Tribune Publishing Company (TPCO) Q1 2019 Earnings Call Transcript
Tribune Publishing Company (NASDAQ: TPCO)Q1 2019 Earnings CallMay. 08, 2019, 5:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, ladies and gentlemen, and thank you for standing by. Welcome to the first-quarter 2019 Tribune Publishing Company's earnings conference call. [Operator instructions] As a reminder, this conference is being recorded. Now it's my pleasure to turn the call to the vice president of financial planning and analysis, Ms.
Amy Bullis.
Amy Bullis -- Vice President of Financial Planning and Analysis
Thank you, and welcome to our first-quarter 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, 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 CEO and President Tim Knight; and Executive Vice President and Chief Financial Officer Terry Jimenez.
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I will now turn the call over to CEO and President Tim Knight.
Tim Knight -- Chief Executive Officer and President
Thank you, Amy. I'm pleased to be here this afternoon and also want to welcome everyone to our first-quarter 2019 earnings call. We are off to a great start in 2019 as our efforts over the last year and particularly, over the last several months are beginning to bear fruit as demonstrated by our solid top-line growth performance and substantial profitability improvement in the first quarter. When we last spoke in mid-March, I outlined four key areas of focus at Tribune Publishing as we work to accelerate our growth: first, expanding our engagement with a digital audience that pays for content; second, selling and delivering a range of digital advertising, marketing and commerce solutions on both a local and national level; third, optimizing cash flow, particularly from our traditional print business; and fourth, ensuring that we have the right team, in the -- including the right people in the right roles and the organizational structure to execute our plan.
I would like to start with an overview of the solid progress we made on each of these areas during the quarter before passing the call over to Terry, who will discuss our financial results and provide an update on our outlook for the second quarter and full-year 2019. At a high level, our journalistic excellence combined with our continued efforts to drive subscriptions efforts have led to a significant increase in over digital subscriber base. We have grown digital subscribers 45% and digital content of revenues 43% year over year, showing we are maintaining growth momentum even as we aggressively add paying customers. In doing so, we have delivered a record of 19 consecutive quarters of digital subscription volume and revenue growth.
At the end of the first quarter, we had a total of 283,000 digital-only subscribers. And we are pleased that the Chicago Tribune surpassed a 100,000 digital-only subscribers. These are milestones in our journey to build a broad and deep relationship with customers who value our journalism and are willing to pay for it. In terms of overall profitability, I am very pleased with the progress we have made, generating $21.3 million in adjusted EBITDA in the first quarter of 2019, which represents a $12.8 million increase from the first quarter of 2018.
Firstly, all of the improvement was realized in our same-store businesses with a significant portion of the adjusted EBITDA increase derived from cost savings as we reap benefits from cost actions taken in 2018 and continue to adjust our operations to fit our digital priorities and fuel our future growth. As part of this strategy, we continue to transition more newspapers into our centralized print, design and production studio in Chicago, which allows our newsrooms to focus more on growing their digital audiences. Turning onto our top-line performance and as we have shared on previous calls, we spent the second half of 2018 implementing a comprehensive advertising sales playbook in order for us to more aggressively grow digital revenues in each of our markets and improve our print advertising trends. We started to see the results of these efforts in the first quarter.
On the print side, stronger local sales, improvements in national advertising and stable preprint revenue enabled us to improve advertising declines in our M segment on a consolidated and same-store basis from the prior quarter. On the digital side, new hires in key roles helped drive digital revenue growth in overall improvement in trends. We have recorded meaningful improvement in our X segment advertising line, excluding the cycling of changes in our Cars.com agreement. And importantly, we have seen year-over-year digital advertising growth in four of our markets.
We continue to see great success with our digitally focus studio -- digitally focused agency, Studio 1847. Our talented team recently took home three awards of excellence from the 25th Annual Communicator Awards for the work they completed for some of our largest clients. The Communicator Awards are held in honor of work that transcends innovation and craft, and this recognition serves as an endorsement to our clients of our digital marketing capabilities. From an editorial perspective, our journalism continues to be recognized on multiple fronts.
In April, we were pleased to have two of our newsrooms recognized by the Pulitzer Prize committee. The South Florida Sun Sentinel won the public service award for exposing failings by school and law enforcement officials before and after the deadly shooting rampage at Marjory Stoneman Douglas High School. The Sun Sentinel was also a Pulitzer finalist in the Breaking News category. The Pulitzer committee also awarded a special citation to honor the journalist, staff and editorial board of the Capital Gazette in Annapolis for their courageous response and unflagging commitment to covering the news and serving their community at a time of unspeakable grief following the tragic events in their newsroom in June 2018.
The Gazette was also named a finalist in the Editorial Writing category. As we do each day, we remember our five slain colleagues, Joe Fischman, Rob Hiaasen, John McNamara, Rebecca Smith and Wendi Winters, and we honor their memories as each of our newsrooms work to serve their communities. While the Pulitzer awards are among the highest honors a paper can receive, many of our newsrooms were also recognized for their work from a number of state and national organizations, we congratulate each of our winners. Our journalism is not about recognition, it's about telling stories that need to be told and serving our readers in the best way we can, but it's clearly nice to be recognized.
Now I want to discuss how we are using data and technology to grow our audience and help serve our communities. The audience at each of our sites is becoming more local, which increases our ability to add and retain subscribers. This underlies our central premise that local news and information executed well is a differentiator for consumers. Our newsrooms are expanding the use of engagement tools like newsletters to build habit among our readers.
In addition, by the end of May, we will have rolled out a new data analytics platform, metrics for news from American Press Institute to each of our markets, pairing the metrics for news platform with our vast, in-house data storehouse gives the newsroom easy-to-use tools to leverage real-time insights on audience tendencies and therefore, deliver the journalism that our audiences value the most. These customer insights inform newsroom decisions on what to cover, how to present our journalism and where to deploy resources. Besides new data and analytical tools, we continue to develop a new content management system and web platform licensed from Arc Publishing of the Washington Post. Thus far, we have rolled out the full Arc platform to three of our newsrooms and are -- we are in the middle of introducing it to our Florida properties this week.
We are encouraged by the feedback we have received from our newsrooms, our readers and advertising customers alike. The Arc deployment is an example of our move where appropriate to work with best-in-class partners to enhance our offerings, while focusing our internal energy and resources on the work we do best. The Arc tools and our partnership with the Washington Post will allow us to leverage their learnings as we work to improve the user experience on our sites, increase add viewability and yield and offer brands a quality marketing experience geared for a quality audience. As I said at the beginning of the call, given the right talent in the right place in the organization is a critical, never-ending part of our success.
We remain committed to managing cost, we -- while we remain committed to managing cost, we understand that recruiting and retaining diverse and dynamic talent is a business imperative. In addition to the 42 sales and sales support roles we've filled in the first quarter, we also hired a total of 44 editorial employees across the business units. As we build our team, we have established an aggressive diversity recruitment strategy that broadens the source and quality of our candidates. We are deploying community partnerships and are working with a wide range of colleges and universities to begin sourcing talent at an earlier stage in their career journey.
We believe that it is vital to our long-term business prospects that we have an employee base that reflects the communities we serve. We continue to invest in our people by designing programs that contribute to their professional growth and development and provide support to their career planning. Based on employee feedback, we have significantly increased our communication efforts with our staff across the entire company to ensure that everyone knows how the business is performing and more importantly, how they contribute to the success of Tribune Publishing. In my first four months as CEO, I've seen the company quickly rally around our shared priorities.
We are fortunate to operate the strongest and most engaging media platforms in our local markets, and our execution on our strategic priorities has made us stronger, even in this short time. We look forward to continued improvement and success in the rest of 2019. I will now turn this over to Terry to discuss our first-quarter results and financial outlook.
Terry Jimenez -- Executive Vice President and Chief Financial Officer
Thank you, Tim. As Tim mentioned, we are very pleased with how 2019 has started. We exceeded our expectations in both revenue and adjusted EBITDA in the first quarter. Let me start with a few housekeeping items.
To aid in comparison purposes, I'll make sure that I speak to you same business results to provide a better view on organic results. Same business results will exclude four components: the first two items are activity from acquisitions; BestReviews, which had three operating months in our 2019 results and only two operating months in our fiscal first-quarter 2018 results; and the Virginian-Pilot, which are in the 2019 results, but not in the 2018 results. Also, as discussed previously, we transition our Cars.com business mid-first quarter of 2018. The year-over-year differences are relatively immaterial with a slight negative impact on revenue and a slightly beneficial impact to adjusted EBITDA.
Finally, transition services revenue recorded for the services we are providing to new owners of the California properties, which also has minimal impact on the bottom line. Exclusion of these elements is the basis for same business comparisons. Total revenues for the first-quarter 2019 were $244.5 million, up 2.6% from the same quarter in 2018. On a same-business basis, total revenue declined 7.1% primarily due to industrywide print advertising revenue declines.
Sequentially this is an improvement of 50 basis points versus Q4's results. Our consolidated first-quarter 2019 operating expenses were $251.9 million, down $269.4 million in the first quarter of 2018. Same business adjusted operating expenses were down $27.9 million or 12.3% year over year in the quarter as we continue to aggressively and thoughtfully manage our expenses. In the first quarter of 2019, our loss from continuing operations totaled $4.8 million, improving significantly, compared to the loss of $28.1 million in the same quarter of 2018.
In the first-quarter 2019, we had a net loss attributable to Tribune stockholders of $4.7 million or $0.13 per share, compared to a net loss of $14.6 million or $0.42 per share for the first quarter of 2018. Adjusted EBITDA for the first quarter of 2019 was $21.3 million, which was $12.8 million improvement, compared to first quarter of 2018 of $8.5 million. This resulted in significant margin improvement on a year-over-year basis as well. The increase year over year in adjusted EBITDA was due to expense reductions, outpacing the level of revenue declines and operating results from both BestReviews and The Virginian-Pilot.
However, partially offsetting these positive results was an increase in newsprint pricing, which was up 11% year over year and resulted in expense increase of $800,000. On an LTM basis, revenues is $1.04 billion and adjusted EBITDA is $106.7 million. We believe our balance sheet continues to be very strong and stable. At the end of the quarter, we had $142.2 million of cash, made up of $91.2 million unrestricted and $43.9 million restricted cash.
I should also mention that in April 2019, we paid the final net taxes due of $6.2 million from the California transaction. Also in Q2, we made a $10.25 million contribution to our Chicago drivers multiemployer pension plan as a result of a negotiated union agreement and a proposed merger of the pension plan into another very healthy plan. Strategically, operationally and economically, this is a big win for the company, while also stabilized -- stabilizing the pension plan for the participants. We have implemented the new lease accounting standard ASC 842, effective at the beginning of our fiscal 2019.
As a result, we have recorded a lease right of use assets for operating leases of $111 million and a lease liability of approximately $139 million. Our pension liability sits at $19.1 million, which is lower than the end of 2018. We continue to have no debt with the exception of approximately $7 million in capital leases that are classified as debt and the new lease accounting classifications on the balance sheet. In terms of capital expenditures, we continue to invest in our technology infrastructure.
Gross capex for the first quarter was $3.9 million. Now I will touch on the performance of each of our reporting segments. Total revenues for M in the first quarter of 2019 were $198 million, which was down 3% compared to the first quarter of the prior year. On a same-business basis, total revenues were down 8.8% as we continue to experience downside pressure in print advertising.
Print advertising was down 16.2% on a same-business basis. Print advertising represented approximately 31% of our total revenue for the quarter as compared to the 35% for the full year of 2018. X had $39.6 million of total revenue in the first-quarter 2019, up 12.6% compared to the prior-year quarter. The growth came from strong organic increases in digital-only subscription revenue, The Virginian-Pilot digital revenues and strong organic growth in BestReviews along with the additional operating month for BestReviews.
We continue to see solid traction in growing our digital paid subscribers. We grew 88,000 new subscribers to end the quarter at 283,000. This compares to 195,000 at the end of the same quarter last year. Now turning to our guidance.
Similar to last earnings call, we thought it would be helpful to provide Q2 as well as the full-year guidance. For Q2 2019, we anticipate total revenue between $240 million to $245 million and adjusted EBITDA we anticipate will fall into the $20 million to $21 million range. Included in the adjusted EBITDA guidance is the adverse effect from the previously mentioned enhanced pension contribution of $10.25 million, which depresses EBITDA by the same amount. This onetime enhancement pays for itself within a 12-month time frame.
For the full fiscal year 2019, we are updating our previous guidance of adjusted EBITDA to $101 million to $105 million range for fiscal year 2019. This guidance reflects the following items from an adjusted EBITDA perspective: our Q1 performance; savings from our expected -- expense reduction actions, which we also executed in 2018 in Q '19 -- Q1 of 2019. That included voluntary separation program we launched midway through the fourth quarter. We restructured our transportation units in both New York and Chicago, which began to drive savings in the first quarter and also provide significant savings and flexibility long term.
We have reorganized our executive team to be more efficient at the corporate level, driving accelerated decision making and additional savings. We also expect year-over-year savings in real estate expenses from office rationalization. And finally, we are optimistic we will see newsprint pricing continue to ease as we cycle to nearly 20-year peak pricing we faced in 2019. Before we open up the call for questions, I want to spend a few minutes outlining our key financial priorities.
While the industry and our business continues its migration from offline to online, we are arguably in the best position that we've been in for the past decade, and we are focused on building on that position. First by maintaining or growing our adjusted EBITDA, while simultaneously investing in our digital businesses; continuing to diversify our revenue stream; maintaining balance sheet flexibility; and continuing to drive value creation for shareholders through operational excellence, cash flow generation and thoughtful capital allocation. Given our valuation gap to our peers, we believe we should realize multiple expansion, closing the gap from our strong comparative performance and the shift of revenue mixing from more print to digital over time. We continue to be excited about the future, and we believe with investments to grow organically, layered with future potential acquisitions, we will remain in a solid financial position into the future.
As previously discussed, on a longer-term outlook, we are focused on three core goals: consolidated revenue growth, which we experienced for the full year of 2018 and the first quarter of this year; margin expansion, of which we had significant expansion in Q1 on a year-over-year basis; and growth to 1 million digital subscribers. Our end of Q1 2019 number of 283,000 is more than three times higher than the same quarter of 2017, only two years ago. Our focus on our consumer platforms and experience and key efforts to deliver relevant and unique content that customers desire will enable this strategy. With that, we will now open the call for questions.
Questions & Answers:
Operator
[Operator instructions] Our first question is from Michael Kupinski with Noble Capital Market.
Michael Kupinski -- Noble Capital Markets -- Analyst
I know that the quarter came in a little bit better than I expected. And so I'm pleased about that. Congratulations. So can you give me a little more color out of your hubbing in Chicago? And how many papers are doing that -- kind of hubbing with that facility there? And what type of expense savings do you see for the papers that kind of hub with the operations there?
Terry Jimenez -- Executive Vice President and Chief Financial Officer
Yes. So we centralized a lot of the, say, the print-oriented production of the news product in Chicago. We've started rolling that out last year, we're continuing to transition that this year. I think for us, it's really more about focus than it is savings, although, there are savings, it's really allowing the local markets to really drive and focus on delivering the right content in their marketplace and less about how do they get the paper together.
And so that's -- that was the really cool focus behind it. And so we're pleased with the transition so far.
Michael Kupinski -- Noble Capital Markets -- Analyst
Got you. And it looks like your Q2 guidance was a little better than I was looking for as well, which is great. Part of that looks like we are seeing moderation in the rate of decline in the print advertising side. You indicated that there was a 50-basis-point improvement from Q4.
And so I was just wondering if you can provide a little color in terms of your revenue outlook into Q2. Are you still seeing moderation in print advertising revenue trends? And if you anticipate that, you're going to continue to see that throughout the remainder of this year?
Terry Jimenez -- Executive Vice President and Chief Financial Officer
Yes. So we're optimistic that a number of the things that we put in place to kind of manage the advertising and the sales organization is starting to pay off. Certainly, we're cautiously optimistic, given that it is an area of challenge, not just for our business, but also all of our peers on the print advertising side. And so I think we've seen some good progress to start the year.
Certainly, we're very focused on making sure that that continues. And so we are cautiously optimistic that we'll see that continue to be at a relatively stable level moving forward.
Michael Kupinski -- Noble Capital Markets -- Analyst
Got you. And the last question is regarding newsprint prices. I was wondering if you can just -- you indicated that you thought there'll be some subsiding of newsprint prices through the balance of the year. I was just wondering if you can just add a little bit more color on that.
I know that we had significant tariffs and so forth in the year earlier period. Are those -- is that affect just kind of weaning off now? Or can you just give us a little bit more color on where you see pricing going in newsprint?
Terry Jimenez -- Executive Vice President and Chief Financial Officer
Yes. The peak pricing -- so we were up 11% year over year in this quarter, fourth quarter, we were up 27%, and I want to say in Q3, we were up like 34% year over year. And so I think directionally, we're going to see those percentages hopefully lifted, not just being getting closer to 0, but actually being much a lower price than we were on a year-over-year basis, especially as we get to Q3. So I think when we were looking at significant headwinds in kind of the back half of last year, we were hopeful that we'll see actually tailwinds from the newsprint price change on a year-over-year basis as we get to the back half of this year.
But the market is continuing to evolve, and it is an element that's hard to predict and hopefully, the tariff component never comes back to -- to come back in our face again. So --
Operator
[Operator instructions] And our next question is from Doug Arthur with Huber Research.
Doug Arthur -- Huber Research -- Analyst
Terry, obviously, you've provided that schedule at the back on total adjustments, which on the cost -- side, which I assume includes kind of all the moving parts, the $16.607 million, which is how you get to the $21.3 million of EBITDA. How would you gauge that breaks down between the four main cost components, mostly in comp or is it also outside services?
Terry Jimenez -- Executive Vice President and Chief Financial Officer
It's going to be significantly comp. So I think on more of our schedules we outlined, there's $5.7 million of that $16.6 million that's relevant or related to stock-based compensation. Part of that was really an acceleration with some of the executive departures that we saw that increase throughout the unusually high number. And then the balance of that is $10.9 million, of which, a significant component of that is going to be related to compensation.
Doug Arthur -- Huber Research -- Analyst
OK. So your -- so the adjusted comp number was really down quite a bit. I guess sticking with the cost. I mean it's is a little bit -- I know first quarter's always a little quirky, but it seems like you had a tremendous bottom-line result in print or M, not so much in the X segment.
Even if you add the adjustments back. It seems like your cost -- in the adjusted cost in X were up quite a bit in the quarter. Is that marketing? I mean what's -- is that acquisitions? What's driving that?
Terry Jimenez -- Executive Vice President and Chief Financial Officer
Yes. There's two components. I'd say, the lion's share of that change is we have an allocation that occurs between these segments for -- kind of the newsroom costs and the allocated based on revenue and as proportionately the digital side becomes a much bigger proportion of the revenue. It has a higher cost allocation burden for it.
And also frankly, it's a way that our newsrooms are forming in and of themselves to kind of be a digital-first -- a news organization. And so that's the lion's share impact on X. You'll see M will benefit from that allocation methodology. And then the second component is -- we do continue to make investments on the digital side to make sure we've got the right people focused on driving that business long term.
Doug Arthur -- Huber Research -- Analyst
OK. Then final question. It is just a clarification. You -- M revenues were down 3% as reported on a same-store basis.
Did you say it's down 7.1%?
Terry Jimenez -- Executive Vice President and Chief Financial Officer
Yes. So for M, same-store basis, total revenue was down 8.8%.
Doug Arthur -- Huber Research -- Analyst
8.8 %. OK. And that's reflective of the 16% drop in print as well, advertising, so --
Terry Jimenez -- Executive Vice President and Chief Financial Officer
Right.
Operator
And I'm not showing any further questions in the queue. I will like to turn the call back to Mr. Tim Knight for his final remarks.
Tim Knight -- Chief Executive Officer and President
Thank you, everyone, for joining us on today's call. Q1 was a very encouraging quarter for the company. We made progress against our shared initiatives and continue growing on the momentum we had built in the previous quarters. We look forward to the remainder of the year and anticipate a successful 2019.
Thank you very much.
Operator
[Operator signoff]
Duration: 32 minutes
Call participants:
Amy Bullis -- Vice President of Financial Planning and Analysis
Tim Knight -- Chief Executive Officer and President
Terry Jimenez -- Executive Vice President and Chief Financial Officer
Michael Kupinski -- Noble Capital Markets -- Analyst
Doug Arthur -- Huber Research -- Analyst
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