Tribune Publishing Company
Q1 2019 Earnings Call Transcript

Published: 10 May 2019

[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. At this time, all participants are in a listen-only mode to prevent background noise. [Operator instructions]. Later, we will have a question-and-answer session, and instructions will be given at that time. 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:]

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. I will now turn the call over to CEO and President Tim Knight.

[Tim Knight:]

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

[Terry Jimenez:]

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

[Operator:]

Thank you. [Operator instructions]. Our first question is from Michael Kupinski with Noble Capital Market. Your line is open.

[Michael Kupinski:]

Thanks. Thanks for taking the question. 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:]

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:]

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:]

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:]

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:]

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 zero, 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. Your line is open.

[Doug Arthur:]

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:]

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:]

Okay. 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:]

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:]

Okay. 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:]

Yes. So for M, same-store basis, total revenue was down 8.8%.

[Doug Arthur:]

8.8 %. Okay. And that's reflective of the 16% drop in print as well, advertising, so --

[Terry Jimenez:]

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:]

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:]

And with that, ladies and gentlemen, we thank you for participating in today's conference. This concludes the program and you may all disconnect. Have a wonderful day.