"Although still facing headwinds, we are pleased to report 4.6% growth in adjusted EBITDA in the third quarter of 2019 -- the first increase in eight years," said
The trend in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) improved sequentially for the fourth consecutive quarter. Adjusted EBITDA, excluding the impact of real estate gains, was up 2.0% for the quarter compared to the third quarter of 2018. Adjusted EBITDA does not include the non-cash charge related to goodwill and masthead asset impairments.
"This encouraging growth in digital subscribers came as we also expanded our digital Saturday rollout to include conversions or announcements to convert 12 of our markets to digital-only editions on Saturdays," said Forman. "We are seeing wide acceptance of digital Saturdays among our subscribers in the markets where the change has been implemented and/or announced, and in those markets where implementation has occurred we are seeing an accelerated conversion to our digital products. We expect to expand digital Saturdays to all of our markets during the course of 2020 as we advance toward our digital future."
Forman added: "We remain strongly committed to independent local journalism in the public interest. And that commitment goes beyond markets where we own a masthead. In October, we launched Mahoning Matters, a digital-only news outlet serving Ohio's Mahoning Valley as a part of our Compass Experiment. The Compass Experiment is a local news laboratory founded by McClatchy and funded by Google News Initiative's Local
Forman also said, "The importance of local journalism at
Third Quarter Results
Total revenues in the third quarter of 2019 were
In the third quarter of 2019 total digital advertising revenues were
Audience revenues were
Digital audience revenues were up 13.4% for the third quarter of 2019 compared to the same period last year. The company reported total digital subscribers, defined as digital-only subscribers and digital subscriptions activated by combined print/digital customers, of 509,400, up 23.2% compared to the third quarter of 2018. Digital-only audience revenues associated with digital-only subscriptions were up 44.5% and the number of digital-only subscribers ended the quarter at 199,200, representing an increase of 45.4% from the third quarter of 2018.
Given the continuing challenging business conditions and the resulting weakness in the company's stock price as of the end of its third quarter, management performed impairment testing of goodwill and other long-lived assets as of
Results in the third quarter of 2019 included the following items:
- Non-cash impairment charges related to mastheads and goodwill intangible assets;
- Severance charges; and
- Costs related to restructuring, re-organizing operations and other miscellaneous costs.
Adjusted net loss, which excludes the items above, was
Operating expenses were up 115.4%, primarily due to goodwill and masthead impairments, while adjusted operating expenses were down 14.2%. Excluding the impact of real estate gains offsetting expenses in the third quarter of 2019, adjusted operating expenses were down 14.0%.
Adjusted EBITDA was
Restructuring Considerations and Other Third Quarter Business
Debt and Liquidity:
As of
As of the end of the third quarter, the company had
Pension Matters and Potential Restructuring:
As previously disclosed, the company submitted an application for a waiver of the minimum required contributions to its defined benefit pension plan (the plan) with the
The
Forman said, "We are working hard to find solutions for the company and its more than 24,000 pensioners. We have voluntarily contributed nearly 44% of the existing assets in the plan rather than limiting company contributions to the minimum amounts required to be contributed by law. But our current workforce of nearly 2,800 employees represents about one in ten pensioners. Those who joined the company in the last 10 years do not participate in a plan they are working to support, one that was frozen to new participants in 2009.
"We want to thank our employees, and to thank the many leaders in the House and the
Since there can be no assurance of a legislative solution to the company's liquidity challenges, the company commenced discussions with the
Considerations with its debt holder include one or more deleveraging transactions including some or all of the loans under the Junior Term Loan Credit Agreement and 6.875% senior secured junior lien notes, which are secured by second and third liens on substantially all of the company's assets.
There can be no assurance that the ongoing discussions with PBGC, its debt holder, and other parties will result in any restructuring transaction, that the company will obtain any required stakeholder consent to consummate a restructuring transaction, or that the restructuring transaction will occur on a timely basis or at all.
In connection with all of these efforts to address the company's liquidity pressures, the company has engaged the financial and legal services of
Journalism Highlights:
And recently, McClatchyDC.com published an exclusive investigation, Stricken, after six months of meticulous reporting analyzing exclusive data from
First Nine Months Results of 2019
Total revenues for the first nine months of 2019 were
Advertising revenues were
Audience revenues were
The company reported a net loss for the first nine months of 2019 of
Results for the first nine months of 2019 included the following items:
- Non-cash impairment charges related to mastheads and goodwill;
- Non-cash charge to the company's tax provision;
- Non-cash incremental pension costs related to the voluntary early retirement incentive program;
- Severance charges;
- Loss on extinguishment of debt related to bond redemptions;
- Costs related to restructuring and re-organizing operations;
- Non-cash impairment charge on real estate held for sale; and
- Accelerated depreciation and other miscellaneous costs.
The 2019 adjusted net loss, which excludes the items above, was
Operating expenses were up 32.3%, primarily due to the impact of goodwill and masthead impairments, while adjusted operating expenses were down 12.5% in the first nine months of 2019 compared to the same period last year.
Adjusted EBITDA, excluding real estate gains from 2019 and CareerBuilder distributions from 2018 first nine-month periods, respectively, was
Outlook
Management said the rate of decline in advertising revenues in the year-over-year comparisons will be impacted by the heavy political advertising that helped the fourth quarter of 2018 that will not be repeated in the fourth quarter of 2019. In the full-year of 2019, digital subscriptions are expected to continue to grow and partially offset continuing declines in print circulation, resulting in mid-single digit declines in total audience revenues for the full-year 2019.
Management plans to be steadfast in reducing operating expenses in the fourth quarter of 2019 to align expense and revenue performance, while making additional investments in our news and sales organization.
Proceeds from asset sales are expected to be used to reduce debt in the fourth quarter 2019.
The company's consolidated statistical reports, which summarize actual revenue performance for the third quarter and nine months ended are attached.
Non-GAAP Operating Performance Measures
In addition to the results reported in accordance with accounting principles generally accepted in
- make more meaningful period-to-period comparisons of the company's ongoing operating results. Management believes variances in the excluded line items are not reflective of the underlying business operations of the company or trends in the company's markets or industry;
- better identify trends in the company's underlying business;
- better understand how management plans and measures the company's underlying business;
- more easily compare operating results to those of our peers;
- more directly compare the company's operating results against investor and analyst financial models; and
- better understand the performance measures used in the company's indenture, term loan agreement, and ABL credit agreement.
These non-GAAP operating performance measures should not be considered a substitute or an alternative to these computations calculated in accordance with and required by GAAP. Also,
Conference Call Information
At
About
Additional Information
Statements in this press release regarding future financial and operating results, including our strategies for success and their effects, our restructuring efforts with PBGC and our largest debt holder, our real estate monetization efforts and the repurchase of outstanding notes, revenues, and management's efforts with respect to cost reduction efforts and efficiencies, cash expenses, revenues, adjusted EBITDA, debt levels, interest costs and creation of shareholder and investor value as well as future opportunities for the company and any other statements about management's future expectations, beliefs, goals, investments, plans or prospects constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Any statements that are not statements of historical fact (including statements containing the words "believes," "plans," "anticipates," "expects," "estimates" and similar expressions) should also be considered to be forward-looking statements. There are a number of important risks and uncertainties that could cause actual results or events to differ materially from those indicated by such forward-looking statements, including: we may not generate cash from operations, or otherwise, necessary to reduce debt; we may not be successful in reducing debt whether through open market repurchase programs or other negotiated transactions; our ability to borrow under our credit agreement is contingent on our ability to meet the conditions set forth therein at such time; sales of real estate properties may not close as anticipated or result in cash distributions in the amount or timing anticipated; we may not successfully implement audience strategies designed to increase audience revenues and may experience decreased audience volumes or subscriptions; we may experience diminished revenues from advertising; we may not achieve our expense reduction targets including efforts related to legacy expense initiatives or may do harm to our operations in attempting to achieve such targets; our operations have been, and will likely continue to be, adversely affected by competition, including competition from internet publishing and advertising platforms; increases in the cost of newsprint; bankruptcies or financial strain of our major advertising customers; litigation or any potential litigation; geo-political uncertainties including the risk of war; changes in printing and distribution costs from anticipated levels, including changes in postal rates or agreements; changes in interest rates; changes in pension assets and liabilities; changes in factors that impact pension contribution requirements, including, without limitation, the value of the company-owned real property that we have contributed to our pension plan; potential increases in contributions to our qualified defined benefit pension plan in the next several years; increased consolidation among major retailers in our markets or other events depressing the level of advertising; our inability to negotiate and obtain favorable terms under collective bargaining agreements with unions; competitive action by other companies; and other factors, many of which are beyond our control; as well as the other risks listed in the company's publicly filed documents, including the company's Annual Report on Form 10-K for the year ended
Contact: |
Elaine Lintecum, VP Finance and CFO 916-321-1846 |
THE MCCLATCHY COMPANY |
|||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
|||||||
(Unaudited; In thousands, except per share amounts) |
|||||||
Quarter Ended |
Nine Months Ended |
||||||
September 29, |
September 30, |
September 29, |
September 30, |
||||
2019 |
2018 |
2019 |
2018 |
||||
REVENUES - NET: |
|||||||
Advertising |
$ 76,754 |
$ 95,102 |
$ 247,404 |
$ 301,942 |
|||
Audience |
78,333 |
84,040 |
241,737 |
255,143 |
|||
Other |
12,351 |
11,923 |
37,283 |
37,186 |
|||
167,438 |
191,065 |
526,424 |
594,271 |
||||
OPERATING EXPENSES: |
|||||||
Compensation |
57,828 |
73,501 |
188,719 |
230,650 |
|||
Newsprint, supplements and printing expenses |
11,147 |
12,913 |
34,072 |
40,333 |
|||
Depreciation and amortization |
5,575 |
19,041 |
40,504 |
57,496 |
|||
Other operating expenses |
82,905 |
90,527 |
254,196 |
271,993 |
|||
Goodwill and other asset write-downs |
295,270 |
14,148 |
296,009 |
14,207 |
|||
452,725 |
210,130 |
813,500 |
614,679 |
||||
OPERATING LOSS |
(285,287) |
(19,065) |
(287,076) |
(20,408) |
|||
NON-OPERATING (EXPENSES) INCOME: |
|||||||
Interest expense |
(19,733) |
(23,346) |
(59,697) |
(60,181) |
|||
Equity income (loss) in unconsolidated companies, net |
(39) |
(473) |
(1,568) |
573 |
|||
Gain related to investments in unconsolidated companies |
- |
1,721 |
- |
1,721 |
|||
Gain (loss) on extinguishment of debt, net |
- |
36,286 |
(1,986) |
30,918 |
|||
Retirement benefit expense |
(4,330) |
(2,778) |
(19,386) |
(8,335) |
|||
Other - net |
173 |
271 |
541 |
512 |
|||
(23,929) |
11,681 |
(82,096) |
(34,792) |
||||
Loss before income taxes |
(309,216) |
(7,384) |
(369,172) |
(55,200) |
|||
Income tax benefit |
(4,513) |
(14,422) |
(4,982) |
(2,932) |
|||
NET INCOME (LOSS) |
$ (304,703) |
$ 7,038 |
$ (364,190) |
$ (52,268) |
|||
Net income (loss) per common share: |
|||||||
Basic |
$ (38.43) |
$ 0.90 |
$ (46.08) |
$ (6.74) |
|||
Diluted |
$ (38.43) |
$ 0.90 |
$ (46.08) |
$ (6.74) |
|||
Weighted average number of common shares used |
|||||||
to calculate basic and diluted earnings per share: |
|||||||
Basic |
7,929 |
7,778 |
7,904 |
7,754 |
|||
Diluted |
7,929 |
7,850 |
7,904 |
7,754 |
THE McCLATCHY COMPANY |
||||||||
Reconciliation of GAAP Measures to Non-GAAP Amounts |
||||||||
(In thousands) |
||||||||
Reconciliation of Net Loss to Adjusted EBITDA |
||||||||
Quarters Ended |
Nine Months Ended |
|||||||
September 29, |
September 30, |
September 29, |
September 30, |
|||||
2019 |
2018 |
2019 |
2018 |
|||||
NET LOSS |
$ (304,703) |
$ 7,038 |
$ (364,190) |
$ (52,268) |
||||
Income tax provision (benefit) |
(4,513) |
(14,422) |
(4,982) |
(2,932) |
||||
Interest expense |
19,733 |
23,346 |
59,697 |
60,181 |
||||
Depreciation and amortization |
5,575 |
19,041 |
40,504 |
57,496 |
||||
EBITDA |
(283,908) |
35,003 |
(268,971) |
62,477 |
||||
Severance charges |
261 |
3,833 |
3,749 |
11,429 |
||||
Non-cash stock compensation |
254 |
758 |
1,219 |
1,817 |
||||
Non-cash and non-operating retirement benefit expense |
4,330 |
2,778 |
19,386 |
8,335 |
||||
Equity (income) loss in unconsolidated companies, net |
(361) |
473 |
837 |
2,247 |
||||
Impairment related to equity investments |
400 |
- |
731 |
- |
||||
Gain on sale of equity investment |
- |
(1,721) |
- |
(1,721) |
||||
Other asset impairment charges |
295,270 |
14,148 |
296,009 |
14,207 |
||||
Other operating costs, net (1) |
3,841 |
330 |
10,486 |
2,227 |
||||
Other non-operating, net |
(173) |
(36,557) |
1,460 |
(31,430) |
||||
Adjusted EBITDA |
$ 19,914 |
$ 19,045 |
$ 64,906 |
$ 69,588 |
||||
Adjusted EBITDA Margin |
12.0% |
10.0% |
12.4% |
11.7% |
||||
EBITDA ADJUSTED FOR REAL ESTATE / MINORITY DISTRIBUTION ACTIVITY |
$ 19,427 |
$ 19,045 |
$ 62,156 |
$ 63,654 |
||||
(1) Other operating costs, net, includes: Relocation charges; limited technology conversion costs; costs associated with reorganizing operations; trust related litigations, and operating costs associated with the voluntary early retirement program. See the text of the press release for the detailed gross contribution of each category. |
||||||||
Reconciliation of Net Loss to Adjusted Net Loss |
||||||||
NET LOSS |
$ (304,703) |
$ 7,038 |
$ (364,190) |
$ (52,268) |
||||
Add back certain items: |
||||||||
Loss on extinguishment of debt, net |
- |
(36,286) |
1,986 |
(30,918) |
||||
Other asset impairment charges |
295,270 |
14,148 |
296,009 |
14,207 |
||||
Impairments related to equity investments |
400 |
- |
731 |
- |
||||
Gain on sale of equity investments and other |
(550) |
(1,721) |
(550) |
(1,721) |
||||
Severance charges |
261 |
3,833 |
3,749 |
11,429 |
||||
Voluntary early retirement incentive program, pension costs |
- |
- |
6,850 |
- |
||||
Accelerated Depreciation |
- |
257 |
106 |
486 |
||||
Other operating costs, net |
3,841 |
330 |
10,486 |
2,227 |
||||
Certain discrete tax items |
4,792 |
(2,776) |
14,006 |
21,576 |
||||
Less: Tax effect of adjustments |
(568) |
(8,597) |
(3,338) |
(12,362) |
||||
Adjusted net loss (2) |
$ (1,257) |
$ (23,774) |
$ (34,155) |
$ (47,344) |
||||
(2) The tax impact of these non-GAAP adjustments for 2019 and 2018 are calculated using the federal statutory rate of 21% plus the net state rate for the jurisdictions in which the subsidiaries file tax returns and ranges from 2.1% to 10.0%. |
||||||||
Reconciliation of Operating Expenses to Adjusted Operating Expenses |
||||||||
OPERATING EXPENSES: |
$ 452,725 |
$ 210,130 |
$ 813,500 |
$ 614,679 |
||||
Add back: |
||||||||
Depreciation and amortization |
5,575 |
19,041 |
40,504 |
57,496 |
||||
Other asset impairment charges |
295,270 |
14,148 |
296,009 |
14,207 |
||||
Severance charges and non-cash stock compensation |
515 |
4,591 |
4,968 |
13,246 |
||||
Other operating costs, net |
3,841 |
330 |
10,486 |
2,227 |
||||
Adjusted operating expenses |
$ 147,524 |
$ 172,020 |
$ 461,533 |
$ 527,503 |
||||
OPEX ADJUSTED FOR REAL ESTATE ACTIVITY |
$ 453,212 |
$ 210,130 |
$ 816,250 |
$ 620,613 |
||||
ADJUSTED OPEX ADJUSTED FOR REAL ESTATE ACTIVITY |
$ 148,011 |
$ 172,020 |
$ 464,283 |
$ 533,437 |
The McClatchy Company |
|||||||||
Consolidated Statistical Report |
|||||||||
(In thousands) |
|||||||||
Quarters Ended |
Nine Months Ended |
||||||||
September 29, |
September 30, |
September 29, |
September 30, |
||||||
Revenues - Net |
2019 |
2018 |
$ Change |
% Change |
2019 |
2018 |
$ Change |
% Change |
|
Advertising |
|||||||||
Digital-only |
$ 29,903 |
$ 36,346 |
$ (6,443) |
-17.7% |
$ 95,586 |
$ 112,013 |
$ (16,427) |
-14.7% |
|
Digital bundled with print |
6,010 |
6,342 |
(332) |
-5.2% |
18,630 |
20,117 |
(1,487) |
-7.4% |
|
Total Digital |
35,913 |
42,688 |
(6,775) |
-15.9% |
114,216 |
132,130 |
(17,914) |
-13.6% |
|
|
27,821 |
35,001 |
(7,180) |
-20.5% |
91,473 |
113,556 |
(22,083) |
-19.4% |
|
Direct marketing and other |
13,020 |
17,413 |
(4,393) |
-25.2% |
41,715 |
56,256 |
(14,541) |
-25.8% |
|
Total Advertising |
76,754 |
95,102 |
(18,348) |
-19.3% |
247,404 |
301,942 |
(54,538) |
-18.1% |
|
Audience |
|||||||||
Digital |
28,806 |
25,408 |
3,398 |
13.4% |
83,604 |
75,805 |
7,799 |
10.3% |
|
|
49,527 |
58,632 |
(9,105) |
-15.5% |
158,133 |
179,338 |
(21,205) |
-11.8% |
|
Total Audience |
78,333 |
84,040 |
(5,707) |
-6.8% |
241,737 |
255,143 |
(13,406) |
-5.3% |
|
Other revenue |
12,351 |
11,923 |
428 |
3.6% |
37,283 |
37,186 |
97 |
0.3% |
|
Total Revenues |
$ 167,438 |
$ 191,065 |
$ (23,627) |
-12.4% |
$ 526,424 |
$ 594,271 |
$ (67,847) |
-11.4% |
|
Statistics: |
|||||||||
Daily average total circulation* |
960.7 |
1,044.8 |
N/A |
-8.0% |
1,053.4 |
1,383.2 |
N/A |
-23.8% |
|
Sunday average total circulation* |
1,314.8 |
1,623.6 |
N/A |
-19.0% |
1,470.9 |
2,016.3 |
N/A |
-27.0% |
|
Average monthly unique visitors |
56,359.6 |
60,512.7 |
N/A |
-6.9% |
55,135.4 |
68,110.6 |
N/A |
-19.1% |
|
Digital-only subscriptions |
199.2 |
137.0 |
N/A |
45.4% |
199.2 |
137.0 |
N/A |
45.4% |
|
Paid digital customer relationships |
509.4 |
413.4 |
N/A |
23.2% |
509.4 |
413.4 |
N/A |
23.2% |
|
Supplemental Advertising Detail: |
|||||||||
Retail |
$ 34,258 |
$ 42,663 |
$ (8,405) |
-19.7% |
$ 113,751 |
$ 134,477 |
$ (20,726) |
-15.4% |
|
National |
7,555 |
10,335 |
(2,780) |
-26.9% |
23,401 |
31,789 |
(8,388) |
-26.4% |
|
Classified |
21,921 |
24,691 |
(2,770) |
-11.2% |
68,537 |
79,420 |
(10,883) |
-13.7% |
|
Direct marketing and other |
13,020 |
17,413 |
(4,393) |
-25.2% |
41,715 |
56,256 |
(14,541) |
-25.8% |
|
Total Advertising |
$ 76,754 |
$ 95,102 |
$ (18,348) |
-19.3% |
$ 247,404 |
$ 301,942 |
$ (54,538) |
-18.1% |
|
* Reflects total average circulation based upon number of days in the period. Does not reflect AAM reported figures. |
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