July 27, 2017 Last Updated 8:20 am

New Media Investment Group reports loss in Q2 report, impacted by impairment charges

While total revenue was up slightly, due to acquisitions, print advertising fell 12.3 percent, though digital revenue grew 9 percent in the quarter

The newspaper publisher New Media Investment Group, which publishes papers under the GateHouse Media name, reported a loss in its second quarter earnings report, impacted by $27.4 million of impairment charges and $8.0 million of book tax expense.

The mixed results showed that while revenue was up overall, it fell 5.4 percent on a same store basis.

New Media’s shares fell over 2 percent on the news this morning.

Like other newspaper chains, New Media reported a sharp drop in print advertising, down 12.3 percent. But digital revenue was $34.8 million, an increase of 9 percent over the prior year. Circulation revenue was flat.

New Media would have been able to report a $14.9 million profit in the quarter without its charges, but continued print ad declines will mean the company will continue to look to cut costs to stay in the black.

Here is the publisher’s Q2 report:

NEW YORK, NY — July 27, 2017 — New Media Investment Group Inc.  today reported its financial results for the second quarter ended June 25, 2017.

Second Quarter 2017 Financial Summary

  • New Media declares a cash dividend of $0.35 per common share
  • Total revenues of $322.9 million were up 2.6% to prior year on a reported basis, and down 5.4% to the prior year on an organic same store basis
  • Digital revenue increased to $34.8 million, or up 9.0% to prior year on a reported basis
  • As Adjusted Expenses of $279.6 million were up 1.8% to prior year, and Organic Same Store Expenses were down 6.3% to prior year*
  • Net loss of $21.7 million, negatively impacted by approximately $36.6 million of non-cash charges, primarily $27.4 million of intangible impairments and $8.0 million of book tax expense. Excluding these items, the Company’s result was $14.9 million of Net income.
  • As Adjusted EBITDA of $43.3 million*, up 8.0% to prior year
  • Free Cash Flow of $33.7 million*, up 15.8% to prior year

Second Quarter 2017 & Subsequent Business Highlights

  • Closed the acquisition of Calkins Media on June 30, 2017 for $17.5 million, within our stated acquisition range of 3.5x-4.5x seller’s LTM As Adjusted EBITDA
  • Closed the sale of the Medford, Oregon Mail Tribune for $15.0 million on June 2, 2017 for above 7x LTM As Adjusted EBITDA
  • Completed repurchases of 391,120 shares at a weighted average execution price of $12.77 per share pursuant to previously announced share repurchase program
  • Liquidity, consisting of cash on the balance sheet and undrawn revolver, of $194.3 million
  • Closed on an amendment to our term loan extending the maturity date to July 14, 2022, increasing the outstanding term loan by $20 million, and increasing the accordion to $80 million
  • Rebranded Propel Business Services to UpCurve and Propel Marketing to ThriveHive
  • UpCurve, our SMB solutions provider, had revenue of $17.3 million, a 44.4% increase as compared to prior year. LTM revenue for this business is now $63.1 million.

Michael E. Reed, New Media President and Chief Executive Offer, commented, “We were pleased with the direction of our second quarter operating results. We saw an improvement in the trends for most of the important segments of our business. Our organic same store revenue trend decline improved to (5.4)% after being (6.2)% the previous two quarters. Further, as we forecasted on our first quarter earnings call, As Adjusted EBITDA and Free Cash Flow both showed growth over the prior year, reversing the declines we have seen the past few quarters. We feel very good about the initiatives we have in place across the Company and that they will positively impact future revenue, costs, and cash flow.

“Our small and medium business solutions platform was rebranded to UpCurve this quarter, better reflecting the goal we have for our products and services to help SMBs grow. UpCurve continues to show strong growth in terms of both revenues and customers. Based on our internal forecasts for the third quarter, UpCurve is now close to $90 million a year in revenue run rate, and we believe it will be a rapidly growing cash flow contributor as we continue to scale.”

Mr. Reed went on to say, “We were pleased to get a few deals done in the second quarter and subsequent, closing on the sale of the Medford, Oregon Mail Tribune for $15 million at a very attractive multiple, and acquiring the local media business in Pennsylvania from the Calkins family for $17.5 million. Even more importantly, we feel very good about our pipeline for acquisitions for the back half of 2017.

“We have also had some other positive developments since our last report including a $100 million share repurchase program that we instituted. We bought back over 390,000 shares during the quarter at a weighted average price of $12.77 per share. We also recently completed an amendment to our existing credit facility, extending the tenor of the term loan by two years to July 2022, increasing the size of the term loan by $20 million, and increasing our accordion to $80 million. Finally, this week the board authorized a second quarter dividend of $0.35 per share.

“Our optimism for the second half of the year and beyond is beginning to be validated by the progress in our performance that we saw during the second quarter. With available liquidity of $194.3 million at the end of the second quarter, we believe we are well positioned to deliver attractive future returns for shareholders.”

Second Quarter 2017 Financial Results

New Media recorded total revenues of $322.9 million for the quarter, up 2.6% to prior year and a decrease of 5.4% on an organic same store basis. Traditional Print Advertising decreased 12.3% on an organic same store basis, an improvement from the first quarter trend, but still reflecting the challenged environment for print advertising.

Digital revenue closed at $34.8 million, an increase of 9.0% to prior year. UpCurve generated $17.3 million in revenue, an increase of 44.4% to the prior year and now comprises 52.2% of total digital revenue.

Circulation revenue, one of our larger and more stable revenue categories, was flat on an organic same store basis. Commercial Print, Distribution, and Events revenue increased 1.0% to the prior year on an organic same store basis.

New Media continues to be committed to finding ways to operate more efficiently and reduce our expenses to preserve cash flows. In the second quarter, Organic Same Store Expenses decreased 6.3% to the prior year, which was more than enough to offset the decline in organic same store revenues, thus driving the increase in As Adjusted EBITDA and Free Cash Flow.

Operating loss was $6.5 million and Net loss was $21.7 million, both of which were negatively impacted by approximately $36.6 million of non-cash charges, primarily $27.4 million of intangible impairments and $8.0 million of book tax expense. Excluding these items, the Company’s result was $14.9 million in Net income. The impairment is calculated at the level of each of our four reporting units, where two units have impairment and in total there is more than $175 million excess of fair value over book value.

As Adjusted EBITDA was $43.3 million, which is up 8.0% to prior year and Free Cash Flow was $33.7 million, which is up 15.8% to prior year.

Second Quarter 2017 Dividend

New Media’s Board of Directors declared a second quarter 2017 cash dividend of $0.35 per share of common stock. The dividend is payable on August 17, 2017 to shareholders of record as of the close of business on August 9, 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.

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