Meredith Corporation (MDP) Q1 2020 Earnings Call Transcript

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Meredith Corporation (MDP)
Q1 2020 Earnings Call
Nov 07, 2019, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Meredith's fiscal 2020 first-quarter earnings conference call. My name is Sylvia, and I will be your conference operator today. [Operator instructions] Please be advised that today's call is being recorded. [Operator instructions] I will now hand the conference over to your speaker today, Mr.

Mike Lovell. Sir, please go ahead.

Mike Lovell -- Director of Investor Relations

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 Ceryanec. Remarks this morning will include forward-looking statements, and actual results may differ from our forecasts. Some of the reasons are described at the end of our news release that was issued earlier this morning and in some of our SEC filings.

Certain financial measures that we're discussing on this call are 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.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.

Tom Harty -- President and Chief Executive Officer

Thank you very much, Mike, and good morning, everyone. I hope you've had the opportunity to see our news release issued earlier this morning. To 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 industrywide trends. Record revenue performance for a nonpolitical first quarter by our local media group, driven by growth in 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 the 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 are encouraged by print advertising trends across our portfolio. We are currently forecasting year-over-year growth in 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. In 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 2020, first-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 2020 first-quarter performance compared to the prior-year period, digital advertising revenues grew in the high single digits, driven by growth in Meredith's 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 magazines. However, on a comparable basis, print advertising revenues were down in the mid-single digits compared to the prior year, in line with our historical performance levels. We delivered print ad revenue growth at the EatingWell, Southern Living, Real Simple and Instyle brands.

Consumer related revenues were $244 million, compared to $254 million, reflecting the portfolio changes. So far, in fiscal 2020, we have completed or announced additional changes to our national media group to position it for revenue and profit growth over time. These include launching new products, including a partnership with Drew and Jonathan Scott, a Property Brothers fame for a new lifestyle magazine that will launch in January 2020 on the newsstand with a premium $9.99 cover price and an initial 600,000 print run. We have started to aggressively market subscriptions with an offer of four issues for $20.

While advertising will be intentionally limited, we are already seeing strong client interest at very attractive page rates. The plan we are 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 Adweek. Realignments to improve efficiency and lower expenses, including transitioning Rachael Ray Every Day magazine to a premium newsstand title published on a quarterly basis beginning January 2020.

This is a strategy we have successfully used with titles such as Coastal Living, Cooking Light and Traditional Home, selling noncore assets, including the MONEY.com website and our interest in Viant. 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 Time Inc. properties FanSided and Xumo.

To summarize the national media group discussion, it was a solid first quarter with progress on many fronts, and we are expecting a solid second quarter as well. Now I'll turn it over to Local Media Group President Patrick McCreery, for an update on our television business.

Patrick McCreery -- President, Local Media Group

Thanks, Tom, and good morning, everyone. Fiscal 2020 local media group operating profit was $38 million and adjusted EBITDA was $49 million. Revenues were $193 million, a record for a nonpolitical first quarter, looking more closely at fiscal 2020, first-quarter performance compared to the prior-year period. Nonpolitical spot advertising revenues grew 3% to $77 million, led by growth in Kansas City, Atlanta, and our St.

Louis markets. From a category standpoint, the professional services, home services and organizations categories were stronger, partially offset by softer results in the automotive category. I should note that advertising performance from the auto category, while still down in the mid-single digits, was much improved from prior quarters. Combined third-party sales and digital advertising revenues grew 6%, both driven by MNI Targeted Media.

As expected in a nonpolitical year, political advertising revenues were $3 million, compared to $36 million in the prior-year period. Consumer related revenues increased 9% to $80 million due to growth in retransmission fees from cable and satellite television operators, even when accounting for the protracted DISH blackout. These increases were offset by higher payments to affiliated networks. We continue to pursue initiatives to strengthen and expand our local brands.

Our weekly television show based on the strength of the People brand continues to perform well with audiences and advertisers. We have committed to launching the show in daily syndication in the fall of 2020. Beginning with distribution across all 12 of our local television markets, we are actively engaged in discussions with other broadcast television owners to carry this show as well. We are also launching a show based on our Southern Living brand next April.

We tested in our southern markets earlier this year, and the response was strong. Given the growing popularity of southern cooking and culture, we are going to air it across our entire geographically diverse station portfolio. These efforts are helping our local media group maintain a strong connection to viewers, as demonstrated by the July ratings period when stations in seven of our 12 markets ranked either No. 1 or No.

2 sign on to sign off. Now I'll turn it over to Joe Ceryanec to conclude our call this morning with a look at companywide financial highlights and our second-quarter outlook. Joe?

Joe Ceryanec -- Chief Financial Officer

Thanks, Patrick, and good morning, everybody. I'm going to begin with a few housekeeping items. First, we adopted the financial accounting standard board's new standard for lease accounting on July 1, 2019. As a result, you'll see operating lease assets and liabilities related to operating leases greater than 12 months in length recorded on Meredith's balance sheet.

By far, the lion's share of these amounts relate to our lease at 225 Liberty in New York City. You'll note our debt balance stood at $2.4 billion at September 30, 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 5, 2019.

Earnings from continuing operations to range from[Audio gap]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. We continue to expect full-year fiscal 2020 adjusted EBITDA to range from $640 million to $675 million and adjusted earnings per share to range from $5.75 and to $6.20. These ranges are unchanged from the original guidance on September 5, 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 $0.73 to $0.86 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&A.

Tom Harty -- President and Chief Executive Officer

Thank you very much, Joe. As you know, we manage our business over the long term. We are 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 businesses, there are encouraging trends.

First, we expect continued momentum in print advertising as we excess calendar 2020 budgets with our powerful portfolio of brands. Second, while we experienced quarterly swings, we expect to deliver at least mid single-digit growth in national media group digital advertising revenues. In our local media group, we expect solid growth in nonpolitical advertising revenues to continue, and we expect to see a pickup in political primary advertising dollars in the back half of our fiscal 2020. Finally, we expect to renew MVPD contracts representing approximately 45% of our subscriber base in the second half of fiscal 2020.

Now we'd be happy to answer any questions you might have this morning.

Questions & Answers:

Operator

[Operator instructions] And your first question comes from the line of Dan Kurnos from The Benchmark Company.

Dan Kurnos -- The Benchmark Company

Great. Thanks. Good morning. Tom, just maybe you can give us an update on how successful the 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 kind of 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 that there are more opportunities to change frequency over time? Is that something we should expect maybe with some larger brands over the next, call it, 24 months or so? And just how you're thinking about sort of that mix shift between pushing the newsstand or just simply reducing frequency? Thanks.

Tom Harty -- President and Chief Executive Officer

Great. Yeah. So on the first part, Dan, on the investments, we're well under way with our investments. We're totaling $50 million.

Our main focus is kind of in two areas. One, obviously, being in the digital business that we have and the other being in our consumer area. We've been adding a number of people in 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-double-digit range. So we're already starting to see some of that happen. The other area that we're looking at investing is in consumer, what we would call our consumer digital business. A lot of that's in e-commerce.

And we're seeing significant growth in that area also already, and actually we're 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, but we're looking very well.

Joe Ceryanec -- Chief Financial Officer

But we've added about a third of that number at the end of the first quarter.

Tom Harty -- President and Chief Executive Officer

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 the magazine business historically, obviously, has two revenue streams and you kind of optimize the profitability related to that, both on the consumer side and the advertising side. So as we see decreased advertising demand or volume over time, we plan to change the portfolio and look at opportunities to increase our consumer revenue, like charging people more money on the newsstand for specific titles we had, like we're doing with the Property Brothers and Magnolia Journal. So while we've had some portfolio changes kind of in the last four months, more 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 over time.

Dan Kurnos -- The Benchmark Company

That's super helpful. Thanks. And if I could sneak one in, Tom, either 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 file 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, six to 12 months?

Tom Harty -- President and Chief Executive Officer

Patrick?

Patrick McCreery -- President, Local Media Group

Yeah. 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 rash of satellite outages across the United States.

So I would say that it was a little messy. We have July numbers, and I think that we're still seeing growth in the OTT sub base, which is offsetting some of the core losses. But I'd say the sub losses are somewhere between down low-single digit.

Joe Ceryanec -- Chief Financial Officer

Perfect. Thanks for all the color, guys.

Tom Harty -- President and Chief Executive Officer

Thank you.

Operator

[Operator instructions]

Tom Harty -- President and Chief Executive Officer

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.

Operator

[Operator signoff]

Duration: 19 minutes

Call participants:

Mike Lovell -- Director of Investor Relations

Tom Harty -- President and Chief Executive Officer

Patrick McCreery -- President, Local Media Group

Joe Ceryanec -- Chief Financial Officer

Dan Kurnos -- The Benchmark Company

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