Time Inc. limps along, revises forecast as chances that 2016 would see revenue gains fades
The Time Inc. earnings report has gotten a bit complicated in recent quarters. For one thing, the company has taken massive impairment charges that have driven losses, charges that probably should be ignored in order to see how the underlying business is doing.
In its Q3 earnings report, the first one where Joe Ripp won’t be involved in the conference call, one can see the transformation of the company coming into focus.
Print advertising is down significantly, but thanks to acquisitions and a move in a new direction, digital revenue is way up. A year ago, in the same quarter, print accounted for 80 percent of revenue. This year that is down to under 70 percent.
Under Joe Ripp, Time Inc. promised that 2016 would be the year that things turned around and the company recorded revenue growth. That didn’t happen, but it didn’t happen because the company remained an unwieldy collection of titles, with no one person understanding the whole. The company reorganized, made cutbacks, then reorganized again. Now Ripp is gone (and some holes were created in the speaker slots of those far too frequent industry events where CEOs tell nothing of important), and his CFO Jeff Bairstow left, as well.
Under new CEO Rich Battista, one can expect some print magazines to be sold off or shuttered. A recent rumor has the company in talks with Meredith. But Meredith will not want to buy titles that don’t fit perfectly with their current portfolio, that means they will want lifestyle magazines, not business titles.
As for Time Inc, I expect that the company will want to concentrate on areas Battista is comfortable: video, broadcast, digital. You can see the M&A opportunities, can’t you?
Here is Time Inc.’s third quarter earnings statement:
NEW YORK, NY – November 3, 2016 — Time Inc. reported financial results for its third quarter ended September 30, 2016.
Time Inc. President and CEO Rich Battista said, “As we continue our aggressive transformation to a digital-first company, I am pleased with the strong growth of our digital advertising revenues and digital audiences in the third quarter. The integration of Viant, our proprietary targeting and data platform, into the overall Time Inc. go-to-market approach is bringing new, unique capabilities to our advertising partners, and beginning to yield incremental revenue across the portfolio. Our native advertising business, through The Foundry, is experiencing rapid growth. We now have a more compelling, exciting and differentiated set of solutions for marketers, which combine our premium content and large-scale audiences with our unique data and people-based targeting capabilities. The recent realignment of our ad sales and editorial operations will allow us to move with more speed, agility and focus, while better leveraging our major audience scale. I see opportunity to unlock significant value through our portfolio of assets despite the disruption going on in media and advertising.”
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 the impact of the closure of All You and the disposition of This Old House
THIRD QUARTER RESULTS
Revenues decreased $23 million or 3% in the third quarter of 2016 from the year-earlier quarter to $750 million, primarily reflecting declines in Print and other advertising revenues and 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 $14 million adverse impact on Revenues for the quarter ended September 30, 2016 as compared to the year-earlier quarter.
Advertising Revenues increased $19 million or 5% in the third quarter of 2016 from the year-earlier quarter to $417 million reflecting an 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 programmatic sales. Partially offsetting these increases was a decrease in Print and other advertising revenues. The stronger U.S. dollar relative to the British pound had a $5 million adverse impact on Advertising revenues for the quarter ended September 30, 2016 as compared to the year-earlier quarter.
Circulation Revenues decreased $38 million or 15% in the third quarter of 2016 from the year-earlier quarter to $223 million, primarily due to the continued shift in consumer preferences from print to digital media. We saw lower domestic Subscription revenues and lower domestic and international Newsstand revenues. The stronger U.S. dollar relative to the British pound had an $8 million adverse impact on Circulation revenues for the quarter ended September 30, 2016 as compared to the year-earlier quarter.
Other Revenues, which include marketing and support services provided to third parties, branded book publishing, events and licensing, decreased $4 million or 4% in the third quarter of 2016 from the year-earlier quarter to $110 million, principally driven by a decline in revenues from branded book publishing.
Operating Expenses, which consist of Costs of revenues and Selling, general and administrative expenses (“SG&A”), decreased $17 million or 3% to $652 million, reflecting benefits realized from previously announced cost savings initiatives and real estate savings realized and noncash losses recognized in connection with the settlement of a domestic excess pension plan in the year-earlier quarter. These decreases were partially offset by increased costs of operations of acquired businesses and growth initiatives. The stronger U.S. dollar relative to the British pound had a $12 million favorable impact on Operating expenses for the quarter ended September 30, 2016 as compared to the quarter ended September 30, 2015. Additionally, included in SG&A for the quarter ended September 30, 2016 and 2015 were $2 million and $3 million, respectively, of costs related to mergers, acquisitions, investments and dispositions (“transaction costs”) which have been excluded from our Adjusted OIBDA calculation.
Restructuring and Severance Costs increased $35 million to $43 million for the quarter ended September 30, 2016 in comparison to the quarter ended September 30, 2015 primarily related to the realignment program announced in July to unify and centralize the editorial, advertising sales and brand development organizations.
Operating Income (Loss) was a loss of $167 million and $899 million for the quarters ended September 30, 2016 and 2015, respectively. Operating income (loss) in the third quarter of 2016 included Asset impairments of $188 million, primarily related to a definite-lived tradename intangible, and in the third quarter of 2015 included a Goodwill impairment charge of $952 million.
Adjusted OIBDA of $100 million for the quarter ended September 30, 2016 represented a decrease of $13 million from the year-earlier quarter of 2015.
Cash Provided By (Used In) Operations was $79 million for the quarter ended September 30, 2016 versus $84 million for the year-earlier period.
Free Cash Flow was $62 million for the quarter ended September 30, 2016 versus $15 million for the year-earlier quarter, primarily reflecting lower capital expenditures.
During the three months ended September 30, 2016, we repurchased $5 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 1.11 million shares of our common stock at a weighted average price of $15.06 per share during the three months ended September 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.