Tribune Publishing Company (TPCO) Q2 2020 Earnings Call Transcript

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Tribune Publishing Company (TPCO)
Q2 2020 Earnings Call
Aug 05, 2020, 5:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by, and welcome to the Q2 2020 Tribune Publishing Company earnings call. [Operator instructions] I would now like to hand the conference over to your first speaker today, Ms. Amy Bullis. Please go ahead.

Amy Bullis -- Investor Relations

Thank you, and welcome to our second-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, believe, anticipate, expect, intent, 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 risks and uncertainties beyond the company's control.

Some of these risks and uncertainties that could impact our businesses 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 Chief Executive Officer Terry Jimenez and the Interim Chief Financial Officer Mike Lavey.

I will now turn the call over to Chief Executive Officer Terry Jimenez.

Terry Jimenez -- Chief Executive Officer

Well, thank you, Amy, and good afternoon, everyone. Thank you for joining today's call and for your interest in Tribune Publishing. I trust everyone has been staying safe and healthy as we continue navigating this pandemic. I will provide some perspective and insights on our performance in the second quarter, and then we'll ask Mike to walk through our financials.

Our world has continued changing dramatically in the last several months as our company faces unforeseen challenges brought about by the pandemic. And as circumstances have demanded that we alter our approach, I am pleased with how our company has performed and how our team has collectively responded. Our journalism and marketing solutions, now more than ever, are extremely valuable to our readers and our advertising partners. Our readers, audiences and communities need the information we provide and depend on our great journalism.

We continue to deliver thorough reporting and information on the impact the virus has had. In addition to providing facts and visibility, we provide perspective from frontline workers in healthcare and in essential businesses. As the virus has progressed in different communities and local governments have drafted new guidelines and regulations, we continue to keep our readers informed well with relevant information they need to navigate their day-to-day lives. In the first two quarters this year, our strong leadership team and the rest of our organization has stepped up and advanced our business.

We have responded with resiliency, speed and urgency and have continued toward a digitally focused enterprise. I would like to thank all of the frontline and essential organizations, including our own team, for their continued help in guiding us through these uncharted territories. While we shine with large stories impacting our audiences like the pandemic, civil discussions and hurricane preparations and updates, we also continue to deliver key stories in each of our communities on prime, government, local business and the ever-changing world of sports and entertainment. As mentioned in our last earnings call, we quickly responded with meaningful action as the events of the pandemic unfolded.

We focused on four main areas. First, we took action to maintain the strength of our balance sheet. Unlike many of our peers, we entered into the pandemic with virtually no debt and significant cash. To maintain that, we optimized our use of working capital, made reductions in capital expenditures and suspended our dividend.

These actions ensure that we maintain significant financial flexibility as we continue facing many unknowns, and we are confident that the strength of our balance sheet will help us continue to weather this and other future storms. The second concurrent focus was on opex in virtually every part of our business. These actions include reductions in outside services, where we sought to save on contract costs across the company; occupancy costs, where we've reduced our rent and related expenditures, especially relevant as a result of not working out of our own offices; and changes in our production schedules, which were optimized to secure additional savings. We also significantly reduced or removed all together discretionary spending.

In addition, we made the difficult decision to reduce compensation expenses through targeted staff reductions, pay reductions and furloughs. Though difficult, these actions helped ensure we maintain cash flows as our top-line advertising revenues were impacted by the slowdown. Our third area of focus was on the digital opportunity. In the second quarter, we saw more than 60 million average monthly unique visitors to our digital footprint, placing us above most of our regional peers.

And this was a 52% growth year over year, which also placed us with greater growth in most media outlets on a year-over-year basis. We grew our digital-only subscribers by 49,000 sequentially in the second quarter from the first quarter, representing our single-largest quarter of subs growth since we began these efforts several years ago. Our subs total ended at 419,000 for the quarter, representing a year-over-year gain of 40%. We continue to make targeted enhancements to our customer experience and improve the sophistication of our marketing solutions.

We've made significant strides in our digital-only subscriber experience or mobile experience, and we continue to utilize data and analytics to inform our decision making. These efforts have yielded significant gains as we grow our audience and our subscriber base. We have now posted 22 consecutive quarters of digital subscriber growth of 30% or more. We are continually reminded of the success of our BestReviews business, which the company has a majority stake in.

The second quarter saw BestReviews post substantial revenue growth, as well as year-over-year bottom-line improvements. Our fourth focus is on reconnecting with the businesses in our communities. We made concerted efforts to help the businesses in our communities recover from the negative business impact they've suffered as a result of the virus. As businesses have begun to open back up, we have worked with them as marketing partners to ensure their business rebounds.

Our advertising and marketing solutions continue to support the businesses that our readers and audiences patronize, and we are confident that our client partnerships will proactively assist in restarting our local economies. In recent weeks, the company has made several announcements that I'd like to touch on here. We first announced an extension to the standstill agreement with our largest shareholder. This agreement allows the board of directors, our leadership team and our employees the ability to focus on executing against our initiatives and advancing our digital transformation.

We later announced a stockholder rights agreement. The agreement is intended to enable all Tribune Publishing stockholders to realize the full potential value of their investment, and it protects the interest of the company and its stockholders by helping to reduce the likelihood that outside groups can acquire shares in order to control the company without the payment of an appropriate premium. We remain focused on operating these businesses to the highest degrees of efficiency while investing in our digital future. Our substantial cash position of over $80 million, along with our expectation to continue to generate positive cash in this year, is a testament to the strength of our business and the ability to endure the most challenging of times.

As our nation and communities get to a better place, our reporting, our journalism and our marketing solutions will continue to play their part in our recovery. With that, I'd like to turn the call over to Mike to speak to some of the specifics on our financial performance.

Mike Lavey -- Chief Financial Officer

Thank you, Terry. The second quarter of 2020 was a challenging quarter for our country, the economy, our customers, our company, and our staff. The coronavirus pandemic has necessitated that we take significant cost-management measures in response to unprecedented revenue declines, particularly in advertising, as we position the company for a digital future. These included efforts focused on reducing our fixed cost infrastructure, including outsourcing of printing and packaging at the Virginian-Pilot; taking steps to reduce our leased facility footprint and the difficult decisions to reduce our compensation costs.

Now I'll speak to our financial highlights for the second quarter. As a reminder, for all of 2020, there will be no same business comparisons necessary as we have cycled all prior-year acquisitions. Additionally, there will be no segment comparisons as beginning in the first quarter of fiscal 2020 and as disclosed in our first quarter results, Tribune began managing its business as one business and one reportable segment. Prior periods have been restated to reflect the change in reportable segments.

For the second quarter of 2020, revenue declined $67.2 million or 26.9% on a year-over-year basis. Advertising declined $49.8 million or 48.1% with retail advertising taking the biggest decline, off by $39.3 million or 55.2% in the prior year. Included in this decline is $2.8 million associated with the Cars.com agreement, which concluded last quarter. National advertising decreased $5.4 million or 36.9%, and classified advertising decreased $5.3 million or 32.7%.

Circulation declined $4.3 million or 4.7% as declines in home delivery and single copy were only partially offset by increased digital-only circulation revenue, which increased 49.9%. Other revenue declined $13.1 million or 23.8% with commercial printing revenue -- commercial print and delivery revenue down $6.8 million or 28.5% as our customers of these services were equally impacted by the pandemic. An additional $5 million decline from the prior year is related to transition services provided to the California properties as we wrapped up that agreement in the second quarter. These declines were partially offset by a $3.1 million or 37.1% increase in revenue at BestReviews as the public turned even more so to online shopping during the quarter.

We did exceed our previous revenue guidance for the second quarter as each week in June sequentially improved compared to expectations. On the expense side, we continue to aggressively manage expenses in the face of pandemic and industrywide revenue headwinds with total operating expenses down $58.4 million or 24.1% in the second quarter of 2020 on a year-over-year basis. Reductions in current-year operating expenses included $25.5 million or 26.7% in compensation expense, $14.3 million or 17.7% in outside services, $7.7 million or 51.1% in newsprint and ink and $9.2 million or 23% in other expenses. For the quarter, we reported net income from continuing operations of $1.6 million, compared to $5.3 million in the prior year with the decline driven by lower revenues.

Net loss attributable to Tribune shareholders in Q2 of 2020 was $0.02 per share, compared to net income attributable to Tribune shareholders of $0.08 per share in 2019. Adjusted EBITDA totaled $18.8 million in the second quarter of 2020, compared to $24.4 million in the prior-year period. Favorable revenue in June and strong cost control allowed us to deliver above our previously guided adjusted EBITDA for Q2 of 2020. Now turning to cash flow.

Cash flow has been a very bright spot for the company with cash flow from operations of $33.1 million for the quarter, compared to $12.8 million for the prior-year quarter, an increase of $20.3 million or 158%, driven primarily by strong cost control and focused management on cash outflows. For the year-to-date period, cash flow from operations is $30.3 million, compared to $17.6 million in the prior year. We ended the quarter with $114 million in cash, of which $80.5 million is unrestricted and $33.4 million is restricted. We're actively managing our cash balances on several fronts, driven primarily by aggressive cost control but also extending payment terms, reduced rent payments as we negotiate with landlords for more favorable terms, utilizing the CARES Act to defer remitting the employer portion of social security taxes.

We continue to closely monitor proposed legislation for items which may further impact the company. As mentioned previously, the board suspended the quarterly dividend program in May. Capital expenditures for the quarter totaled $3.1 million. With respect to guidance, in light of the uncertainties associated with the COVID-19 pandemic, the company is not providing full-year 2020 guidance, but our expectation is the company will continue to generate positive cash flow for the remainder of the year.

For the third quarter of 2020, the company expects total revenues of $188 million to $193 million and adjusted EBITDA of $24 million to $27 million. In closing, the pandemic has accelerated our transformation to a digital company as demonstrated by the growth we've experienced in digital-only subscribers in the first half of 2020. However, in order to sustain ourselves for the long term, we've positioned the company as a smaller, more agile operation. To do so, we have and are taking steps to reduce our primary expense drivers by focusing on our fixed cost infrastructure, reducing our real estate footprint, and reducing compensation expense.

We believe we are well-positioned to withstand the challenges of the coronavirus pandemic and be successful in the future due to the 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. And now we will open up the call to questions.

Questions & Answers:

Operator

Your first question comes from the line of Mr. Michael Kupinski.

Michael Kupinski -- Noble Capital Markets -- Analyst

Hi. This is Mike Kupinski. Thanks for taking the questions, and good afternoon. First of all, I want to congratulate you guys for some obviously tough choices and some sacrifices that as a company and employees that have made to deliver on these types of results.

I mean, it's significant that you overachieved our expectations. And what's interesting, too, is as you look at your guidance for Q3 that your revenues being down roughly in the 20% range is actually better than many of the other traditional media companies are guiding toward the third quarter. And also interesting that your cash flow, you're actually looking for that to be up year over year, which is very surprising. I was wondering if you can just talk a little bit about the revenues because we're hearing about store bankruptcies and closings and so forth, and for you to deliver that type of revenue performance is kind of a little bit remarkable.

So there has to be, obviously, some key drivers in the digital side. Can you just kind of give us a flavor of the components of your guide for Q3? And just kind of help us out there.

Terry Jimenez -- Chief Executive Officer

Yes. This is Terry. On the advertising side, I think we'll still continue to see some headwinds there. I think we'll -- we anticipate a slight improvement in trend line from where Q2 was, just given in Q2, a lot of our advertising partners were shut down for a pretty big portion of the second quarter or our fiscal second quarter, I should say.

Whereas in Q3, they'll be open, albeit a little bit of a softer-than-normal environment, but certainly not as soft as it was in Q2. And while there are -- for obvious reasons why some retailers are going into bankruptcy, entering into bankruptcy, we have limited exposure with those that have announced to date. But certainly, we're conscious of and trying to support other retailers and fight through the circumstances as it is. The other component of our guide was we had brought in a lot of new digital-only subscribers really in the first half of the year.

So in Q1, we had what at the time was a record growth sequentially in terms of growth in digital-only subscribers from the end of Q4 of '19 into Q1 of 2020. And so we'll have the benefit of those subscribers paying at a normalized rate in Q3 and beyond and then the same story on Q2 where we broke our previous record sequentially, and Q2 topped that by quite a bit. And so we'll have a lot more digital subscribers in our ecosystem in Q3 and beyond. So we'll have the benefit of those groups as well.

And then in terms of the expense side, as Mike laid out, we had taken a lot of actions in order to kind of make sure that we're going to be in a stable position, not just short term, but also long term. And so we're confident that we'll see the savings from those actions continue on, and we obviously need to continue -- given the revenue declines, we need to continue to be thoughtful about how we spend our money. And so we'll see some additional actions, albeit at a smaller scale than what we saw in Q2, but we'll see some ongoing expense management actions in Q3 as well.

Michael Kupinski -- Noble Capital Markets -- Analyst

And, Terry, I just had one quick follow-up. In terms of the digital subscriber growth, as you look into the Q3, obviously, Q2 was kind of a perfect storm of where people are at home and of course looking for news, and it seems like digital subscriber activity would probably increase. But as you look into Q3 and the economies are starting to open up and so forth, are you seeing that -- what type of growth are you seeing? And how sticky are the subs as you kind of go into Q3?

Terry Jimenez -- Chief Executive Officer

Yes. From a retention point of view, at least of those that we've acquired, it's still early days. But for those that we've acquired, those are following kind of a normal retention curve. And so we don't see anything new with those newly acquired subscribers.

And then in terms of the existing base of subscribers, again, we haven't seen any churn pick up at all as they look to move on. I think there's a case to be made that, certainly, the pandemic is still going to be here for Q3 and hopefully not much longer beyond that. But certainly, as there's additional waves that come through, people are going to need to stay on top of this story. But I think at the same time, we're delivering a lot of other news that people are now getting access and exposure to and engaging with.

And I think people are understanding kind of the credible news that you can find with our properties is a place that they can invest a relatively small amount of their money to kind of make sure they're getting the right story that helps them navigate their lives.

Michael Kupinski -- Noble Capital Markets -- Analyst

And, Terry, this may not be a fair question. But obviously, you have to be disappointed where the stock price is today. Given the fact that if you just look at the sum of the parts of the company, you would think that this would be materially higher than where it's at, especially throwing off this type of cash flow, the cash that you have, the value that you have in BestReviews. How do you look at the stock price relative to what you see at the company and the fundamentals that you see at the company currently? And what maybe -- what are the best uses of cash at this point? And how would you look at capital allocation at this point?

Terry Jimenez -- Chief Executive Officer

Yes. I obviously agree with the point about where our stock price is. I don't think it's appropriately valued, but it's something that -- something we really can't control day in, day out, week in, week out. So we're really focused on making sure we've got a set of assets and a group of assets that will continue to contribute value to our communities and our advertising partners.

And our belief is that will translate into shareholder value and shareholder growth over the medium to longer term. And so we're really focused on just operating the best that we can to deliver that longer-term growth. In terms of capital allocation, as we've navigated through what I think is the heaviest part of the storm and exited, but there's still a fair amount of uncertainty as we move forward. And I think how we try to deploy capital to help drive shareholder value is a discussion that the board certainly continues to have and be thoughtful of.

But given the near-term uncertainty, there's no definitive plans of what we do with the capital just yet.

Michael Kupinski -- Noble Capital Markets -- Analyst

Thanks for taking the questions. Appreciate it.

Terry Jimenez -- Chief Executive Officer

Great. Thank you.

Operator

[Operator instructions] Your next question comes from the line of Mason Slaine.

Mason Slaine -- Unknown Affiliation -- Analyst

Yes. Thanks. Congratulations on a great job given the -- what's going on in the world, and I'm just actually astounded with the performance that you're projecting for the third quarter where your adjusted EBITDA basically is kind of the same as last year when your revenue was much higher and the world didn't face COVID. So congratulations on holding it together.

Congratulations on the -- on a fantastic forecast for this quarter and job well done. I just have two questions. One, the amount of cash in Tribune now as a percentage of market cap,is like more than Apple computer. I mean, literally, a third of your market cap is now in cash, and you're projecting to grow cash going forward.

And if you annualize third quarter, that's $100 million in EBITDA with almost no capital expenditures. So why not pay a dividend? I mean, you have no debt, tons of cash, cash coming in. Why wouldn't you pay a dividend? That's number one. The second thing is in terms of BestReviews.

You're kind of in this odd situation where you've owned 60% of the business for a few years now, and so you're kind of like half pregnant. What's the plan? Is the plan to buy the rest of it in, to sell it, to just stay at 60%? What's the strategy here? So those are my questions.

Terry Jimenez -- Chief Executive Officer

Sure. Thanks, Mason. On the first one, on capital allocation, there's not much more I could add, other than what I -- how I answered Michael's. It's definitely a discussion that we continue to have at the board level, and there's no decisions that we're announcing here today, but it's definitely part of the conversation as we think about capital allocation in the future.

In terms of BestReviews, it's been a tremendous investment for Tribune. It's grown tremendously since we've entered into the investment. It continues to grow quite significantly. It's a business that's tethered to e-commerce, and the e-commerce markets will continue to grow.

And that obviously saw an uptick during the pandemic as a lot of retailers had a shutdown. So we're very excited about the prospects of BestReviews and the progress that it's made to date. But even more importantly, the growth trajectory that it's on and where it can go, we think there's a lot of value in the asset. And so we're really excited about the performance of the business.

I know one of the analysts had a -- yes. So I think we've hit all of our questions. One of our analysts is in the middle of a storm situation, so he won't be on, but this is Terry Jimenez. I really just want to thank everybody for joining us today and your interest in Tribune Publishing.

And as you can see, we're laser focused on making sure that we're creating value for the long term. So appreciate your interest, and everyone, stay safe. Thank you all.

Operator

[Operator signoff]

Duration: 30 minutes

Call participants:

Amy Bullis -- Investor Relations

Terry Jimenez -- Chief Executive Officer

Mike Lavey -- Chief Financial Officer

Michael Kupinski -- Noble Capital Markets -- Analyst

Mason Slaine -- Unknown Affiliation -- Analyst

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