New Media Investment Group reports lower earnings despite new acquisitions
The owner of GateHouse Media saw same-store print ad revenue fall 7.7 percent in Q4, though overall revenue was essentially flat due to growth in digital and added properties
The newspaper company New Media Investment Group, which owns papers under the GateHouse Media name, reported its fourth quarter and year-end earnings this morning before the bell. Total revenue for the quarter was flat, though when looking at print advertising on a same-store basis, revenue fell 7.7 percent.
The real news in not included in this earnings statement as it can be a bit complicated. But the company that owns New Media is Fortress Investment Group, and it was sold last week to SoftBank Group for $3.3 billion. This will end speculation about whether another Chapter 11 is in store for the newspaper group – apparently not. But why has Softbank made the deal, and why did its CEO meet with Donald Trump in December?
Here is the earnings statement for New Media Investment Group, which owns such new The Columbus Dispatch and The Providence Journal:
NEW YORK, NY – February 21, 2017— New Media Investment Group Inc. today reported its financial results for the fourth quarter and full year ended December 25, 2016.
Fourth Quarter 2016 Financial Summary
- New Media declares a cash dividend of $0.35 per common share for the fourth quarter of 2016
- Total revenues of $333.6 million were flat to prior year, and decreased 0.6% on a same store basis
- Digital revenue of $32.4 million, increased 9.6% to prior year on a same store basis
- Operating income of $27.0 million
- Net income of $14.5 million
- As Adjusted EBITDA of $49.7 million*
- Free cash flow of $38.8 million*
- Liquidity, consisting of cash on the balance sheet and undrawn revolver, of $212.2 million
Full Year 2016 Financial Summary
- Total revenues of $1,255.4 million, which were up 5.0% to prior year and decreased 2.5% to prior year on a same store basis
- Digital revenue of $123.9 million, an increase of 9.2% on a same store basis
- Operating income of $61.4 million
- Net income of $31.6 million
- As Adjusted EBITDA of $155.8 million*
- Free cash flow of $113.4 million*
Fourth Quarter 2016 & Subsequent Business Highlights
- Announced and closed the acquisition of Harris Enterprises in the fourth quarter for $20.4 million, at the midpoint of our stated acquisition range of 3.5x-4.5x LTM As Adjusted EBITDA
- Propel Business Services (“Propel”), our small and medium business solutions platform, achieved another record quarter and year with $15.8 million and $53.0 million in revenue respectively, a 66.9% increase for the quarter and a 69.1% increase for the full year
- Completed an equity offering, raising $134.9 million net proceeds, improving liquidity and better positioning the company to execute on its acquisition strategy
- Announced and closed the acquisition of the Ohio-based publishing division of the Wooster Republican Printing Company in January 2017 for $21.2 million, within our stated acquisition range of 3.5x-4.5x LTM As Adjusted EBITDA
- Implemented a cost reduction program in early first quarter 2017 that is expected to reduce expenses over $3 million in first quarter 2017, and over $27 million for full year 2017
- Encouraging revenue trends and initiatives that give New Media confidence heading into 2017:
- Propel revenue growth, off a larger base, accelerated through the second half of 2016
- Fifty digital only sales representatives to be hired to further improve our digital revenue growth trends
- Implemented targeted circulation price increase initiatives across the country that we believe will lead to modest circulation revenue increases in 2017
- New Media’s events business seeing growth acceleration across our top 25 markets, hosting 120 events in 2016 and expecting 240 events in 2017. We believe this division will generate approximately $15 million in revenues in 2017.
- BridgeTower Media, our business publications platform, has grown to become a $75 million division
*For definitions and reconciliations of Non-GAAP Reporting measures, please refer to the Non-GAAP Financial Measures Note and reconciliations below.
Michael E. Reed, New Media President and Chief Executive Officer, commented, “During the quarter, we successfully closed our previously-announced acquisitions of the Columbia Daily Tribune and Rochester Business Journal, and announced and closed the acquisition of Harris Enterprises for $20.4 million. The Harris papers are a great complement to our footprint in Kansas and Iowa and have been serving their communities with quality local news and information for over a century. We were also pleased to recently announce and close our first deal for 2017, the acquisition of the publishing division of the Wooster Republican Printing Company for $21.2 million. This Ohio based group is a great strategic fit with our existing Ohio cluster. With this acquisition, we have now completed over $735 million of transactions since inception, completing eight transactions in 2016, the highest number of acquisitions we have done in any single year. With over $200 million in liquidity, New Media is well positioned to take advantage of more great acquisition opportunities at attractive valuations in 2017.
“Along with much of the industry, New Media’s fourth quarter results were impacted by increased headwinds across our traditional print products as our brick and mortar retail customers experienced a challenged holiday season, and some of our southeast properties felt the impact of Hurricane Matthew. The further decline in traditional print we experienced in the fourth quarter has only reinforced the importance and speed with which we need to execute our stated strategy to diversify our revenue streams away from traditional print media. We continue to be very optimistic about our ability to grow our new revenue streams and we are particularly encouraged by our growth trends in Propel Business Services, GateHouse Live, our events division, and BridgeTower Media, our business publications division.
“Propel continues to be a strong growth driver for us, finishing the quarter with $15.8 million in revenue, and the year with $53.0 million, a 69.1% increase over fiscal year 2015. We were thrilled to see revenue growth accelerate in this division, and off a larger base, through the second half of 2016, setting us up for meaningful growth in 2017. In an effort to further bolster our Propel and digital sales growth, we announced in the fourth quarter our plans to double our digital only staff by hiring over fifty new sales representatives within our markets in 2017. These additional sales representatives are intended to help scale our platform, increase the penetration of Propel in our local markets, and contribute to offsetting our traditional print advertising topline revenue declines by the end of the year.
“Another strong growth area for us is our events division, GateHouse Live, which held 120 events in 2016 and is expected to double the number of events in 2017. GateHouse Live specializes in delivering world-class events for the media industry and the communities they serve. We only started this division in 2015 and we have seen significant growth in the number of events we are hosting, with a high demand from our communities for more. One of the most popular events is our ‘Best of Preps’, which celebrates the top athletes in the community and will be hosted in over 20 markets this year. We expect GateHouse Live to generate approximately $15 million in revenue this year, doubling 2016 revenue.
“We are very encouraged to be able to continue to execute on our strategy of acquiring strong local media assets, within our valuation range, and supporting internal investment to create organic growth for our assets. We also expect to continue to return a substantial portion of our cash flow to shareholders in the form of a quarterly dividend. With the growth we continue to see from circulation revenue, Propel, GateHouse Live, and BridgeTower Media, combined with our strong pipeline for acquisitions, we are confident in our ability to deliver solid returns for shareholders in 2017.”
Fourth Quarter 2016 Financial Results
New Media recorded total revenues of $333.6 million for the quarter, flat to the prior year, and a decrease of 0.6% on a same store basis. This was the sixth consecutive quarter of improving same store trends. Traditional Print Advertising decreased 7.7% on a same store basis, which reflects the challenges the brick and mortar retail sector is currently facing, leading major retailers to decrease their volume of print ads and inserts, as well as closing stores across the country.
Digital continues to be a strong revenue category and increased 9.6% on a same store basis to $32.4 million. Propel generated $15.8 million in revenue, an increase of 66.9% to the prior year and now comprises 48.7% of total digital revenue.
Circulation revenue increased 2.8% on a same store basis, driven by targeted promotions and systematic price increases to result in incremental revenue. Commercial Print, Distribution and Events revenue increased 22.0% to the prior year, on a same store basis. Our fast growing Events business is a major contributor to the strong growth.
The company continues to find ways to operate more efficiently and to reduce expenses where possible, in order to offset the declining traditional print revenues. The company recently implemented a plan intended to achieve over $27 million of cost reductions that will be recognized in 2017. We will also continue to realize synergies from our latest acquisitions to drive lower expenses for the total Company while simultaneously investing in our growth initiatives, which we believe will lead to improved revenue trends.
Operating income was $27.0 million and Net income was $14.5 million.
As Adjusted EBITDA and free cash flow were $49.7 million and $38.8 million, respectively.
Fourth Quarter 2016 Dividend
New Media’s Board of Directors declared a fourth quarter 2016 cash dividend of $0.35 per share of common stock. The dividend is payable on March 16, 2017 to shareholders of record as of the close of business on March 8, 2017.
The declaration and payment of any dividends are at the sole discretion of the Board of Directors, which may decide to change the Company’s dividend policy at any time.
Full Year 2016 Financial Results
New Media recorded revenues of $1,255.4 million in 2016, which represents an increase of 5.0% when compared to the prior year, and a decrease of 2.5% on a same store basis.
Total Print Advertising decreased 9.3% from fiscal 2015 on a same store basis to $600.0 million. Digital revenue continued to be strong with revenue of $123.9 million for the year, increasing 9.2% on a same store basis. Propel contributed $53.0 million to Digital revenue, an increase of 69.1% to the prior year. Circulation revenue, our largest individual revenue category, saw revenue of $421.5 million in 2016 and importantly increased 2.5% to the prior year on a same store basis.
Operating income ended the year at $61.4 million and Net income at $31.6 million.
As Adjusted EBITDA and free cash flow were $155.8 million and $113.4 million for the year, respectively.
New Media’s 2016 dividends will not be treated as taxable dividends, as they are returns of capital.