November 9, 2017 Last Updated 8:46 am

Time Inc. Q3 revenue falls 9%, but lower costs, no charges, result in $13M net income in quarter

Print ad revenue fell 18 percent, with digital ad revenue growing 2 percent — for the year, the publisher is reporting a loss of $59 million

NEW YORK, NY — November 9, 2017 — Time Inc. reported today financial results for the third quarter ended September 30, 2017.

Time Inc. President and CEO Rich Battista said, “We delivered strong operating and financial metrics in the third quarter despite the challenging print environment. Our Adjusted OIBDA of $115 million grew 15% and we continued to execute on our disciplined cost plan and grow our non-Magazines revenue. We expect revenue derived from Digital and Brand Extensions & Other sources to reach approximately $1 billion in 2017. In addition, our Free cash flow grew 18% to $73 million, our best quarterly result for this metric since 2014. During the third quarter, we successfully launched our Strategic Transformation Program to drive revenue optimization opportunities, new investments in key growth areas and more than $400 million of targeted run-rate cost savings. In October, we also closed on a series of refinancing transactions that extended our debt maturities and balanced our capital structure providing us with improved financial flexibility. Furthermore, we are reaffirming our 2017 Adjusted OIBDA Outlook of at least $400 million with a plan to be flat year-over-year.”

Battista continued: “Our new management team remains focused on executing effectively against our growth strategy to sustain the strength of our print products, increase our growing digital revenues and extend our brands through high-margin, high-value offerings. With monthly U.S. unique visitors reaching a record 139 million across Time Inc., we are committed to leveraging our massive scale and powerful brand portfolio to serve our consumers anytime, anywhere.”

THIRD QUARTER RESULTS

Revenues decreased $71 million, or 9%, in the third quarter of 2017 from the year-earlier quarter to $679 million, reflecting declines in Print and other advertising and Circulation revenues, partially offset by growth in Digital advertising and Other revenues. The U.S. dollar relative to the British pound did not have a significant impact on Revenues for the quarter ended September 30, 2017.

Advertising Revenues decreased $48 million, or 12%, in the third quarter of 2017 from the year-earlier quarter to $369 million, primarily due to a decrease in Print and other advertising revenues, driven by lower average price per page and fewer advertising pages sold as a result of the continuing secular trend of advertisers shifting spending from print to digital media. Digital advertising revenues increased $3 million, or 2%, primarily due to an increase in programmatic sales, including the favorable impact of an acquisition, native and branded content advertising and video. This increase was partially offset by significantly reduced revenue from one large customer and by lower display advertising. The U.S. dollar relative to the British pound did not have a significant impact on Advertising revenues for the quarter ended September 30, 2017.

Circulation Revenues decreased $26 million, or 12%, in the third quarter of 2017 from the year-earlier quarter to $197 million, as a result of the continued shift in consumer preferences from print to digital media. The U.S. dollar relative to the British pound did not have a significant impact on Circulation revenues for the three months ended September 30, 2017.

Other Revenues, which include branded book publishing, marketing and support services provided to third parties, events and licensing, increased $3 million, or 3%, in the third quarter of 2017 from the year-earlier quarter to $113 million, due to an increase in television, content licensing and syndication and growth in event revenues, partially offset by lower revenues due to the sale of INVNT (our event production subsidiary sold in July 2017). The U.S. dollar relative to the British pound did not have a significant impact on Other revenues for the three months ended September 30, 2017.

Sources of Revenues – Beginning this quarter, we are providing additional information about our revenues by source. Identified sources of revenues are (1) Magazines, (2) Digital, and (3) Brand Extensions & Other.

Magazines decreased by $73 million, or 14% in the third quarter of 2017 from the year-earlier quarter to $433 million, reflecting the continued secular shift in consumer preferences and advertiser spend from print to digital media. Magazines represented 64% of our total revenues for the three months ended September 30, 2017, as compared to 68% for the three months ended September 30, 2016. Magazines consists of revenues generated from the sale of printed magazines, bundled print and digital offers and magazine distribution, fulfillment and marketing services provided to third-party publishers.

Digital increased $5 million, or 3%, in the third quarter of 2017 from the year-earlier quarter to $165 million, primarily due to an increase in content licensing and syndication and Digital advertising, partially offset by a decline in revenues from our local media agency. Revenues from Digital sources represented 24% of our total revenues for the three months ended September 30, 2017, as compared to 21% for the three months ended September 30, 2016. Digital consists of revenues generated on digital platforms, such as Digital advertising (including programmatic, native and branded content and video), content licensing and syndication, digital-only subscriptions and digitally-transacted paid products and services.

Brand Extensions & Other decreased $3 million, or 4%, in the third quarter of 2017 from the year-earlier quarter to $81 million, primarily due to lower revenues related to the sale of INVNT and declines related to the timing of our event sponsorship revenues, partially offset by an increase in television licensing and other licensed product revenues. Brand Extensions & Other represented 12% of our total revenues for the three months ended September 30, 2017, as compared to 11% for the three months ended September 30, 2016. Brand Extensions & Other represents revenues generated by leveraging our brands and other intellectual property. Brand Extensions & Other consists of branded book publishing, including bookazines, events, brand licensing, and television licensing, as well as revenues from custom publishing, INVNT and other revenues.

Costs of Revenues and Selling, General and Administrative Expenses decreased $80 million, or 12%, in the third quarter of 2017 from the year-earlier quarter to $572 million. The decrease in Costs of revenues and Selling, general and administrative expenses was driven by savings from previously announced cost savings initiatives, lower circulation promotional expenses and reduced printing, production and distribution costs driven by lower paper volume and prices. Additionally, included in Selling, general and administrative expenses were $8 million and $2 million of Other costs related to mergers, acquisitions, investments and dispositions, and integration and transformation costs for the quarters ended September 30, 2017 and 2016, respectively. These costs have been excluded from our Adjusted OIBDA calculation. The U.S. dollar relative to the British pound did not have a significant impact on Costs of revenues and Selling, general and administrative expenses for the quarter ended September 30, 2017.

Restructuring and Severance Costs decreased $17 million to $26 million in the third quarter of 2017, primarily due to the costs of the realignment program to unify and centralize the editorial, advertising sales and brand development organizations that was announced in 2016 being greater than the costs incurred to implement previously announced cost savings initiatives and the strategic transformation program announced in August 2017.

Asset Impairments decreased $188 million to nil for the three months ended September 30, 2017, due to the impairment of a domestic tradename intangible recognized during the three months ended September 30, 2016.

(Gain) Loss on Operating Assets, Net was a gain of $4 million and $2 million for the three months ended September 30, 2017 and 2016, respectively. This increase was related primarily to the sale of INVNT.

Operating Income (Loss) was income of $51 million for the three months ended September 30, 2017 and loss of $167 million for the three months ended September 30, 2016. We recognized Asset impairments of $188 million, related primarily to a domestic tradename intangible, during the three months ended September 30, 2016.

Other (Income) Expense, Net was an expense of $6 million for the three months ended September 30, 2017 and $2 million for the three months ended September 30, 2016. The increase was primarily due to an other-than-temporary impairment of a cost-method investment during the three months ended September 30, 2016.

Adjusted OIBDA was $115 million and $100 million for the quarters ended September 30, 2017 and 2016, respectively.

Cash Provided By (Used In) Operations was an inflow of $88 million for the quarter ended September 30, 2017 versus an inflow of $79 million for the year-earlier quarter.

Free Cash Flow was an inflow of $73 million in the third quarter of 2017 versus an inflow of $62 million for the year-earlier quarter, reflecting primarily an increase in Cash provided by (used in) operations.

On November 9, 2017, our Board of Directors declared a dividend of $0.04 per common share to stockholders of record as of the close of business on November 30, 2017, payable on December 15, 2017.

Debt Obligations – On October 11, 2017, we completed the private offering of $300 million aggregate principal amount of 7.50% senior unsecured notes due in 2025 (the “7.50% Senior Notes”) and entered into Amendment No. 1 (the “Amendment”) to our credit agreement dated April 24, 2014, governing the senior secured credit facilities.

Among other things, the Amendment (i) extended the maturity of the revolving credit facility from June 2019 to October 2022 and of the term loan from April 2021 to October 2024, or, in each case, if more than $100 million of the Company’s 5.75% senior notes due 2022 (the “5.75% Senior Notes”) are outstanding on January 14, 2022 (the “Springing Maturity Date”), to the Springing Maturity Date, (ii) reduced the revolving credit commitments under the revolving credit facility from $500 million to $300 million (of which $185 million will be available for the issuance of letters of credit) and (iii) amended certain other provisions thereof.

The Company used the net proceeds from the offering of 7.50% Senior Notes, together with cash on hand, to (i) repay $200 million of the outstanding borrowings under the term loan, (ii) repurchase $100 million aggregate principal amount of the 5.75% Senior Notes in privately negotiated repurchases and (iii) pay fees and expenses of the transactions described above.

The Company completed this offering of the 7.50% Senior Notes and entered into the Amendment in order to (i) extend our debt maturity profile while remaining debt neutral, (ii) balance our capital structure by issuing fixed rate 7.50% Senior Notes to mitigate future variable interest rate volatility on our term loan (iii) take advantage of favorable market conditions, and (iv) reduce the size of the revolving credit facility.

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