Tribune Publishing Company (TPCO) Q4 2019 Earnings Call Transcript

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Tribune Publishing Company (TPCO)
Q4 2019 Earnings Call
Mar 04, 2020, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Tribune Publishing fourth and full-year earnings conference call. [Operator instructions] I would now like to hand the conference to your speaker today, Amy Bullis, vice president of finance. Please go ahead, ma'am.

Amy Bullis -- Vice President of Finance

Thank you and welcome to our fourth-quarter and full-year 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, anticipate, expect, 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 risk and uncertainties beyond the company's control.

Some of these risks and uncertainties that could impact our business 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 president and chief executive officer, Terry Jimenez; and interim chief financial officer, Mike Lavey.

I will now turn the call over to president and chief executive officer, Terry Jimenez.

Terry Jimenez -- President and Chief Executive Officer

Thank you Amy. Good afternoon everyone and thank you for joining today's call and your interest in Tribune Publishing. We are pleased with how our fiscal year 2019 turned out, and we want to share with you some of the highlights from throughout the year. But before we dive in deep, I want to take a step back and talk higher level for a moment.

First, I am honored and humbled to be working with all of our passionate, energetic and mission-driven employees. Our employees have seen and worked through a lot of challenges and change over the years, and I'm confident we can proactively drive positive change and not just react to change. In the first four weeks of my transition from CFO to CEO, our leadership team has developed a new shared vision and mission as well as having outlined key strategies driving our near and long-term success. Allow me to review these with you now.

Our vision is to engage, inspire and empower our communities every day. Our mission is based on four major elements: first, we deliver relevant and trusted information that helps our leaders navigate their lives; secondly, we hold a powerful accountable through watchdog journalism, preserving the free press as a fundamental bedrock of democracy; third, we connect advertisers with engaged audiences through innovative solutions; and the fourth is that we build value by executing with integrity, agility and urgency. Underpinning our vision and mission are four significant strategic pillars. The strategic pillars are people, product, audience and profit.

The output of the vision, mission and strategic pillars to our investors should be that a business that provides stability and growth on the bottom line in spite of industrywide revenue headwinds on the legacy business, provides margin expansion through a greater mix of digital business versus the legacy print business and aligning our expenses with our revenue streams. With focused execution and a greater mix of digital versus legacy print, we should see a significant upswing in the valuation of our business over the long term. We also continue to stand apart from our peers in having no debt and a cash balance to provide operational and financial flexibility, and rather than paying for principal and interest to banks and financial institutions, we're able to provide dividends to our shareholders. A few highlights to touch upon under each of our strategic pillars.

On the people front, we are focusing on employee engagement, communication, learning and development and diversity and inclusion. Culturally, we are focusing the organization less on what it used to be, but more importantly what it can be as we will better anticipate and navigate through the evolution of changes in consumer and advertiser behaviors. We still make a very credible and important impact in each of our communities. For example, we were recognized for the following.

The Capital Gazette and the Baltimore Sun won the Breaking News award from the National Press Club for their courageous coverage of our own Capital Gazette shooting. The Sun Sentinel is awarded national recognition from the Society of Professional Journalists for the collaborative work on The Invading Sea. The Chicago Tribune won first prize from the Education Writers Association for their Betrayed series covering sexual abuse in Chicago public schools. Under the strategic pillar of products, we are obsessing over optimizing the subscriber and user experiences.

We believe our initiatives will drive improved audience engagement and retention as well as revenue. We have been and will continue to invest in products that will drive our digital future. We now have all of our businesses on one content management platform. Also, we are continually launching updates to improve the user experience.

Under the audience pillar, we continue to focus on growing our digital subscriber base. At the end of our fiscal 2019, our digital-only subscriber base was north of 330,000 -- at 334,000. This exceeded our aggressive target by several thousand. Using the product enhancements mentioned previously as well as the analytics and insights we are gleaning from our data infrastructure, we are better understanding how to interact more effectively with our user base on our digital platforms as well as helping the readers of our print products engage with our digital products, while still providing a compelling offer for our print editions.

The last and most important strategic pillar is profitability. This pillar is where we have a clear focus on each of our revenue streams to ensure we are optimizing the revenue potential for our businesses. For 2019, we were able to manage growth in income from continuing operations and adjusted EBITDA despite the revenue headwinds. As you will see in our guidance for 2020, we are essentially holding flat to slightly up on adjusted EBITDA.

Specifically, as we enter 2020, we recognized several headwinds facing both Tribune Publishing and our industry including our cars.com agreement that expires at the end of the first quarter of 2020 which will represent a significant drop-off in digital advertising revenues year over year, starting in the second quarter. This is on top of well-documented industry headwinds hitting in our M segment which is the continuation of print advertising declines, the continuation of print circulation volume declines and a drop in our other revenue from our commercial printing and distribution revenue streams. We have taken a number of actions over the past several weeks to rightsize our expense base with our revenue forecast as well as streamlined decision-making. We believe the pillars I've outlined and the initiatives that support them will enable us to successfully combat our challenges and find success in the changing media landscape.

We are laser-focused on executing initiatives within our strategic framework and delivering on our vision of engaging, inspiring and empowering our communities every day. Over the course of 2020, we will look to provide a level of stability in our bottom-line metrics. And over the long term, we aim to transform to a digital business which will then potentially transform our valuation. Overall, I am pleased with the progress the company has made throughout 2019, the platform changes made in 2020, but I do recognize there's still a lot of work to be done.

I look forward to working with and watching all of our hard-working employees to help us succeed. With that, I would like to turn the call over to Mike to speak to some of the specifics on our financial performance.

Mike Lavey -- Interim Chief Financial Officer

Thank you Terry. In spite of the revenue headwinds, Terry mentioned in 2019, we were able to deliver solid growth in income from continuing operations, an 8% increase in adjusted EBITDA and 120-basis-point improvement in adjusted EBITDA margin. The actions we have taken to aggressively manage costs over the last year are paying off. With that lead-in, I'll speak to our financial highlights for the full-year 2019 and for the fourth quarter.

As a reminder, in the fourth quarter, there are no same business comparisons necessary as we cycled all 2018 acquisitions in previous quarters. For the full-year 2019, revenue totaled $983.1 million, a 4.6% decline from 2018. On a same-business basis, revenue declined 8% for the full year driven by a 14.4% decline in advertising partially offset by a $10.2 million or 56.4% increase in digital-only subscriptions. For the year, expenses declined $100.9 million or 9.4%.

On a same-business basis, expenses declined $126.5 million, a 12.6% decline with both metrics reflecting strong expense management throughout the year. As a result, income from continuing operations for 2019 totaled $3.1 million compared to a loss from continuing operations in 2018 of $39.9 million, a $43 million year-over-year improvement. Adjusted EBITDA for the full year was $101.4 million, a $7.5 million increase over 2018. Our adjusted EBITDA margin for the year was 10.3% compared to 9.1% in 2018 as mentioned 120-basis-point improvement.

Loss per share from continuing operations for 2019 improved by $0.39 a share from $1.15 loss in 2018 to a $0.76 loss in 2019. Full-year EPS was negatively impacted by $0.71 a share by the impact of the noncontrolling interest carrying value adjustment. This adjustment will end beginning in first quarter of 2020 due to amendment of the BestReviews, LLC agreement in January of 2020 to eliminate the put and call features to that agreement. Turning to the fourth quarter.

Revenue declined 11% on a year-over-year basis. $4.9 million or 1.7% of the decline from the prior year is associated with the reduction in transition services provided to the California properties as we near the end of that agreement in 2020. Accordingly, core revenue declines which exclude the transition service agreement, are under 10% at 9.3% on a year-over-year basis. Regarding operating expenses.

We continue to focus on managing expenses in the face of industrywide revenue headwinds, with total operating expenses down $32.2 million or 11.2% in the fourth quarter of 2019 versus the same quarter last year. For the quarter, we reported net loss from continuing operations of $4.4 million compared to income from operations in the prior year of $4 million. The decline in income from operations was driven primarily by a $5.6 million tax increase compared to last year. Loss from continuing operations for 2019 was $0.46 a share compared to income per share from continuing operations of $0.10 a share in 2018.

EPS for the fourth quarter was also negatively affected by the noncontrolling interest carrying value impact in the EPS calculation. Adjusted EBITDA for the quarter totaled $30.8 million compared to $46.5 million in the prior-year period. In the fourth quarter of 2019, we reported another large item in discontinued operations. As disclosed in the third quarter, we recorded revenue -- excuse me, a reserve related to a judgment in a lawsuit brought by a former employee of Los Angeles Times from a period when we owned the business.

Based on our post-trial motions, the judgment was vacated, we, therefore, adjusted the reserve down in the fourth quarter. A new trial date has been set for this matter in August 2020. Turning to the balance sheet and cash flow. capex totaled $4.7 million in the quarter and $18.6 million for the full year.

Cash generation remains strong, with cash provided by operations of $21.1 million for the quarter and $53.1 million for the year. We exited the year with $98.3 million of cash, of which $61 million was unrestricted and $37.3 million is restricted. As a result of our strong cash generation and cash position, in the fourth quarter, the Board declared a regular dividend of $0.25 per share which was paid out in December, and another 25% -- another $0.25 dividend has been declared in the first quarter and will be paid in March. Let's turn now to fourth-quarter results for our segments.

For the M segment, total revenue declined 13.3% driven by print advertising which declined 21%. Through the fourth-quarter holiday season advertising, print advertising increased slightly to approximately 32% of our total revenue in the fourth quarter compared to nearly 36% of total revenue in Q4 of last year. However, we are relying on print advertising less and less, and print circulation exceeded print advertising every quarter this year. Operating expenses in the M segment declined 14% which resulted in a $1.6 million increase in income from continuing operations in the segment.

Turning to the x segment. Total revenue was up $3.8 million or 7.7% in the fourth quarter this year versus the same quarter last year. Content and e-commerce revenue grew 18.6% in the quarter due to digital subscription growth which was up 33.6% in volume and 52.4% in revenue and solid year-over-year growth at BestReviews. Partially offsetting this growth was a slight decline in digital advertising decreased 1.8% from last year.

However, we showed substantial sequential improvement from Q3 of this year which was down 15.2% compared to last year. The advertising decline is directly attributable to lower advertising revenue from cars.com, the exclusion of which would have resulted in a 4.4% increase in digital advertising. As Terry mentioned, the cars.com agreement ends in Q1 of 2020. Operating expenses for the x segment increased 4.4% due to a shift in allocations for newsroom costs from the M segment as digital now comprises a larger percentage of our revenue.

As a result of strong content and e-commerce revenue, only partially offset by lower digital advertising revenue increased expenses, income from operations in the x segment increased year over year by $1.9 million or 31%. With respect to guidance, 2020 adjusted EBITDA will be in the range of $100 million to $105 million. And for the first quarter of 2020, the company expects revenue to range from $210 million to $215 million and adjusted EBITDA to range from $12 million to $13 million. In closing, we continue to manage cost aggressively as we transform to a digitally focused company.

In the first quarter of 2020, we implemented a voluntary severance program and made a number of management changes to continue to streamline our operations. And currently, we are making strategic investments in our digital product offerings and in our digital future. And we continue to deliver strong operating performance across all our key metrics as we manage the transformation of the company. And now we'll open up the call for questions.

Questions & Answers:

Operator

[Operator instructions] And I'm not showing any questions at this time.

Terry Jimenez -- President and Chief Executive Officer

Terrific. Well thank you very much for joining us this afternoon and thank you for your interest.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Duration: 18 minutes

Call participants:

Amy Bullis -- Vice President of Finance

Terry Jimenez -- President and Chief Executive Officer

Mike Lavey -- Interim Chief Financial Officer

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