Business Context and Reporting Period
This Form 10-Q is for New Media Investment Group Inc. and subsidiaries for the three months ended March 26, 2017, compared with the three months ended March 27, 2016. The filing describes a local-media and publishing business operating across 557 markets and 36 states, with print publications, websites, directories, and digital marketing and event services. Entity note: The request identifies USA TODAY Co., Inc., but the filing itself names New Media Investment Group Inc.; confirm the intended issuer.
Financial Performance
| Metric | Q1 2017 | Prior-year quarter |
|---|---|---|
| Revenue | $307.5 million | $300.1 million |
| Operating income (loss) | $(2.8) million | $7.0 million |
| Net income (loss) | $(3.7) million | $5.0 million |
| Adjusted EBITDA (non-GAAP) | $21.3 million | $23.3 million |
| Operating cash flow | $18.2 million | $9.8 million |
| Capital expenditures | $2.4 million | $2.6 million |
Revenue rose 2.5%, but operating results weakened and the company moved to a net loss. Revenue mix shifted: advertising fell 4.9% to $155.6 million; circulation rose 6.7% to $110.8 million; and commercial printing and other revenue rose 26.3% to $41.2 million. Management reported same-store revenue up 2.2%, while organic same-store revenue, adjusted for non-material acquisitions/divestitures and intercompany commercial printing, was down 6.2%.
Cash and cash equivalents were $135.9 million at March 26, down from $172.2 million at December 25, 2016; restricted cash was $3.4 million. Current assets were $326.4 million and current liabilities $179.6 million. Debt carrying value totaled approximately $343.1 million, including $4.4 million current and $338.7 million long-term; no revolving-credit borrowings were outstanding. The secured credit agreement’s weighted-average rate was 7.25%. The company reported compliance with debt covenants. Financing cash outflow was $30.8 million, including $18.9 million of dividends and $10.9 million of term-loan repayments.
Material Changes and Unusual Items
- Four printing facilities ceased operations during the quarter, producing a $6.5 million long-lived-asset impairment charge. Twelve additional facility shutdowns were expected in the second and third quarters, with approximately $3.2 million of accelerated depreciation anticipated.
- Two acquisitions, including five daily newspapers, 15 weeklies, 11 shoppers, and an event-production business, were completed for an aggregate purchase price of $21.4 million, financed with cash on hand.
- Operating costs increased 1.8% and selling, general and administrative expenses increased 6.1%, with acquisition costs contributing to both increases. Integration and reorganization costs rose to $2.4 million from $0.9 million.
- Operating cash flow improved year over year, which management attributed primarily to working-capital changes and higher non-cash adjustments; cash used for acquisitions was $21.7 million, versus $58.7 million in the prior-year quarter.
- The company recorded a $6.3 million income-tax benefit and increased its deferred-tax valuation allowance by $3.4 million. Management cited a projected 2017 effective tax rate of 63%, primarily associated with deferred tax liabilities on indefinite-lived intangible assets.
Outlook, Risks, and Contingencies
No specific earnings or revenue guidance was provided. Management expected adequate liquidity to meet working-capital needs, borrowing obligations, and required capital expenditures for at least the next 12 months, and forecast 2017 capital expenditures of $11 million to $13 million. It intended to continue cost reductions, facility consolidation, digital investment, and acquisitions; quarterly dividends remained subject to performance, board approval, liquidity, and debt restrictions. A $0.35-per-share first-quarter 2017 dividend was announced after quarter-end.
Management cited continuing secular pressure on print advertising and circulation, economic and regional-market exposure, execution and integration risks from acquisitions and digital initiatives, debt-service and covenant constraints, and uncertainty over future dividend capacity. Goodwill and other intangible assets remain exposed to impairment if cash-flow expectations or industry valuation multiples weaken. The company disclosed ordinary-course legal matters but did not expect current or threatened proceedings to have a material adverse effect, while acknowledging that outcomes are uncertain. It also identified pension underfunding; the risk-factor section quantified pension and postretirement plans as underfunded by $25.8 million.
Investor Verification Priorities
- Confirm the intended registrant: the supplied company name does not match the issuer named in this filing.
- Reconcile reported same-store revenue growth of 2.2% with the separately stated 6.2% decline in organic same-store revenue, including the respective adjustments and definitions.
- Review the quality and sustainability of operating cash flow, including working-capital effects, while considering acquisition spending, dividends, and debt repayments.
- Verify debt balances, maturities, interest costs, covenant headroom, and the effect of ongoing dividends on liquidity and capital flexibility.
- Track planned print-facility closures, expected accelerated depreciation, restructuring costs, and any further impairment charges.
- Assess whether digital and circulation growth can offset continuing print advertising pressure, and whether the projected tax rate and pension funding needs affect future cash generation.