Q3 2020 Tribune Publishing Co Earnings Call
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Ms. Amy bullish ma'am. Please go ahead.
Thank you and welcome to our third quarter 2020 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 be you anticipate expect intend plan.
Plan will continue estimate outlook or other similar expressions our forward looking statements.
Material differences in our actual results from those described in these forward looking statements May result from actions taken by the company as opposed to risk and uncertainties beyond the company's control.
Some of the risks and uncertainties that could impact our businesses are included in documents publicly filed with the Securities and Exchange Commission.
Leading 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 that that 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 that trip club dotcom.
Joining me today is chief Executive Officer, Terry Jimenez, and interim Chief Financial Officer, Michael Maybe I will now turn the call over to Chief Executive Officer, Terry Jimenez.
Thank you Amy and good afternoon, everyone. Thank you for joining today's call and for your interest in Tribune publishing.
I will provide some perspective and insights on our performance in the third quarter and will then ask Mike to walk through our financials. We have now lives through eight much of the krona virus pandemic and while we continue to adjust I'm grateful for the efforts and Brazilian see shown by Tribune publishing employees in frontline workers across the country.
Our core journalism and marketing solutions continued to be incredibly important tools as we navigate through a major national events locally relevant news in times of uncertainty I'd.
I'd like to thank our newest teams who have worked tirelessly to cover this election cycle has results continued to roll in and votes get counted our journalists remain committed to and focused on the reporting the results an offering insights analysis and perspective.
Beyond the election or journalist provide consequential information and perspectives on everything from ever changing local regulations and so on route to sports and entertainment and everything in between.
And our advertising teams continue to deliver meaningful results for our clients who are striving to maintain the businesses as a pandemic continues to impact our economy.
Leveraging our large growing and engage audiences is ideal for these businesses to drive demand for their products and services.
The first three quarters of this year have seen or leadership team in the rest of our organization step up to face. This pandemic to how far can you communities navigate these difficult times and to ensure our company continues its path to the successful the digital future.
We have made great progress, although there is more to be hot.
As mentioned in previous earnings calls, we continue to maintain our purpose in four key areas.
First we took swift action to maintain and build the strength of our balance sheet, we and entered into the pandemic with virtually no debt and a comfortable level of cash.
To maintain and build upon that we continue to build our cash position, which provides flexibility and a cushion against any future downturns, we immediately halted a reduced capital projects with the exception of continuing to invest in the enhancement and development of our digital products.
Which in hindsight more credibly important investments given the large audience, we attracted and retained.
We also continue to focus on reducing our long term obligations for which we have seen a real estate lease obligations declined by approximately 25 million since the end of last year as well as a reduction in pension obligations.
The second concurrent focus was on operating expenses, where we looked at every expense in every part of our business. We took actions to reduce operating expenses and outside services, where we sought to save on contract costs across the company occupancy costs, where we reduced our rent and related expenditures, which is especially relevant as most of us.
They're not working in our offices and outsourcing work to provide both a lower cost model and a higher variable cost model.
In addition, we made difficult, but thoughtful decisions to reduce compensation expenses through targeted leadership team reductions brought her staff reductions pay reductions and furloughs.
Though difficult these actions provide us the ability for us to sustain ourselves over the long term.
Rightsizing our expense base in light of the revenue reality and outlook is a necessary step and the resulting margin expansion. We experience will provide lasting positive effects for the financial profile and sustainability of our business.
Our third area of focus was on the digital opportunity.
In the third quarter, we saw a 44% year over year growth in our total digital user base driving us to nearly 60 million average monthly unique visitors.
Our digital subscribers total ended at 427000.
Representing a year over year gain of 36%.
And importantly, digital subscriber revenue grew by more than 67% year over year.
Additionally, we experienced substantial demand growth in our user traffic and engagement continue me answer today surrounding the elections.
It has been a great work by our team to provide perspective analysis and context around the results of the elections and all the other activities happening in and around our communities.
In terms of our best reviews business in which as a reminder, the company as a majority stake in the third quarter saw best reviews post substantial revenue growth on a year over year basis on top of a very strong Q3 of 29 team.
Our fourth focus is on conducting with the businesses in our communities.
We made concerted efforts to help the businesses and our communities recover from the negative business impact they have suffered during our due to the virus and related consequences.
Leveraging our strong print audience and our large growing and engaged at all digital audience, our advertising and marketing solutions continuing to support the businesses that our readers and audiences patronage.
And we are confident that our client partnerships will proactively assist and restarting our local economies.
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We saw a sequential improvement in the trends from Q2 into Q3 and cautiously optimistic those trends will continue.
Amid all this change.
We also made several key executive appointments, we have expanded the oversight of our top three sales leaders in our organization to allow them to have significant impacts and user successful playbook across a larger scope of responsibility.
Separately on our digital team, we have announced that Margaret to Luna has been named general manager of our digital subscription business as well as have oversight over our New York Daily News and Yeah, and Tom one called businesses.
Margaret has a strong and deep digital background and have worked and having worked extensively with her I believe she will be a great part of the team.
Dominic radical if she has been named as vice President of audience engagement and retention DAMI will focus on the intersection of our news data product and marketing efforts.
We have also named Paul from the General manager of our Florida businesses, which includes the Orlando Sentinel and South Florida Sunset.
Paul's energy creativity focus and leadership style will join an already very strong news and sales leadership group in the markets.
Our unrestricted cash position has grown to 90 million, which provides flexibility and long term protection against any shifts in the economy or industry dynamics.
The board continues to discuss capital allocation, but until we have more certainty of the near and lasting effects of the pandemic, we will likely not be in a position announce any changes here.
While maintaining expenses tightly we continue to look at strategic investments in content, adding use resources to meet will further drive demand investments in data and analytics to drive key resource decisions investment that allows our products to continually improve the user experience and leveraging our in house advertising agency still.
Are you waiting 47, we have developed really powerful brand messages about the strength of our assets.
With that I would like to turn the call over to Mike to speak to some of the specifics on our financial performance.
Thank you Terry.
Although the third quarter of 2020 with a challenge for the company's revenues. We did see improvements is quite some quarterly revenue trends in Q says Q3, 2020 year over year revenue declined 20% compared to 20%, 27% year over year decline in Q2, we expect further improvement in the.
Trends in Q4.
Improving revenue and continuing reduction in costs allowed us to increase adjusted EBITDA by 9.9% over the prior year quarter and outperform our adjusted EBITDA guidance for the third quarter we.
We continue to take significant cost management measures in response to pandemic driven revenue declines as we work to position the company for a post pandemic digital future well.
While we are aggressively managing all expenses, our efforts are particularly focused in our fixed cost infrastructure we.
We completed outsourcing of printing and packaging and the Virginian pilot during Q3, we announced a similar outsourcing at the Hartford current shortly after quarter end, we finalized early termination of three significant leases during the quarter.
Additionally, several of our locations move to long term remote work as we negotiate termination of those leases in an effort to reduce our real estate footprint.
Now I will address the financial highlights for the third quarter.
As a reminder, there are no same business comparisons in 2020, as we have cycled all prior years acquisitions additional.
Additionally, as previously disclosed Tribune began managing its business as one business and one reportable segment in the first quarter 2020 in prior periods have been restated to reflect the change reportable segments.
The third quarter 2020.
Revenue declined $47.4 million or 20.1%.
On a year over year basis EPS.
Amortizing declined $35.6 million or 38.2% with retail advertising, reflecting the biggest decline off by $29.5 million or 46.3% from the prior year include.
Included in this decline is $3.3 million associated with the cars that calm agreement, which concluded earlier this year now.
National advertising decreased $1.7 million, or 15.5% and classified advertising decreased $4.8 million or 28.1%.
Circulation declined $2.3 million or 2.5% as declines in home delivery and single copy were only partially offset by increased digital only circulation, which increased $5.1 million or 67.4%.
Other revenue declined $9.5 million or 18.1% with commercial print and delivery revenue down $5.2 million or 23.4% because our customers. Both services were equally impacted by the pandemic an additional $4.2 million of the decline is related to transition service.
He has provided to the California properties in the prior year, we concluded that agreement in the second quarter of this year.
These declines were partially offset by an increase in revenue exceeding 40% at best reviews, which continues to satisfy the accelerating public demand for online shopping.
On the expense side, we continue to aggressively manage expenses in the face of the pandemic and industry wide revenue headwinds with total operating expenses, excluding non cash impairment charges down 50.4 million or 22.2% in the third quarter 2020 on a year over year basis.
Reductions in current year operating expenses include $18.2 million or 21.9% in compensation expense $15.6 million or 20.1 day per se in outside services.
$4.9 million were 39.2% in newsprint, and ink and $9.8 million or 23.2% in the other.
For the quarter reported net income from continuing operations of $8.5 million compared to $6.9 million in the prior year at 23.5% increase all of this in spite of declining revenues knitting.
Net income attributable to Tribune shareholders. In Q3 of 2020 was 18 cents per share compared to a net loss attributable to Tribune shareholders of 61 cents per share in the prior year Q3.
Adjusted EBITDA totaled $27.3 million in third quarter compared to $24.8 million in the prior year period strong cost control allowed us to deliver above our previously guided adjusted EBITDA for Q3, 2020 and resulted in a nearly 400 basis point year over year increase in adjusted EBITDA margin.
Yeah.
Turning to our cash flow and balance sheet cash flow remains strong with cash flow from operations of $12.2 million for the quarter and 45% 40, excuse me $42.5 billion for the year to date compared to $14.4 million for the prior year quarter and $32 million for 2019 year.
To date.
We are actively managing our cash balances on several fronts, driven primarily by significantly lower overall spending. We're also closely managing vendor payment terms, we've reduced rent payments as we terminate leases and negotiate with late landlords are more favorable terms and we continue to take advantage of the cures Act to defer remitting the employer portion so secure.
The taxes.
We're also closely monitoring pro proposed legislation, which could impact the company.
We ended the quarter with $141.4 billion in cash of which $90 million is unrestricted and 30 point $31.4 million as predicted a $9.5 million increase in unrestricted cash during the quarter.
Capital expenditures totaled $2.1 million in the quarter.
With respect to guidance for the fourth quarter of 2020. The company expects total revenues of 203 million to 208 million and adjusted EBITDA of 36 million to 39 million, which will result in full year revenues of $791 million to $796 million in full year adjusted EBITDA of nine.
95.4 million to $98.4 million.
In closing in a challenging quarter, we were able to report strong financial results driven by a cross aggressive cost control, we saw sequential quarterly revenue trends improve in our year over year profitability for the quarter improved however, we remain cautious about the continuing impact in duration, the pandemic and the overall economy.
On our business that's.
That said, we believe we are well positioned to withstand the challenges the krona virus pandemics it'd be six successful in the future due to excellent journalism and marketing solutions, we provide the strength and character of our team and our solid balance sheet, featuring strong liquidity and minimal debt.
While mindful of managing expenses, we continue to make appropriate investments in digital products digital subscriber growth and in our news rooms in order to ensure we have the right products for advertisers and consumers.
Now we will open up the call to questions.
Thank you, Sir ladies and gentlemen.
We are now open it up for question and answers.
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And Sir your first question comes from Michael Kupinski from Noble capital markets.
Sir Your line is open please ask your question.
Thank you for taking the questions and congratulations on over delivering on cash flow you guys are doing a great job and I know in a very difficult environment.
The expense reductions that you did in the second quarter can you kind of give us a flavor of how much did you do additional cost cuts in the third quarter as well that's I'm just trying to get a sense of the expense reductions maybe on a quarterly or even an annualize basis and how that flows through in Q3 as you know right.
As we go forward into Q4 as well.
Yeah. Mike. This is Terry you know for US as we think about the revenue as we were going through the Q2.
Situation with the pandemic, we certainly had taken some cost actions that were quite dramatic and significant and that happened throughout the second quarter. So we've got the full quarter benefit of those actions, but as we entered into the third quarter. We saw the lasting effect as the pandemic and the revenue trends continued to be very.
Very mellow versus what you'd ordinarily anticipate you know we have to continue to take some additional actions and mostly those actions were on some.
Some of the fixed cost areas that Mike alluded to outsourcing our production in Virginia, which will get a bigger benefit in Q4 and ongoing as well as a few other areas that we looked at our in house costs and sought to be less.
Less expenses that do that outside the company.
I know Terry that you recently closed some newspaper offices in New York and can you talk a little bit about how much that saved the company or on an annualized basis and maybe.
This accelerate the prospect of monetizing some of your real estate assets in New York and then also are.
Are there other papers that you know now that everybody a lot of people working from home or are there other newspapers that could follow the similar model or.
Or have you introduced that other markets just give us a sense of that aspects.
Yeah, we've made the determination for for offices, where we have leases that are expiring in the next few years, knowing that you know we're still at this point in time, six to nine and who knows a flush longer out from being able to access those offices in a safe way for our employees. So we.
Had made the determination that.
In New York Orlando.
Allentown in Virginia that we would not have an office or to return to and so we've made those decisions and call. It about half of our markets and we continue to look at.
As this is the pandemics evolves as the status of the vaccine.
It's still a little bit elusive yeah. We're we're obviously looking at how do we.
Are there other opportunities for us to reduce our footprint, which gives us a more flexibility long term, but also save some money along along the way.
Incest reviews seems to be performing well certainly the pandemic, it's kind of probably one of those it's seeing some benefit from people was staying home and so forth can you give us a sense of how the revenues are performing as you know the economies are opening up and people are kind of filtering back to work and things like that.
And what your thoughts are about best reviews, and the outlook is still elevated revenues at this point with the pandemic and everything.
Yes, it certainly had a benefit as ecommerce really kicked in significantly in the second quarter and then continuing in Q3.
I think just outside of pandemic ecommerce woods overtime, just continuing to grow and bigger bigger proportion of commerce generally.
Being tethered to E. Commerce is helpful from that event and while things kicked up significantly in Q2, and Q3 or four E. Commerce, you, we don't see E commerce going down at any time in the future. So we we see it continuing to grow and grow healthily.
Year over year basis, and we've got a lot of optimism for.
For that business.
And I know that you said in the past that you're kind of disappointed that you got this great asset great digital asset and the value of the stock doesn't really reflect that and you're not you're not getting it. There. It can you just give us a sense about what you think the value of that asset might be.
Okay, and then is there a prospect that you know that you might might have ties the asset and then if you were you kind of gave us some thoughts about where you might read to redeploy capital in looking at M&A acquisitions, but are there significant other opportunities out there that might want you to take a look at maybe so.
Thats reviews, and and redeploying that capital elsewhere.
Yeah in terms of in terms of value I I'm not real answer all of that but in terms of the value question. When we bought it it had an enterprise value of about 100 and Tenish million that we felt was the right value. That's when we made the investment since that time the revenue has since gone.
Grown significantly the even to the business has also grown commensurate with revenue growth and so you know the the value that we got into this assets two and a half years ago, well more than two and half years ago. We think has since grown quite considerably.
In terms of dispositions et cetera, you know, it's something that we always talk about the board's us and see if there is an opportunity.
But yeah, there's there's been no nothing that we can speak to on any dispositions.
And last question.
In terms of looking at M&A are.
Are there other newspaper assets are publishing assets that are on the market that might make sense in terms of looking at.
Cost synergies or anything like that that would.
Makes sense at this point.
You know, there's there's always things that we would look at.
It's a really good opportunity the opportunity for US there is adjacent sees within the markets that we operate or if it's in an area that we think could add overall value to the company. So we're we're always open minded to those things I think.
I think most companies are just really focused on.
As we've gone through the pandemic survival mode, and being able to do what we can to keep head above water and so I think as you think about individual assets companies.
Companies that have one newspaper those are the ones that are struggling the most and so those tend.
Tend to be a little bit more problematic at this stage given the headwinds.
So you know, we're always open to the right opportunities at the right value.
That's it that's all I can say enough.
And if I may just ask one more what would be the hurdle or what would you see as a benchmark that would determine whether or not the board might be might consider reinstating a dividend.
Well I think there's a lot of factors that go into that suits, you know whats happening outside of the company and outside of the company's control in terms of the economy.
As well as what's happening broadly with the industry and so I think we've got to make sure that we're considering those external factors and then as we think about internal factors is what is the ability for us to to continue to generate.
Positive cash flow over the long term and I think as we kind of combine all those things together theres a fair amount of uncertainty on the external factors I think we've got more confidence on the internal factors.
So I think really until we get a little bit more sense of when some of the clouds will start disappearing on that.
Lasting effects of the pandemic you know that that's probably when we'll see how the point.
The speaks more to about what the future profit.
Great. Thank you and have a great evening.
Thank you.
Thank you.
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And your next question from Doug Arthur <unk> Research.
Sorry, your lighting, so bad you may ask your question.
Great just to just a couple Terry the looking at the digital subscriber.
Number in the third quarter sequentially you added it looks like 8000 subscribers. So you've come off quite a bit from Q1 and Q2, obviously the stay at home probably boosted that.
In Q1 and Q2.
Is there any pricing action you took that may have slowed the growth or is.
Is that just posed to stay at home and some seasonality in the third quarter that's sequentially slowed so much.
Yes, so when we look at the third quarter growth. What we saw was we had in terms of the new starts and new acquisitions that came in and it kind of looked a little bit more like a regular normal cycle for us, but a lot of the acquisition that we had in the first half of the year.
As they were coming up for a pricing increase after their trial period.
We saw a normal churn percentage, but because we acquired a really large lot of them, especially in Q2.
We saw them come off of the trial period.
And what we also did is we did look at the pricing for new starts as well as.
Sustaining customers and we felt that there was an opportunity from a value equation to increase the rates and so while that translated into fewer subscribers.
Generating a significant amount more of revenue and so.
That's where the dislocation is on hand, we grew year over year digital subs at 36%, but the revenue grew in the high 60% range. Some saw some revenue.
And Chris there associated with the rate increase.
Okay. That's helpful. Thank you our average rate per subscriber is up about 22% year over year.
Okay.
And in terms of the kind of.
Ins and outs of digital advertising.
You still got the the cars.
Issue going on.
You know what sort of on a pro forma basis are you a little disappointed you're not seeing more growth there, particularly given the growth in your audience, where is that just kind of a post co bid.
No issue with advertisers, how would you sort of frame.
Your digital advertising performance.
Yes, its theres a couple of factors one from an advertiser demand they had an impact to their businesses and their slower demand for their products and so that translates to lower demand for advertisements and while we've had the great growth and the digital audience in Q3 what.
You see is the average rate that comes in for those ads are also lower because you've got so much more volume.
More supply in the market in a little bit less demand from the advertiser base.
So I think it's really I'd say more of a covert dynamic than anything sustaining I think we've been able to.
Hang on to a large chunk of the audience longer than I think we were initially anticipating.
So I think thats the good news and so I think as the rate equation than the advertiser demand kicks back up we'll be able to to be rewarded quite handsomely and as you alluded to and we have the headwind with with cars that will continue for a bit the.
I want to fight against as well.
Okay. Thank you very much.
Oh.
And speakers that would be Oh for I question to D., So I'll turn the call over to Mr. Terry minutes.
Great. Thank you.
Well, we continue to be focused on engaging our audience and managing the resources aligned with the revenue stream that we have and we thank you for your interest in Tribune publishing and everyone's stay safe. Thank you all.
This concludes today's conference call. Thank you all for Fred Dissipating you may now disconnect.
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