April 6, 2017 Last Updated 2:51 pm

Postmedia Network reports loss in Q2 as ad revenue tumbles 22%

Loss was $26.7M, far less than the year before when the company took a $187M impairment charge, but cutting costs, and good gains in digital advertising, cannot make up for losses in ad and circulation revenue

Some earning reports need to come with a giant asterisk somewhere in them. Postmedia Network’s Q2 report is like that. At first blush it is probably nice to see that the company lost a whole lot less money than it had the year before. But then you see that the reason is that last year the company took a massive impairment charge in the quarter. Take that out and what you see is that Postmedia is in the red and while cutting costs is making the losses less massive, they are not doing the trick of pulling the company out of its downward spiral.

The cause, of course, remains revenue. It fell 14 percent overall, but ad revenue fell 22.2 percent. That is an eye popping number.

If this were hockey (I’d say baseball normally, but this is a Canadian newspaper publisher, after all), we’d be talking about firing the coach and making changes to upstairs management. But this is publishing, where the only ones who lose their jobs over poor performance are the staff – even staff that have nothing to do with sales or strategy.

There are few people I know who have much sympathy for Postmedia. The only somewhat empathetic comment I’ve ever heard from someone in the industry is that they wished this were happening to Rupert Murdoch’s News Corp rather than Paul Godfrey’s Postmedia – but they then amended that to say they would wish it on both.

Pretty mean, but…

Here are the Q2 2017 earnings from Postmedia Network:


TORONTO, Ontario – April 6, 2017 — Postmedia Network Canada Corp.  today released financial information for the three and six months ended February 28, 2017.

Second Quarter Operating Results

Net loss in the quarter ended February 28, 2017 was $26.5 million, as compared to $225.1 million in the same period in the prior year. The decrease in net loss was primarily the result of a $187.0 million non-cash impairment charge in the prior year and a decrease in interest expense.

Operating income before depreciation, amortization, impairment and restructuring of $6.0 million in the quarter represents a decrease of $6.7 million relative to the same period in the prior year. The decrease is due to revenue declines which were only partially offset by operating cost savings.

Revenue for the quarter was $180.8 million as compared to $209.1 million in the prior year, a decrease of $28.3 million (13.5%). The revenue decline was primarily due to decreases in print advertising revenue of $25.2 million (22.6%) and print circulation revenue of $5.5 million (8.7%). Digital revenue increased $2.6 million (10.3%) in the quarter.

Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $21.6 million (11.0%) for the quarter, relative to the same period in the prior year. The decrease was primarily related to cost reduction initiatives.

Year-to-Date Operating Results

Net loss in the six months ended February 28, 2017 was $8.6 million, as compared to $229.4 million in the same period in the prior year. The decrease in net loss was primarily the result of a $165.4 decrease in non-cash impairment charges, a gain on debt settlement of $78.6 million in the first quarter of fiscal 2017 realized as part of a recapitalization transaction and a decrease in interest expense partially offset by an increase in restructuring costs.

Operating income before depreciation, amortization, impairment and restructuring for the six months ended February 28, 2017 was $27.8 million, a decrease of $27.4 million relative to the same period in the prior year. The decrease is due to revenue declines which were only partially offset by operating cost savings.

Revenue for the six months ended February 28, 2017 was $395.6 million as compared to $460.2 million in the prior year, a decrease of $64.5 million (14.0%). The revenue decline was primarily due to decreases in print advertising revenue of $56.4 million (22.2%) and print circulation revenue of $11.6 million (8.8%). Digital revenue increased $3.9 million (7.0%) in the six months ended February 28, 2017.

Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $37.1 million (9.2%) for the six months ended February 28, 2017, relative to the same period in the prior year. The decrease was primarily related to cost reduction initiatives.

Business Transformation Initiatives

During the three and six months ended February 28, 2017, the Company implemented initiatives which are expected to result in $43 million and $61 million of net annualized cost savings, respectively.

The Company will continue to identify and undertake ongoing cost reduction initiatives in an effort to address revenue declination in the legacy print business.

Financing Transactions

As part of a recapitalization transaction, on October 5, 2016, the Company’s 12.5% Senior Secured Notes due 2018 were exchanged for shares of the Company that represented approximately 98% of the outstanding shares at that time. The Company issued US$88.6 million ($115.5 million) of 10.25% Second-Lien Secured Notes due 2023 and with these proceeds redeemed $77.8 million aggregate principal amount of 8.25% Senior Secured Notes due 2017 at par. The resulting $225.0 million of 8.25% Senior Secured Notes due 2017 outstanding were amended and restated such that the maturity date was extended to July 15, 2021 (“First-Lien Notes”).

During the three months ended February 28, 2017 the Company redeemed $1.1M of First-Lien Notes with net proceeds from asset sales in accordance with the terms of the Company’s First-Lien Notes indenture. An additional $1.2 million of First-Lien Notes will be redeemed April 18, 2017.

The Company entered into a senior secured asset-based revolving credit facility effective as of January 18, 2017 (“ABL Facility”) for an aggregate amount of up to $15.0 million. The ABL Facility can be used for general corporate purposes and will mature on January 18, 2019.

Management Commentary

“As we continue to transform Postmedia we are also focused on growth initiatives,” said Paul Godfrey, President and CEO, Postmedia. “We are pleased with the growth in digital revenue this quarter, particularly digital advertising revenues.”

Note: All dollar amounts are expressed in Canadian dollars unless otherwise specified.

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