Time Inc. reports lower revenue, net income, as transition away from print continues
Second quarter earnings report miss comes days after the company announced a major reorganization, centralizing sales into three segments – category sales, brand sales, and a new digital-only sales team
The publisher of TIME magazine and Sports Illustrated this morning reported its second quarter earnings before the markets opened. With the company making announcements concerning a reorganization before their earnings announcement, and with reports of more layoffs, it was expected that the company would report a revenue miss – and that was the case, though frankly I expected far worse.
Revenues fell 1 percent in the second quarter of 2016, caused mostly from a decrease in print advertising, as well as paid circulation. Digital growth, fueled by recent acquisition, was not enough to fulfill CEO Joe Ripp’s promise that the company would report revenue growth.
Time Inc.’s annual forecast has gone from projecting a 1 to 5 percent rise in revenue to 0 to 1.5 percent; operating income goes from $305M – $340M to $215M – $240M.
Net income, too, fell, though the company remains in the black, earning $18 million in Q2, versus $24 million a year ago. For the year, Time Inc. has made only $8 million in net income.
“We are entering an era where mobility and internet technology will touch every aspect of our lives. At Time Inc., we are positioning ourselves to benefit from the next wave of disruption. We are making progress to transform Time Inc. into a multi-platform, multimedia enterprise; and we are infusing digital and entrepreneurial culture into our day-to-day operations,” Time Inc Joe Ripp said in the earnings statement.
“In July, we announced our most far-reaching realignment program to date. It included very important changes to shed our siloed organizational structure. It enables us to integrate the Company across sales, edit, digital, brand management and native solutions and potentially unlock innovation, scale and synergy. I am confident that our new structure will enable us to seize the many new opportunities ahead.”
That realignment meant the exit of Executive Vice President Evelyn Webster who officially leaves at the end of this month. Now most of the company in the US reports into Rich Battista. Sales reports into Mark Ford and is organized into three segments: category sales, brand sales, and a new digital sales segment that will sell digital-first clients. (Odd that the company is saying it now recognizes the need for digital sales expertise.)
At the time of the reorganization announcement it was said that no further layoffs would be in the offing, but that has proved to be not true, if reports can be confirmed. About 110 positions are being eliminated, mostly from sales and marketing (which always leads to more revenue, right?).
Time Inc., like another struggling legacy publisher Tribune Publishing (now called tronc), has made the decision that publishers are no longer a luxury they can afford and have decided to centralize sales, and place the emphasis on total audience growth as opposed to healthy magazine brands. The result may be growth in digital ad programs run across brands, but it will likely mean the future shuttering of some of the publisher’s print magazines as there will no longer be a brand champion leading sales.
Among those leaving the company is MaryAnn Bekkedahl, the former Rodale group publisher, who was only hired in May to be President of the Fashion & Luxury brands which include InStyle, StyleWatch, Food & Wine, Travel + Leisure, and Departures. The NY Post’s Keith Kelly reported that Bekkedahl was among those “shown the door,” but a Time Inc. representative told TNM that it was her own decision to leave the company. One wonders, however, what her position would have been following the latest reorganization, what with publisher positions eliminated and sales management centralized under the new realignment.
This is what a company looks like that is run by a small group of executives in NYC who have far more invested in their stock than in the company they run. The problem is exacerbated by a fawning trade press that is constantly falling for the PR efforts of execs and fail to ask the hard questions like ‘do you have any clue what you are doing and where you are going? and do you actually have the talent on board that will get you there?’
Notes from conference call: Time Inc. is projecting that Brexit will mean the loss of around $20 million in revenue, presumably due to the lower value of the pound. CEO Joe Ripp also said, amazingly, that he anticipates that the company will be able to call on more accounts now that they have fewer sales people, but who are selling across brands. He also said that he personally talked to clients who said Time Inc. had too many people calling on the same account, then said he heard from clients who said they never talked to Time Inc. reps.
Here is Time Inc.’s Q2 earnings statement:
NEW YORK, NY – August 4, 2016 — Time Inc. reported financial results for its second quarter ended June 30, 2016.
Time Inc. Chairman and CEO Joe Ripp said, “We are entering an era where mobility and internet technology will touch every aspect of our lives. At Time Inc., we are positioning ourselves to benefit from the next wave of disruption. We are making progress to transform Time Inc. into a multi-platform, multimedia enterprise; and we are infusing digital and entrepreneurial culture into our day-to-day operations. In July, we announced our most far-reaching realignment program to date. It included very important changes to shed our siloed organizational structure. It enables us to integrate the Company across sales, edit, digital, brand management and native solutions and potentially unlock innovation, scale and synergy. I am confident that our new structure will enable us to seize the many new opportunities ahead.”
The Company’s Adjusted OIBDA, Adjusted Net income (loss), Adjusted Diluted EPS and Free Cash Flow are non-GAAP financial measures. See “Use of Non-GAAP Financial Measures” below and the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures in Schedules I through IV attached hereto.
*Excluding All You and This Old House
SECOND QUARTER RESULTS
Revenues decreased $4 million or 1% in the second quarter of 2016 from the year-earlier quarter to $769 million, primarily reflecting declines in Print and other advertising revenues and in Circulation revenues, partially offset by growth in Digital advertising revenues primarily driven by acquisitions. The stronger U.S. dollar relative to the British pound had a $6 million adverse impact on Revenues for the quarter ended June 30, 2016.
Advertising Revenues increased $6 million or 1% in the second quarter of 2016 from the year-earlier quarter to $426 million reflecting a 65% increase in Digital advertising revenues, primarily resulting from the benefit of the Viant acquisition and to a lesser extent growth in Digital advertising revenues relating to video and programmatic sales. Partially offsetting these increases was the decrease in Print and other advertising revenues.
Circulation Revenues decreased $18 million or 7% in the second quarter of 2016 from the year-earlier quarter to $236 million, primarily due to the continued shift in consumer preferences from print to digital media. We saw lower domestic Subscription revenues and lower international Newsstand revenues as well as a decline due to the net impact of acquisitions and dispositions.
Other Revenues, which include marketing and support services provided to third parties, branded book publishing, events, and licensing, increased $8 million or 8% in the second quarter of 2016 from the year-earlier quarter to $107 million, principally driven by the benefit of acquisitions partially offset by a decline in branded book publishing.
Operating Expense, which consists of Cost of Revenues and Selling, General and Administrative Expenses (“SG&A”), increased $30 million or 5% to $687 million, principally driven by increased expenses related to costs of operations of acquired businesses and growth initiatives, partially offset by benefits realized from previously announced cost savings initiatives and lower production costs. Additionally, included in SG&A for the quarters ended June 30, 2016 and 2015 were $7 million and $1 million, respectively, of costs related to mergers, acquisitions, investments and dispositions (“transaction costs”) which have been excluded from our Adjusted OIBDA calculation. The stronger U.S. dollar relative to the British pound had a $5 million favorable impact on Operating expense for the quarter ended June 30, 2016.
Operating Income (Loss) was income of $50 million and $61 million for the quarters ended June 30, 2016 and 2015, respectively. The decrease in Operating income in the second quarter of 2016 versus the second quarter of 2015 was primarily driven by higher expenses associated with operations of acquired businesses, growth initiatives and transaction costs as well as lower revenues, partially offset by a gain on sale of certain of our titles and lower depreciation expense.
Adjusted OIBDA of $89 million for the quarter ended June 30, 2016 represented a decrease of $28 millionfrom the year-earlier quarter of 2015.
Cash Flow Provided By (Used in) Operations was an inflow of $79 million for the quarter ended June 30, 2016 versus an inflow of $63 million for the year-earlier period.
Free Cash Flow was an inflow of $53 million for the quarter ended June 30, 2016 versus an inflow of $4 millionfor the year-earlier quarter, primarily reflecting lower capital expenditures as well as improvements in operating cash flows.
During the three months ended June 30, 2016, we repurchased $10 million of aggregate principal amount of our 5.75% Senior Notes at a discount and recognized a nominal pretax gain on the extinguishment of such notes. We also repurchased 2.17 million shares of our common stock at a weighted average price of $15.56 per share during the three months ended June 30, 2016. Such repurchases were made in accordance with our Board of Directors’ authorizations in November 2015.
The Company’s Adjusted OIBDA is a non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” below and the reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure in Schedule V attached hereto.