Newspaper & Mailroom

McClatchy Reports Fourth Quarter 2013 Earnings

Monday 17. February 2014 - - Circulation revenues increase; Plus Program revenues of $8.8 million in the 2013 quarter

– Digital-only revenues up 15.8% from Q4 2012 with digital-only ad revenues up 13.2%
– Total revenue trend improves in Q4 2013 compared to prior quarters
– Advertising revenues from nontraditional sources now 39.7% of total ad revenues
– Cash distributions from equity investments total $42.4 million in 2013
The McClatchy Company (NYSE-MNI) today reported fourth quarter 2013 earnings, excluding the net impact of certain items discussed below, of $29.9 million. Earnings in the fourth quarter of 2012, adjusted for similar items and the extra week in our 2012 fiscal calendar (discussed below), were $29.8 million.
On a GAAP basis, net income in the fourth quarter of 2013 was $12.5 million, or 14 cents per share. In the fourth quarter of 2012 the company reported a net loss of $30.0 million, or 35 cents per share.
The company’s fiscal 2013 reporting period was a 52-week year compared to a 53-week year in 2012, and as a result, the fiscal fourth quarter of 2013 includes 13 weeks compared to 14 weeks in the 2012 fiscal fourth quarter. The company estimates that the reported net loss in 2012 was reduced by approximately $4.0 million because of the additional week being reported. The estimated impact of the extra week in the 2012 fiscal calendar on revenues and expenses are outlined in a proforma schedule of 13-week quarterly results and 52-week annual results for 2012, which accompanies this release.
Commenting on McClatchy’s 2013 fourth quarter results, Pat Talamantes, McClatchy’s president and CEO, said, “We ended 2013 on a positive note. The total revenue trend improved this quarter compared to both the proforma13-week fourth quarter of 2012 and the third quarter of 2013, driven by improvement in both advertising and circulation revenue trends. And on a comparable basis, adjusted net income in the 2013 quarter was slightly ahead of the estimated 13-week fourth quarter of 2012. We also continue to make great strides in growing our digital audience as evidenced by the 19.7% growth in monthly unique visitors and 83.0% growth in mobile monthly unique visitors compared to the same quarter last year. We generated additional liquidity this quarter, having received $38.7 million in cash distributions from our equity investments for a total of $42.4 million in 2013. We ended the year with $80.8 million in cash and have only $29 million in debt principal coming due in late 2014 and then no maturities until the second half of 2017. Importantly, our digital transformation continues. We are executing on our revenue diversification initiatives and digital growth strategies, and we look forward to 2014 with optimism.”
Fourth Quarter Results
Total revenues in the fourth quarter of 2013 were $344.7 million, down 8.4% from the fourth quarter results of 2012, which included an additional week due to our fiscal 2012 calendar. Based on an estimated 13-week fourth quarter of 2012, fourth quarter of 2013 total revenues were down about 2.1% from the comparable fourth quarter of 2012. Advertising revenues were $238.8 million, down an estimated 6.0%, and circulation revenues were $92.7 million, up approximately 9.1% from the same estimated 13-week quarter in 2012. Circulation revenues were up about 3.3% for the quarter excluding the $4.9 million in revenue related to the transition to fee-for-service circulation delivery contracts at newspapers that changed to fee-for-service contracts during 2013. Total digital-only revenues, which include digital-only revenues from advertising and circulation, were up approximately15.8% compared to the same estimated 13-week quarter last year.
Results in the fourth quarter of 2013 included the following items:
— Severance and other charges totaling $3.3 million ($2.0 million
after-tax);
— Non-cash impairment charges totaling $8.9 million ($5.6 million
after-tax) related to owned real estate associated with outsourcing or
relocation initiatives;
— Accelerated depreciation totaling $7.4 million ($4.5 million after-tax)
related to newspaper production equipment associated with outsourcing or
relocation initiatives;
— Non-cash impairment charges related to certain minority owned equity
investments totaling $3.0 million ($1.9 million after-tax); and
— Non-cash impairment charges related to intangible assets at certain
newspapers totaling $5.3 million ($3.4 million after-tax).
Operating cash expenses, excluding severance and other charges discussed above, increased approximately $4.7 million, or 1.9%, from the proforma 2012 quarter. Fourth quarter operating cash expenses also included $4.9 million in expenses related to the transition to fee-for-service circulation delivery contracts at newspapers that changed to fee-for-service contracts during 2013 (with a similar increase in circulation revenues, and thus, had no net impact on operating cash flow). Excluding the impact of this change in contracts, operating cash expenses were down an estimated $0.3 million in the quarter, or 0.1%, from the 13-week quarter of 2012.
Operating cash flow was $97.3 million in the fourth quarter of 2013, down an estimated 11.2% compared to the proforma 13-week quarter last year. (Non-GAAP measurements are discussed below.)
Full Year Results
Total revenues in 2013 were $1.242 billion, down 5.1% from 2012, which included an additional week in our 2012 fiscal calendar. Compared to estimated 52-week revenues for 2012, total revenues for 2013 were down approximately 3.4%; advertising revenues were $838.4 million, down about 6.7%; and circulation revenues were $354.0 million, up approximately 5.4%. Total digital-only revenues, which include digital-only revenues from advertising and circulation, were up 12.8% compared to the same estimated 52-week 2012 year.
Earnings for 2013, excluding the net impact of certain items discussed below, were $47.3 million. Earnings in 2012, when adjusted for similar items and excluding the estimated impact of the 53(rd )week, were $52.4 million. Earnings in 2012 also included a favorable tax item of $7.9 million for the release of tax reserves and related interest resulting from the expiration of statutes for certain state tax years in the second quarter of 2012. (Non-GAAP measurements are discussed below.)
On a GAAP basis, net income for 2013 was $18.8 million, or 22 cents per share. The net loss for 2012 was $0.1 million, or 0 cents per share.
Results in 2013 included the following items:
— Loss from the extinguishment of debt totaling $13.6 million ($8.6
million after-tax) related to the completion in early 2013 of both the
refinancing of the company’s 11.5% secured bonds due in 2017 and
open-market repurchases;
— Gain related to the sale of the Miami property of $12.9 million ($8.2
million after-tax);
— Severance and other charges totaling $15.1 million ($9.5 million
after-tax);
— Non-cash impairment charges totaling $8.9 million ($5.6 million
after-tax) related to owned real estate associated with outsourcing or
relocation initiatives;
— Accelerated depreciation totaling $11.4 million ($7.0 million after-tax)
related to newspaper production equipment associated with outsourcing or
relocation initiatives;
— Non-cash impairment charges related to certain minority owned equity
investments totaling $3.0 million ($1.9 million after-tax);
— Non-cash impairment charges related to intangible assets at certain
newspapers totaling $5.3 million ($3.4 million after-tax); and
— Net increase in tax and interest on taxes totaling $0.7 million for an
increase in liabilities related to tax positions taken in prior years,
net of favorable state tax audit settlements and related interest
adjustments.
Operating cash flow was $276.6 million in total for 2013, down approximately 11.5% compared to the proforma 52-week year in 2012. (Non-GAAP measurements are discussed below.)
Business and Financial Highlights
Total advertising revenues were down 6.0% in the fourth quarter compared to the proforma 13-week fourth quarter of 2012. While print advertising declined, it was partially offset by revenue growth in both digital and direct marketing advertising revenues, with each reporting 2.2% growth from the 2012 proforma quarter. Total digital and direct marketing advertising represented 39.7% of total advertising on a combined basis. Digital-only advertising was up 13.2% in the quarter and total digital-only revenues, which includes both digital-only advertising and circulation revenues, finished up 15.8% versus the proforma amounts in 2012.
Based on the proforma 2012 amounts, the company’s circulation revenues increased 9.1% in the fourth quarter and were up 3.3% for the quarter excluding the $4.9 million in revenue related to the transition to fee-for-service circulation delivery contracts at newspapers that changed to fee-for-service contracts during 2013. Revenue from the digital subscription package, known as the Plus Program, finished the year on a strong note. The Plus Program provided more than $8.8 million in new revenues in the quarter and $31.4 million in total for all of 2013. New, digital-only subscriptions from the Plus Program now number approximately 32,400 with total digital-only subscriptions at 60,300.
McClatchy’s digital audience continues to grow. Despite the metered paywalls installed at the newspaper websites with the Plus Program launch last year, monthly unique visitors grew 19.7% in the fourth quarter of 2013 and mobile monthly unique visitor count was up 83.0% compared to the fourth quarter of 2012. Mobile users represented 40.0% of total monthly unique visitors in the quarter. The company also upgraded and launched new iOS tablet apps and Android and iOS phone apps during the fourth quarter of 2013. The Android app upgrades were completed in January of 2014.
The rollout of impressLOCAL(TM), McClatchy’s digital marketing service solution, was completed on a company-wide basis in the fourth quarter of 2013. impressLOCAL(TM )provides a suite of online products designed to offer local businesses a comprehensive digital marketing solution. The company is also expanding sales reach through audience extension partners, including Yahoo!, Centro, Simpli.fi and other ad networks and exchanges.
Cash expenses, excluding severance and certain other charges, finished up 1.9% in the quarter compared to the proforma 13-week amount in the fourth quarter of 2012. Cash expenses this quarter included a $3.0 million increase in pension expense and $2.2 million in investments related to new revenue initiatives and enterprise-wide operating systems. Fourth quarter operating cash expenses also included $4.9 million in expenses related to the transition to fee-for-service circulation delivery contracts at newspapers that changed to fee-for-service contracts during 2013 (with a similar increase in circulation revenues, and thus had no net impact on operating cash flow). Excluding the impact of the change in contracts related to the transition to fee-for-service circulation delivery, operating cash expenses were down $0.3 million in the quarter, or 0.1% from the 2012 proforma 13-week quarter.
Net income from equity investments was $7.5 million in the fourth quarter, up 55% compared to the same quarter last year. Classified Ventures and CareerBuilder in particular continue to provide impressive financial results. McClatchy received $38.7 million in cash distributions from all of its equity investments in the fourth quarter and $42.4 million in distributions for all of 2013.
The company finished the quarter with $80.8 million in cash. Total debt at the end of the fourth quarter was $1.556 billion. The leverage ratio at the end of the fourth quarter as defined in the company’s credit agreement was 4.83 times cash flow and the interest coverage was 2.54 times cash flow. On a net debt basis (debt net of cash on hand) the leverage ratio was 4.58 times cash flow.
During the fourth quarter, the company made announcements regarding further progress in its production consolidation efforts. McClatchy reached an agreement with The Dallas Morning News to begin printing the (Fort Worth) Star-Telegram in February 2014. Separately, in January 2014 the company bought the Dow Jones production facility and related equipment in Charlotte, N.C. where it will move the production of The Charlotte Observer newspaper while also printing Dow Jones publications at this site.
Other Information
Visibility on business trends in the first quarter is limited, particularly given the snow and ice storms in the Midwest and Southeast, together home to 47.3% of our revenues. Still for full-year 2014, the company expects double-digit growth in digital-only advertising revenues along with low single-digit growth in both direct marketing and circulation revenues. Expenses are expected to be down in the low single-digits in 2014 compared to 2013, excluding the impact of circulation-related expense increases as a result of moving to fee-for-service delivery contracts at several newspapers. Expenses in 2014 are expected to include approximately $13 million of costs associated with digital initiatives in 2014 compared to $9.2 million spent in fiscal 2013.
In January 2014 the company contributed $25 million to its pension plan and expects to spend approximately $29 million in capital expenditures in 2014. The company also expects to continue to pay down debt, including the retirement of approximately $29 million in bonds maturing in November 2014.
The company’s statistical report, which summarizes revenue performance for the fourth quarter and the fiscal 2013 year, follows.
Non-GAAP Financial Measures
In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”) included in this press release, the company has presented non-GAAP financial measures such as adjusted net income, operating cash flows and operating cash flow margins. For 2012, we have also provided an estimate of the impact of our additional week in the 2012 fiscal quarter and year-to date periods on revenues and expenses, as well as proforma operating cash flow and adjusted net income (defined below) on a 13-week fourth quarter and 52-week full-year basis for 2012.
Adjusted net income is defined as net income excluding amounts (net of tax) for loss (gain) on extinguishment of debt, gain on sale of Miami property, severance charges, certain other charges, real estate related charges, accelerated depreciation on equipment, equity investment related impairment charges, intangible asset impairment charges, reversal of interest on tax items and certain discrete tax items. Operating cash flow is defined as operating income plus depreciation and amortization, severance charges and certain other charges. Operating cash flow margin is defined as operating cash flow divided by total net revenues. These non-GAAP financial measures are reconciled to GAAP measures in the attached schedule. Management believes these non-GAAP measures, when read in conjunction with the company’s GAAP financials, provide useful information to investors by offering:
— the ability to make more meaningful period-to-period comparisons of the
company’s ongoing operating results;
— the ability to better identify trends in the company’s underlying
business;
— a better understanding of how management plans and measures the
company’s underlying business; and
— an easier way to compare the company’s most recent operating results
against investor and analyst financial models.
These non-GAAP financial measures should not be considered a substitute or an alternative to these computations calculated in accordance with and required by GAAP. McClatchy’s non-GAAP financial measures may not be comparable to similarly titled measures presented by other companies.