U.S. Markets closed

Edited Transcript of TRNC earnings conference call or presentation 7-Aug-19 9:00pm GMT

Q2 2019 Tribune Publishing Co Earnings Call

CHICAGO Aug 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Tribune Publishing Co earnings conference call or presentation Wednesday, August 7, 2019 at 9:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Amy Bullis

Tribune Publishing Company - Senior Director of Finance

* Terry Jimenez

Tribune Publishing Company - Executive VP & CFO

* Timothy P. Knight

Tribune Publishing Company - CEO & Director

================================================================================

Conference Call Participants

================================================================================

* Lance William Vitanza

Cowen and Company, LLC, Research Division - MD & Cross-Cap Structure Analyst

* Michael A. Kupinski

NOBLE Capital Markets, Inc., Research Division - Director of Research and Senior Media & Entertainment Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, ladies and gentlemen, and welcome to the Tribune Publishing Second Quarter Earnings Call. (Operator Instructions) As a reminder, today's conference is being recorded.

I would now like to turn the call over to Ms. Amy Bullis, Vice President of Finance. Ma'am, you may begin.

--------------------------------------------------------------------------------

Amy Bullis, Tribune Publishing Company - Senior Director of Finance [2]

--------------------------------------------------------------------------------

Thank you, and welcome to our second quarter 2019 earnings conference call. Before we begin, I would like to remind you that management will make forward-looking statements during the course of this call, and our actual results could differ materially. Statements containing words such as may, believe, anticipates, expects, intend, plan, will, continue, estimate, outlook or other similar expressions are forward-looking statements. Material differences in our actual results from those described in these forward-looking statements may result in actions taken by the company as well as from risks and uncertainties beyond the company's control. Some of these risks and uncertainties that could impact our businesses are included in documents publicly filed with the Securities and Exchange Commission, including our annual report on Form 10-K.

I should also mention that our remarks today will include references to non-GAAP financial measures, including adjusted EBITDA, adjusted total operating expenses, adjusted net income, adjusted diluted earnings per share, adjusted EBITDA margin and net debt. And we have provided definitions and reconciliations to the most comparable GAAP measures in our earnings press release, which is available on our website at investor.tribpub.com.

Joining me today is CEO and President, Tim Knight; Executive Vice President and Chief Financial Officer, Terry Jimenez; and Manager of Investor Relations, Michael Ferreter.

I will now turn the call over to Executive Vice President and Financial Officer, Terry Jimenez.

--------------------------------------------------------------------------------

Terry Jimenez, Tribune Publishing Company - Executive VP & CFO [3]

--------------------------------------------------------------------------------

Thank you, Amy. Good afternoon, everyone, and thank you for joining us today. I want to mention that Michael Ferreter has joined us as our new Investor Relations lead. He will be the primary contact for investors going forward.

We delivered a strong second quarter closing out our first half of 2019 results. We exceeded our expectations on both revenue and adjusted EBITDA in the second quarter. Our performance reflects the value we are delivering to consumers, advertisers and partners, all enabled by our passionate team across Tribune Publishing.

Before we dive into the details, let me start with some housekeeping. To aid in comparison purposes, I will make sure that I speak to same-business results to provide a better view on organic results for the second quarter. Same-business results will exclude 2 components: the Virginian-Pilot, which had 13 weeks of operations in 2019 results but only had 5 weeks of operations included in the 2018 results; and secondly, the transition services revenue recorded related to the services we are providing to owners of the California properties. The exclusion of these elements is the basis for same-business comparisons.

Total revenues for the second quarter of 2019 were $250.3 million, which was down 1.1% from the same quarter in 2018. On a same-business basis, total revenue declined 6.5%, which was largely due to industry-wide print advertising revenue declines. Sequentially, this is an improvement of 60 basis points versus Q1's results. We saw revenue growth in key high-value focus areas of consumer and commerce revenues.

Our consolidated second quarter 2019 operating expenses were $242.2 million, down from $254.3 million in the second quarter of 2018. Same-business adjusted operating expenses were down $16.6 million or 7.4% year-over-year in the quarter as we continued to aggressively but thoughtfully manage our expenses.

In the second quarter of 2019, our income from continuing operations totaled $5.3 million, improving significantly compared to a loss of $15.1 million in the same quarter of 2018.

In the second quarter of 2019, we had net income attributable to Tribune stockholders of $2.7 million or $0.08 per share compared to net income of $265 million or $7.51 per share for the second quarter of 2018. Last year included a significant gain derived from the sale of the California properties.

Adjusted EBITDA for the second quarter of 2019 was $24.4 million, which was $2.2 million improvement compared to the second quarter of 2018 of $22.2 million. This resulted in a significant margin improvement on a year-over-year basis. The increase year-over-year in adjusted EBITDA was due to several factors, including 3 months of operating results from The Virginian-Pilot versus only 1 month last year, strong year-over-year adjusted EBITDA trends for BestReviews and the New York Daily News, expense reductions outpacing the level of revenue declines. However, partially offsetting these positive results was what we mentioned on the last earnings call. We had a negative adjusted EBITDA impact for the quarter of $10,250,000 due to increased multiemployer pension contribution.

On a last 12-month basis, revenue is $1.030 billion, and adjusted EBITDA is $108.8 million.

We believe our balance sheet continues to be very strong and stable. At the end of the quarter, we had $139.9 million of cash made up of $102.6 million unrestricted and $37.3 million of restricted cash. Of note, we were able to reduce our letter of credits covered by the restricted cash by $6.7 million in the quarter, freeing up the cash to unrestricted.

We will continue to look for further opportunity in reducing the level of restricted cash as we believe the opportunity exists to reduce further.

Approximately $53.8 million of this cash was used to pay for a special dividend in July. Our pension liability sits at $18.5 million, which is lower than the end of the first quarter as well as the end of 2018. We continue to have no debt with the exception of approximately $7 million in capital leases that are classified as debt in the new lease accounting classifications on the balance sheet.

In terms of capital expenditures, we continued to invest in our technology infrastructure. Gross CapEx in the second quarter was $9.3 million. We are now left with only our Virginia properties to come on board to our new content management system in the coming weeks. We are hyper-focused on the customer experience across all our touch points. And with all of our business on the same platform, the speed of change can and will accelerate in a positive way.

Now I will touch on the performance of each of our reporting segments. Total revenues for M in the second quarter of 2019 were $200 million, which was down 5.9% compared to the second quarter of the prior year. On a same-business basis, total revenues were down 9.5% as we continue to experience downside pressure in print advertising. Print advertising year-over-year declined 14.4% on a same-business basis, which is a 180 basis point improvement from the first quarter.

Print advertising represented 32% of our total revenue for the quarter as compared to 35% for the full year 2018. Profitability metrics showed strong improvement for M as income from operations and adjusted EBITDA were both up year-over-year despite the $10.25 million impact previously mentioned. This growth was driven by strong cost management, some allocation shift of costs from M being invested in X and we also saw an improved bottom line at the New York Daily News, which also celebrated its 100th anniversary in June.

X had $45.1 million of total revenue in the second quarter of 2019, up 12.3% compared to the prior year quarter. The growth came from a strong organic increase in digital-only subscription revenue, significant growth in BestReviews and the Virginian-Pilot digital revenues.

We continue to see solid traction in growing our digital paid subscribers. We grew an additional 92,000 subscribers to end the quarter at 300,000. This compares to 208,000 at the end of the same quarter last year.

Additionally, we see continued growth at our BestReviews business. Visits are up 27% year-over-year to the site; revenues are up 43% year-over-year, and adjusted EBITDA are up several million dollars year-over-year.

Profitability metrics were also up in X year-over-year given the strong revenue growth, partially offset by increase in resource allocations to our X segment as mentioned in describing the M business a minute ago.

Now turning to our guidance. Like last earnings call, we thought it would be helpful to provide the upcoming quarter as well as the full year guidance. For Q3 2019, we anticipate total revenue between $235 million to $240 million, and adjusted EBITDA we anticipate will fall in the range of $21 million to $23 million.

For the full fiscal year 2019, we are increasing our previous guidance of adjusted EBITDA to $102 million to $106 million range for fiscal year 2019.

Before turning the call over to Tim, I want to spend a few minutes highlighting our key financial priorities. While the industry and our business continued its migration from offline to online, we are arguably continuing to be in the best financial and operational position that we have been in for the past decade with a lot of strategic and operational flexibility, and we are focused on building on that position. We will achieve this by maintaining and growing our adjusted EBITDA while simultaneously investing in our digital businesses, continuing to diversify our revenue streams.

As mentioned, proportional growth from our consumer base revenue commerce becoming more predominant will continue to be more important as print advertising becomes a minor portion of our overall revenue streams.

Additionally, we'll maintain our balance sheet flexibility. We currently have no debt and have historically low pension balances and firmly committed to driving value creation for shareholders through cash flow generation, thoughtful capital allocation, all underpinned by strong operational excellence which will be achieved by being hyper-focused on the customer and the customer experience, improving the revenue trend line, improving profitability through focused fundamental changes and making smart investments in the business to accelerate our transformation.

With that, I will turn it over to our CEO, Tim Knight.

--------------------------------------------------------------------------------

Timothy P. Knight, Tribune Publishing Company - CEO & Director [4]

--------------------------------------------------------------------------------

Thank you, Terry. Before we turn to questions, I want to share a few thoughts on our Q2 results and how we view the rest of the year. Our leadership team has been hyper-focused on execution this year in order to provide a strong foundation for future revenue and adjusted EBITDA growth. Our strong second quarter results reflect the benefit of this work.

I want to briefly highlight a few actions and successes we had in our 3 strategic areas of focus: revenue, audience and people.

First, we experienced strong and steady digital subscription and revenue growth. Terry highlighted the success we had during the quarter. The entire leadership team is aligned around growth in digital consumer relationships as a key metric for the health of the business. We consistently look at the various drivers of these relationships and what each team across the company can help do to fuel this growth.

Second, while executing on our digital transformation is our primary objective, our goal to extend the life of print involves serving our most loyal and valuable home delivery subscribers. We are undertaking further market research to better understand the drivers for print subscriber retention and how we can execute against any opportunities in the most efficient manner.

Finally, we have initiated a number of actions to increase employee engagement across the organization. We continue to hire top talent in all of our newsrooms, with focus on enhancing the diversity of our staff to better represent the communities we have the privilege to serve.

In addition, we are adding sales representatives in each market and in late June launched a comprehensive sales training program for all sales representatives. By the end of this year, nearly all of our sales reps and leadership will have gone through this training program. We are confident this will help accelerate improvement in our sales across the entire organization.

While there's a great deal more occurring across the company, I wanted to highlight these areas. Now we will open it up for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And our first question will come from the line of Lance Vitanza from Cowen.

--------------------------------------------------------------------------------

Lance William Vitanza, Cowen and Company, LLC, Research Division - MD & Cross-Cap Structure Analyst [2]

--------------------------------------------------------------------------------

Great quarter, congratulations. Let me ask you, on the digital-only subscribers increasing 44% to 300,000, could you talk a little bit about how many of those are on a kind of a free trial period this quarter versus a year ago? I'm trying to get a sense for really I guess the growth in paying digital-only subs as opposed to total digital-only subs and any sort of thoughts on average pricing. I mean obviously the revenue growth speaks for itself but would be great to get a little bit more definition around those trends.

--------------------------------------------------------------------------------

Terry Jimenez, Tribune Publishing Company - Executive VP & CFO [3]

--------------------------------------------------------------------------------

Sure. Lance, this is Terry. All of the digital subs that we report, the 300,000, are paying us money. We do offer a range of different offers to start, which usually start maybe as low as $1, but certainly we're collecting some revenue stream for those. So we're not offering any free to that existing base at this time.

--------------------------------------------------------------------------------

Lance William Vitanza, Cowen and Company, LLC, Research Division - MD & Cross-Cap Structure Analyst [4]

--------------------------------------------------------------------------------

Okay. And then if you think about sort of the percentage or the proportion of the base that are on the sort of promotional periods, has that been sort of a steady proportion? Or is that proportion increasing? I mean it looks like the digital-only subs up 44% year-over-year. Content revenues at X are up 31%. Now I understand that content revenues includes syndication and e-commerce as well as the subscription revenues, but doesn't the performance suggest that ARPU -- I guess it's suggest that ARPU is going down and/or the free promo period subscribers are going up. But I guess in either case, there's enough elasticity of demand here such that you're seeing a good revenue growth. Is that the right way to think about it?

--------------------------------------------------------------------------------

Terry Jimenez, Tribune Publishing Company - Executive VP & CFO [5]

--------------------------------------------------------------------------------

Yes, so I think actually as our base essentially gets a little bit more mature the new entrants are coming in at maybe at a starting lower rate actually is a smaller proportion than what it historically has been. So each quarter as we continue to grow, the core base of the longer tenures continue to grow as well as a proportion. And so our actual average rate is up on a year-over-year basis as it relates to digital-only subscribers individually.

--------------------------------------------------------------------------------

Lance William Vitanza, Cowen and Company, LLC, Research Division - MD & Cross-Cap Structure Analyst [6]

--------------------------------------------------------------------------------

Okay. Great. And I might have misheard. Did you say that BestReviews revenues were up 40-plus percent year-over-year as well? Or did I mishear you on that?

--------------------------------------------------------------------------------

Terry Jimenez, Tribune Publishing Company - Executive VP & CFO [7]

--------------------------------------------------------------------------------

No, that's correct.

--------------------------------------------------------------------------------

Lance William Vitanza, Cowen and Company, LLC, Research Division - MD & Cross-Cap Structure Analyst [8]

--------------------------------------------------------------------------------

Okay, all right. I guess I wanted to ask you, the quality of earnings looks like it also improved. Restructuring add-backs were down under $2 million in the quarter. Could you give us some sense for what we should expect in terms of cash restructuring charges over the balance of the year and maybe if possible into next year at least directionally?

--------------------------------------------------------------------------------

Terry Jimenez, Tribune Publishing Company - Executive VP & CFO [9]

--------------------------------------------------------------------------------

Yes. I think as we talked about in the previous calls, Q4 of last year and Q1 of this year we had a couple of larger events I'd say that was kind of driving that number up to be abnormally large. I think this quarter it's probably a little bit lower than what we run at on a normal basis. And so I think it's probably be closer to this number's quarter than it has been for the last couple of quarters, but we don't guide specifically to that. But I would say, we're now getting to more of a normalized level.

--------------------------------------------------------------------------------

Lance William Vitanza, Cowen and Company, LLC, Research Division - MD & Cross-Cap Structure Analyst [10]

--------------------------------------------------------------------------------

Okay. Maybe one more for me, if I could, and then I'll get back in the queue. But just looking at the guidance for the quarter and for the year, if I'm looking at it right, it looks like adjusted EBITDA will be well ahead of 3Q '18 but well below 4Q 18? And I'm wondering if you could comment on that if I'm reading that right. And if so, why the sort of the seesaw?

--------------------------------------------------------------------------------

Terry Jimenez, Tribune Publishing Company - Executive VP & CFO [11]

--------------------------------------------------------------------------------

Yes, I think as we go through -- progress the year -- so last year we have taken a number of actions that kind of built up through the year. So we had a few actions that took place in the second quarter of last year to help drive some performance, and we also have the benefit of Virginian-Pilot this year running at -- at least in this quarter as well as next year, we'll be at a full synergy run rate for this year, where last year it was still on a presynergy run rate. And so we'll have a little bit benefit from the Virginian-Pilot.

Also, we have some actions in Q3 into Q4 that we're starting to cycling against some of those actions that took place last year, and we started getting the benefit for those last year. And I think really the other major component is as we proceed throughout this year, our performance is much stronger this year than it was last year. So the relative management incentive associated with the earnings is higher this year than it was last year in the fourth quarter.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

And our next question will come from the line of Michael Kupinski from NOBLE Capital Markets.

--------------------------------------------------------------------------------

Michael A. Kupinski, NOBLE Capital Markets, Inc., Research Division - Director of Research and Senior Media & Entertainment Analyst [13]

--------------------------------------------------------------------------------

Congratulations on the quarter. There's a couple of really notable things about this quarter. First of all, you had improving ad trends sequentially, which is a little surprising given the choppiness of the general markets out there. I was wondering if you could just maybe talk a little bit about the trends both in the newspaper print side because you're seeing -- you saw some sequential improvement there. What -- can you just kind of give us a little bit of color of why you're seeing that at this point?

--------------------------------------------------------------------------------

Terry Jimenez, Tribune Publishing Company - Executive VP & CFO [14]

--------------------------------------------------------------------------------

Sure. Yes, this is Terry. And I think for us, this is always something that we focus on. We want to make sure that we're optimizing the level of revenue that's coming in print. Certainly, there's a strong base of advertisers that are still using print to help balance out their marketing portfolios. We think that there's value in not only the branding side of the marketing they get out of the print side but also the ROI that they get and action that people take from reading the ads and engage with the ads at a higher level than some other marketing mediums. So we feel pretty good about our approach there. I think there is a little bit of choppiness with all -- albeit it's within a tight window where we'll see -- quarter-to-quarter, we'll see a little bit of benefit. One quarter the next benefit may be a little bit down. But for the most part, we've seen us get better than what we've been trending out over the last several years. So the last 3 quarters have been I think relatively good. We're certainly doing everything that we can. As Tim mentioned, on the training aspects, the training composed really in general selling as well as really heavy focus on the digital side. And so I think training and investing on our sales side has also been an element that I think reaps some benefit for us short term, and we think we'll have opportunities to be even better moving forward.

--------------------------------------------------------------------------------

Michael A. Kupinski, NOBLE Capital Markets, Inc., Research Division - Director of Research and Senior Media & Entertainment Analyst [15]

--------------------------------------------------------------------------------

And you still are cycling against the easy comps I guess from the bankruptcies and so forth from a year earlier in the third quarter. I think it kind of started to settle down in the fourth quarter of last year if I recall. So you have that at your -- the back I guess as well. And then on the -- second thing that's notable about this quarter is that the compensation expenses were lower than I would have expected given the -- what you were expecting, the $10.5 million and so forth. So can you just talk a little bit about maybe some of the initiatives you might have had on the compensation side?

--------------------------------------------------------------------------------

Terry Jimenez, Tribune Publishing Company - Executive VP & CFO [16]

--------------------------------------------------------------------------------

Yes, the majority of the initiatives actually were taken in previous quarters. There's a little bit of additional expense management that took place in the second quarter, but substantially, we took out a number of resources to rightsize the business in Q3 of last year. Going into Q4, we had launched the voluntary program, which also had a number of employees that voluntarily decided to exit. And then the beginning of the year, we had some restructuring in both Chicago and New York for our driver base. And so those comp expenses are all kind of rolling through on a full run rate basis in Q2. And then also we had some of the executive changes at the beginning of the year that also we got the benefit in Q2 for as well.

--------------------------------------------------------------------------------

Michael A. Kupinski, NOBLE Capital Markets, Inc., Research Division - Director of Research and Senior Media & Entertainment Analyst [17]

--------------------------------------------------------------------------------

Got you. And then on the newsprint side, can you just give us some thought -- I know it's not a huge component of total cost anymore, but could you just give us some thought of maybe usage versus pricing on newsprint.

--------------------------------------------------------------------------------

Terry Jimenez, Tribune Publishing Company - Executive VP & CFO [18]

--------------------------------------------------------------------------------

Yes. So pricing was for the quarter up slightly year-over-year, volume down in the teens range. We have been focused, as you recall, as the tariffs were rolled out last year, the peak pricing really occurred in Q3 of last year, end of August. And so we'll have the benefit on a year-over-year basis for the first time in a number of quarters of, hopefully, pricing being down year-over-year. That's what we anticipate. And so as we kind of hit that peak pricing year-over-year, we'll see some benefit moving forward. But a number of the things that we've laid in to kind of reduce the volume in light of the high newsprint pricing will actually still continue as well. So we'll have kind of the benefit of both, hopefully, the price tailwind for us as well as some volume action that we were taking as well.

--------------------------------------------------------------------------------

Michael A. Kupinski, NOBLE Capital Markets, Inc., Research Division - Director of Research and Senior Media & Entertainment Analyst [19]

--------------------------------------------------------------------------------

Got you. And other companies are looking at other additional cost reduction efforts. Some publishers are even looking at the prospect of not printing a Saturday edition. Has the company been testing this concept? And if so, have you determined how much savings you might have versus the impact on revenues? Just your thoughts.

--------------------------------------------------------------------------------

Terry Jimenez, Tribune Publishing Company - Executive VP & CFO [20]

--------------------------------------------------------------------------------

Yes. So we periodically look at this. I'd say for our footprint and the assets that we have, each day incrementally is profitable. So we haven't had -- we haven't been forced to look at how do we reduce the days. We continue to look at how we can increase the value to the customer. Certainly, it doesn't mean that someday in the future we may have fewer days that we're printing than we do today. But at least short term and near term, we haven't tested this. We've done a couple of reductions on our free products, where they used to be weekly we moved to a -- I'm sorry, every day during the week. And then we moved those to a Wednesday or Thursday product. But outside of the free products, we haven't done this on the paid side.

--------------------------------------------------------------------------------

Michael A. Kupinski, NOBLE Capital Markets, Inc., Research Division - Director of Research and Senior Media & Entertainment Analyst [21]

--------------------------------------------------------------------------------

And then my final question is that obviously we're seeing industry consolidation, and I'm going to ask the elephant-in-the-room type question in terms of the post New Media and Gannett planned merger. Can you just give me your thoughts in terms of how this might affect Tribune, what your thoughts are in terms of further industry consolidation and potential competition, whatever or however you might want to address the post-merger between those 2 companies?

--------------------------------------------------------------------------------

Terry Jimenez, Tribune Publishing Company - Executive VP & CFO [22]

--------------------------------------------------------------------------------

Yes. So for us, I think it's relatively -- it's business as usual for us. We've had a couple of good quarters in a row that we want to keep -- continue that momentum as we finish out this year into next year. Certainly, that transaction, as they had mentioned, likely wouldn't close before too far into the year this year. And then there's a lot of heavy lifting they'll have on integration and move forward in the next year. So I think for us, it's relatively isolated. There's a few markets that we operate adjacencies to in Florida but not a heck of a lot. So we don't think competitively we'll see any challenges there.

Certainly, we're focused on making sure that we operate the business as well as we can on a stand-alone basis. And if there's a strategic opportunity for us to match up with somebody else, certainly our Board would consider that, but that's not something we're focused on. We're focused on doing the best that we can with the existing Tribune Publishing assets.

--------------------------------------------------------------------------------

Michael A. Kupinski, NOBLE Capital Markets, Inc., Research Division - Director of Research and Senior Media & Entertainment Analyst [23]

--------------------------------------------------------------------------------

And just as a quick follow-up. Are there other assets in the combination of New Media and Gannett that may be, let's say, not in their interest in terms of consolidation of distribution or facilities that may be more of interest to you and might be opportunities for you to pick up a few papers here and there that make sense to you?

--------------------------------------------------------------------------------

Terry Jimenez, Tribune Publishing Company - Executive VP & CFO [24]

--------------------------------------------------------------------------------

Yes. So I'll pass on commenting on any of that speculation at this stage.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

And I'm showing no further questions. I'd like now to turn the call back to Tim Knight for closing remarks.

--------------------------------------------------------------------------------

Timothy P. Knight, Tribune Publishing Company - CEO & Director [26]

--------------------------------------------------------------------------------

Thank you, everyone, for joining us on today's call. The second quarter of 2019 was a strong one for the company, and we look forward to building on the momentum we gained throughout the first half of the year. Thank you very much.

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.