Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to Meritas. This school 2020 first quarter earnings Conference call. My name is Sofia and I'll be your conference operator today.
At this time, all participants are named listen only mode.
Later, we will conduct a question and answer session and instructions will be given at that time.
Please be advised that today's call is being recorded if you require any further assistance. Please press star zero I would know him the conference over to your speaker today Mr., Mike Lovell Sir. Please go ahead.
Good morning, and thanks, everyone for joining us our call will begin with comments from President and Chief Executive Officer, Tom Harty.
Followed by local media group, President, Patrick Mccreery, and Chief Financial Officer, Joe Shred It.
Remarks. This morning will include forward looking statements and actual results may differ from our forecast. Some of the reasons are described at the end of our news release that was issued earlier this morning and in some of our FCC filings.
Certain financial measures that were discussing on this call or expressed on a non-GAAP basis and have been adjusted to exclude the impact of special items.
Reconciliations of these non-GAAP measures are included in our earnings release, which is available in the Investor Relations section of Meredith Dot com.
Finally, an archive of the call will be available on our website. Later this afternoon now I'll turn the call over to Tom Harty. Thank you very much Mike and good morning, everyone.
I hope you've had the opportunity you see our news release issued earlier this morning.
Summarize total company revenues were 725 million.
Earnings from continuing operations, which includes special items were 12 million.
Adjusted EBITDA was 122 million within the range communicated on our last earnings call.
Our first quarter performance reflects growth in our profitable digital activities in both our national and local media groups.
Solid magazine execution in all aspects, including growth in newsstand revenues and print advertising performance significantly exceeding industry wide trends.
Record revenue performance for a nonpolitical first quarter by our local media group driven by growth and nonpolitical spot advertising revenues that is exceeding our peers and disciplined control of our expenses.
While we delivered performance within our communicated EBITDA range the protracted contract negotiations with the dish network that kept our local media group stations dark for nearly 60 days in the quarter impacted local media group results. It was clearly a case of short term pain in exchange for long.
Long term gain as our new multiyear agreement with dish will result in higher fees over the contract term.
As we look ahead to our second quarter, we're encouraged by print advertising trends across our portfolio. We're currently forecasting year over year growth and comparable print advertising for our market leading portfolio.
Conversely, after a strong first quarter digital advertising trends are softening as we cycle against a tougher comp. However, we continue to expect mid single digit growth for the first half of fiscal 2020.
And the local media group, we continue to see strong advertising performance, while it's still early nonpolitical spot advertising is currently pacing up in the mid single digit range in the second quarter compared to the prior year.
With that overview I'll turn now to a review of our operating group performance beginning with our National Media group.
Fiscal 2021st quarter National Media group operating profit increased 55% from the prior year to $28 million.
Excluding special items operating profit was 41 million and adjusted EBITDA was 91 million up from 88 million in the prior year revenues were 533 million.
Looking more closely at fiscal 2021st quarter performance compared to the prior year period.
Digital advertising revenues grew in the high single digits driven by growth in Meritas programmatic platform.
Print advertising revenues were down in the low teens, reflecting changes we've made to our portfolio.
These include transitioning coastal living and traditional home to newsstand titles merging cooking light into our popular eatingwell title and closing money and Martha Stewart Weddings magazine.
However, on a comparable basis print advertising revenues were down in the mid single digits compared to the prior year inline with our historical performance levels.
We delivered print AD revenue growth at the Eatingwell southern living real simple and in style brands.
Consumer related revenues were 244 million compared to 254 million, reflecting the portfolio changes.
So far in fiscal 2020, we've completed or announced additional changes to our national media group to position it for revenue and profit growth overtime.
These include launching new products, including a partnership with drew and Jonathan Scott of property brothers theme for a new lifestyle magazine that we will launch in January 2020 on the new Stan with a premium 999 cover price and an initial 600000 print Ron.
We have started to aggressively market subscriptions with an offer a four issues for $20.
While advertising will be intentionally limited we're already seeing strong client interest at very attractive page rates.
The plan. We're following with this launch is similar to the successful model, we established with the Magnolia Journal the most profitable launch in our history and one of the most successful launches in the magazine industry history.
Now entering its third year Magnolia Journal was recently named the hottest magazine in the home category by add week.
Realignments to improve efficiency and lower expenses, including transitioning Rachael Ray everyday magazine to a premium newsstand title published on a quarterly basis beginning January 2020.
This is a strategy we have successfully use with titles such as coastal living cooking light and traditional home.
Selling non core assets, including the money dotcom website and our interest environment.
Previously, we expected to achieve 75 million from remaining asset sales with the proceeds from these two transactions. We continue to expect to meet or exceed that goal as we are still marketing former timing properties sand sided and zoom.
Okay.
To summarize.
Hi, guys the National Media group this.
Relate to our lease at 225, Liberty and New York City.
I'll note our debt balance stood at 2.4 billion at September Thirtyth 2019, and we continue to expect to pay down $150 million to $175 million of debt in fiscal 2020.
Turning to the outlook for full year fiscal 2020, we continue to expect total company revenues to range from 3 billion to 3.2 billion unchanged from original guidance, we communicated on September Fiveth 2019.
Earnings from continuing operations to range from.
To 203 million and from $2.38 to $2.69 on a per share basis, including a net after tax charge for the first quarter special items of 9 million.
Actual results May include additional special items that have not yet occurred and are difficult to predict with reasonable certainty at this time.
No.
When you do expect full year fiscal 2020, adjusted EBITDA range from 640 to 675 million and adjusted earnings per share to range from $5.75 to $6.20.
These ranges are unchanged from the original guidance on September Fiveth 2019, and include approximately 50 million of planned strategic investments.
Now looking more closely at the second quarter of fiscal 2020, we expect National Media group revenues to range from 570 million to 590 million.
Local media group revenues to range from 215 million to 220 million.
Earnings from continuing operations, including noncash depreciation and amortization.
Which is approximately 58 million and net interest expense of approximately 38 million to range from 54 million to 60 million and from 73 cents to 86 cents on a per share basis.
We expect second quarter fiscal 2020, adjusted EBITDA to range from 173 million to 181 million and adjusted earnings per share to range from $1.59 to $1.72.
Now I'll turn it over to Tom to close and lead into Q and I.
Thank you very much Joe as you know, we manage our business over the long term, we're confident we will deliver performance well within our stated EBITDA range for the full year.
While we still do not have a clear picture of calendar 2020 advertising demand across both of our business businesses. There are encouraging trends first we expect continued momentum in print advertising as we access.
Calendar 2020 budgets with our powerful portfolio brands second while we experienced quarterly swings, we expect to deliver at least mid single digit growth and National Media group digital advertising revenues.
And our local media group, we expect solid growth and nonpolitical advertising revenues to continue and we expect to see a pickup and political primary advertising dollars in the back half of our fiscal 2020.
Finally, we expect to renew envy PD contracts, representing approximately 45% of our subscriber base and the second half fiscal 2020.
Now we'd be happy to answer any questions you might have this morning.
Ladies and gentlemen to ask your question. Please press Star then the number one on your telephone keypad.
Again to ask your question. Please press star one telephone keypad, we'll pause for just a moment to compiled Mcewen day roster.
And your first question comes from the line of Dan Kurnos from the Bank Benchmark company.
Great. Thanks, good morning.
Tom just maybe you can give us an update on how.
How successful those strategic initiative spend is going thus far obviously, that's been kind of a key focal point for you guys. Given the mix issues you had and then we got it had a sense some of the frequency changes were coming here makes some sense, which can you just think tell us.
In evaluating the remaining portfolio do you think there there are more opportunities to change frequency overtime is that something we should expect maybe with some larger brands over the next.
You know call it 24 months or so and just how you're thinking about sort of that mix shift between you know pushing to new standard just simply reducing frequency. Thanks, great. Yes. So on the first part Dan good morning.
On the investments, where we're well underway with our investments we are totaling $50 million. Our main focus as kind of in two areas. One one obviously being in the digital.
Business that we have any other being in our consumer area.
We've been adding a number of people and helping us produce more content and more video content, specifically and when we look at the first quarter that we just closed.
We've had some great trends in video. So overall video revenue was up 20% in Q1.
And video views were kind of up in that mid.
Mid double digit range. So we're already starting to see some of that some of that happen.
The other area that we're looking at investing is in consumer on what we recall our consumer digital business a lot of Thats an e-commerce .
And we're seeing significant growth in that area also already and we actually were ahead of plan. So when you add it all together as part of the investment we're adding 300 people to the organization and I think we're well on our way, it's not an insignificant undertaking to add that number of people that were looking very well.
We've added about about a third of that number.
At the end of the first quarter.
And turning to the second part of your question.
We are changing our magazine portfolio over time, and we've moved a few to newsstand only so you know the magazine business. Historically, obviously has to revenue streams and you kind of optimize the profitability related to that both on the consumer side the advertising side. So as we see decreased advertising.
In demand or volume over time, we planned to change the portfolio and look at opportunities to increase our consumer revenue.
Like charging people more money on the new stand for specific titles, we had like we're dealing with the property brothers and Magnolia Journal. So while we've had some portfolio changes kind of in the last four months, both specifically, we announced family circle a couple of weeks ago, We don't anticipate any other portfolio changes for the rest of this fiscal year.
But as your question asked in the next 24 months that could happen. Some more so it's really kind of a statistical financial driven analysis to figure out when does the model flip from being for specific brand from being more advertising driven to being more consumer driven and we're looking at that overtime.
Super helpful. Thanks, and if I could sneak one in Tommy the for you or Patrick just since it's been topical lately you get dish back on I don't know if you've seen kind of the sub files from dish, but just overall if you could give us an update on sort of general sub trends and how you're thinking about it over the next call. It 60.
12 months.
Patrick.
Yes. Thank you Dan we obviously budget for certain percentage of sub losses year over year I think during the quarter they were a little bit higher than expected due to the the rash of satellite outages.
Across the.
Across the United States.
So I would say that it was a little a little messy, we have July numbers and I think that we're still seeing growth in the OTG based which is offsetting some of the core losses.
I'd say the sub losses are somewhere between.
Down low single digit.
Okay.
Perfect. Thanks for all the color guys.
Thanks again, if anyone would like to ask your question. Please press Star then the number one on your telephone keypad again that star one for any questions.
All right I think I think we're bumping up against another call. Another earnings call. So we don't have as many questions. This morning. So.
We thank everyone for their time this morning.
And we look forward to.
Talking to everybody next quarter. Thank you very much.
Ladies and gentlemen, this does conclude the marriages fiscal 2020 first quarter earnings conference call. Thank you for your participation you may now disconnect.
Okay.