million |
| Net income (loss) | $(9.4) million | $(0.7) million |
| Net loss attributable to New Media | $(9.1) million; $(0.15) per share | $(0.7) million; $(0.01) per share |
| Adjusted EBITDA (non-GAAP) | $21.0 million | $26.8 million |
| Cash from operating activities | $31.7 million | $18.7 million |
| Cash used in investing activities | $(37.7) million | $(22.1) million |
| Cash from (used in) financing activities | $(18.1) million | $27.4 million |
Revenue increased 13.7%, primarily from acquisitions. Advertising rose 9.5% to $178.7 million, circulation rose 17.1% to $152.2 million, and commercial printing and other revenue rose 19.4% to $56.7 million. Approximate operating margin declined to (0.4)% from 2.1%; approximate net margin was (2.4)% versus (0.2)%.
At March 31, 2019, cash and cash equivalents were $24.6 million and restricted cash was $4.1 million, down from combined cash and restricted cash of $52.8 million at December 30, 2018. Current assets were $258.1 million and current liabilities $259.7 million. Operating cash flow exceeded the prior-year period, while investing outflows included $38.0 million for acquisitions, net of cash acquired. The cash-flow statement includes large movements in other assets and other long-term liabilities; investors should review their composition and cash-flow effects.
Balance-sheet debt was $446.7 million, including $435.4 million long-term and $11.3 million current debt. Credit-facility borrowings were $443.1 million, with an additional $8.0 million Halifax Alabama balance outstanding at quarter-end and repaid April 1, 2019. Revolver availability was $31.5 million. The facilities’ weighted-average interest rate was 8.73%; the company reported compliance with covenants, including a maximum total leverage ratio of 3.25 to 1.00. The term loan matures July 2022. Lease adoption added $102.6 million of right-of-use assets and $109.7 million of lease liabilities to the March 31 balance sheet.
Material changes versus the prior comparable period
- Revenue grew, largely through acquisitions, while the company said print advertising and circulation volumes continued to face secular pressure. Acquisitions partly offset underlying advertising declines in local retail, classified and preprint categories.
- Operating costs rose 16.9% and SG&A rose 10.7%, with acquired operations contributing substantially to both increases. The company reported lower compensation and delivery costs in remaining operations.
- Operating results moved from income to a loss; net loss widened to $9.4 million. Interest expense increased $1.8 million to $10.1 million, attributed primarily to higher debt and interest rates.
- Adjusted EBITDA declined about 21.9% to $21.0 million. It is a company-defined non-GAAP measure and includes adjustments; it should not be treated as a substitute for GAAP results or cash flow.
- Operating cash flow increased, but acquisition spending rose and the company paid $23.2 million of dividends. Cash and restricted cash declined by $24.1 million during the quarter.
- The company acquired local publications and related businesses for an aggregate purchase price of $34.5 million, financed with cash on hand. It also ceased operations at three print publications and one print facility.
Outlook, risks and unusual items
Management expected adequate resources to meet working-capital needs, debt obligations and required capital expenditures for at least the next 12 months. It forecast 2019 capital expenditures of $15 million to $17 million, primarily for print-operation consolidation and system upgrades. No specific revenue or earnings guidance was provided. Management described the first and third quarters as historically weaker advertising periods and the second and fourth as stronger.
Management’s strategy combines organic growth in consumer and small-business services, acquisitions of local media and digital-marketing assets, cost reduction, and quarterly dividends subject to financial performance, board approval and debt restrictions. A $0.38-per-share first-quarter dividend was announced May 2, 2019, payable May 22. Dividend continuation is not assured.
Key risks include continued print-advertising and circulation declines, local and broader economic weakness, execution and integration of acquisitions, the ability to grow digital services, high leverage and interest costs, covenant and dividend restrictions, and the ability to reduce costs. Goodwill and mastheads may require impairment if forecasts or market conditions weaken; the company reported no impairment indicators at quarter-end but noted limited headroom between estimated equity value and carrying value. The filing also describes potential conflicts related to its external manager, Fortress affiliate FIG LLC, and warns of risks from LIBOR transition. Management did not expect current or threatened legal proceedings to materially affect the company, while acknowledging unpredictable outcomes.
Unusual or significant items include $4.1 million of integration and reorganization costs, $1.2 million of long-lived asset impairment, and $1.8 million net loss on asset sales or disposals, compared with a $3.2 million gain in the prior-year quarter. Lease accounting adoption was effective December 31, 2018; prior-period balance sheets were not restated.
Important facts for investors to verify
- Confirm the issuer identity: this filing is for New Media Investment Group Inc., not an entity named USA TODAY Co., Inc.
- Separate acquisition-driven reported growth from same-store trends, particularly print advertising, circulation volume, and digital-services revenue.
- Review the drivers and sustainability of operating cash flow, including the substantial reported changes in other assets and other long-term liabilities.
- Assess debt service, the 8.73% weighted-average facility rate, revolver availability, covenant headroom, and the 2022 term-loan maturity.
- Evaluate whether cash generation can support acquisitions, capital spending, dividends and lease commitments; the quarter included $23.2 million of dividend payments.
- Review acquisition integration, preliminary purchase-price allocations, impairment sensitivity, and the manager relationship and associated fees or conflicts.