Tribune Publishing Company
Q2 2019 Earnings Call Transcript

Published: 11 Aug 2019

[Operator:]

Good day, ladies and gentlemen, and welcome to the Tribune Publishing Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator instructions] As a reminder, today's conference is being recorded.I'll now like to turn the call over to Ms. Amy Bullis, Vice President of Finance. Ma'am, you may begin.

[Amy Bullis:]

Thank you, and welcome to our second 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; and Investor Relations, Michael Ferreter.I will now turn the call over to Executive Vice President and Chief Financial Officer, Terry Jimenez.

[Terry Jimenez:]

Thank you, Amy. Good afternoon, everyone, and thank you for joining us today. I want to mention that Michael Ferreter has joined us as our new investor relations lead. He will be the primary contact for investors going forward.We delivered a strong second quarter, closing out our first half of 2019 results. We exceeded our expectations on both revenue and adjusted EBITDA in the second quarter. Our performance reflects the value we are delivering to consumers, advertisers and partners, all enabled by our passionate team across Tribune Publishing. Before we dive into the details, let me start with some housekeeping.To aid in comparison purposes, I will make sure that I speak to same-business results to provide a better view on organic results for the second quarter. Same-business results will exclude two components

[Tim Knight:]

Thank you, Terry. Before we turn to questions, I want to share a few thoughts on our Q2 results and how we view the rest of the year. Our leadership team has been hyper-focused on execution this year in order to provide a strong foundation for future revenue and adjusted EBITDA growth. Our strong second-quarter results reflect the benefit of this work.I want to briefly highlight a few actions and successes we had in our three strategic areas of focus

[Operator:]

[Operator Instructions]. And our first question will come from the line of Lance Vitanza from Cowen. You may begin.

[Lance Vitanza:]

Thanks for taking the question guys. Great quarter, thank you. Congratulations. Let me ask you on the digital-only subscribers increasing 44% to 300,000, could you talk a little bit about how many of those are on a kind of a free trial period this quarter versus a year ago? I'm trying to get a sense for, really, I guess, the growth in paying digital-only subs as opposed to total digital-only subs, and any sort of thoughts on average pricing.I mean obviously, the revenue growth speaks for itself, but would be great to get a little bit more definition around those trends.

[Terry Jimenez:]

Sure. Lance, this is Terry. All of the digital subs that we report, the 300,000, are paying us money. We do offer a range of different offers to start, which usually start maybe as low as $1, but certainly, we're collecting some revenue stream for those. So we're not offering any free to that existing base at this time.

[Lance Vitanza:]

Okay. And then if you think about sort of the percentage or the proportion of the base that are on their sort of promotional periods, has that been sort of a steady proportion? Or is that proportion increasing? I mean it looks like the digital-only subs, up 44% year over year. Content revenues at X are up 31%. Now I understand that content revenues includes syndication and e-commerce as well as the subscription revenues, but doesn't the performance suggest that ARPU, I guess it's just ARPU is going down and/or the free promo period subscribers are going up.But I guess in either case, there's enough elasticity of demand here such that you're seeing a good revenue growth. Is that the right way to think about it?

[Terry Jimenez:]

Yes. So I think actually as our base essentially gets a little bit more mature, the new entrants that are coming in at maybe at a starting lower rate actually is a smaller proportion than what it historically has been. So each quarter, as we continue to grow, the core base of the longer tenures continue to grow as well as a proportion. And so our actual average rate is up on a year-over-year basis as it relates to digital-only subscribers individually.

[Lance Vitanza:]

And I might have misheard, did you say that BestReviews revenues were up 40-plus percent year over year as well? Or did I mishear you on that?

[Terry Jimenez:]

No, that's correct.

[Lance Vitanza:]

I guess, I wanted to ask you, the quality of earnings looks like it also improved. Restructuring add backs were down under $2 million in the quarter. Could you give us some sense for what we should expect in terms of cash restructuring charges over the balance of the year? And maybe, if possible, into next year, at least directionally?

[Terry Jimenez:]

Yes, I think as we talked about in the previous calls, Q4 of last year and Q1 of this year, we had a couple of larger events, I'd say, that was kind of driving that number up to be abnormally large. I think this quarter, it's probably a little bit lower than what we run at on a normal basis. And so I think it's probably be closer to this number's quarter than it has been for the last couple of quarters, but we don't guide specifically to that. But I would say, we're now getting to more of a normalized level.

[Lance Vitanza:]

Maybe one more for me, if I could, and then I'll get back in the queue. But just looking at the guidance for the quarter and for the year. If I'm looking at it right, it looks like adjusted EBITDA will be well ahead of 3Q '18, but well below 4Q '18? And I'm wondering if you could comment on that, if I'm reading that right? And if so, why the sort of the seesaw?

[Terry Jimenez:]

Yes, I think as we go through progress the year. So last year, we have taken a number of actions that kind of built up through the year. So we had a few actions that took place in the second quarter of last year to help drive some performance, and we also have the benefit of Virginian-Pilot this year, running at, at least in this quarter as well as next year, we'll be at a full synergy run rate for this year, where last year, it was still on a pre-synergy run rate. And so we'll have a little bit of benefit from the Virginian-Pilot. Also, we have some actions in Q3 into Q4 that we started cycling against some of those actions that took place last year, and we started getting the benefit for those last year. And I think really the other major component is as we proceed throughout this year, our performance is much stronger this year than it was last year. So the relative management incentive associated with the earnings is higher this year than it was last year in the fourth quarter.

[Operator:]

And our next question will come from the line of Michael Kupinski from Noble Capital Markets. You may begin.

[Michael Kupinski:]

There's a couple of really notable things about this quarter. First of all, you had improving ad trends sequentially, which is a little surprising given the choppiness of the general markets out there. I was wondering if you could just maybe talk a little bit about the trends both in the newspaper print side because you're seeing -- you saw some sequential improvement there. What -- can you just kind of give us a little bit of color of why you're seeing that at this point?

[Terry Jimenez:]

Sure. Yes, this is Terry. And I think for us, this is always something that we focus on. We want to make sure that we're optimizing the level of revenue that's coming in print.Certainly, there's a strong base of advertisers that are still using print to help balance out their marketing portfolios. We think that there's value in not only the branding side of the marketing they get out of the print side, but also the ROI that they get and action that people take from reading the ads and engage with the ads at a higher level than some other marketing mediums. So we feel pretty good about our approach there. I think there is a little bit of choppiness with all, albeit within a tight window, where we'll see quarter to quarter, we'll see a little bit of benefit.One quarter or the next, benefit may be a little bit down. But for the most part, we've seen us get better than what we've been trending out over the last several years. So the last three quarters have been, I think relatively good. We're certainly doing everything that we can.As Tim mentioned, on the training aspects, the training composed really in general selling as well as really heavy focus on the digital side. And so I think training and investing on our sales side has also been an element that I think reaps some benefit for us short term, and we think we'll have opportunities to be even better moving forward.

[Michael Kupinski:]

And you still are cycling against the easy comps, I guess, from the bankruptcies and so forth from a year earlier in the third quarter? I think you kind of started to settle down in the fourth quarter of last year, if I recall. So you have that at the back, I guess, as well. And then on the second thing that's notable about this quarter is that the compensation expenses were lower than I would have expected, given what you were expecting, the $10.5 million and so forth.So can you just talk a little bit about maybe some of the initiatives you might have had on the compensation side?

[Terry Jimenez:]

Yes, the majority of the initiatives actually were taken in previous quarters. There's a little bit of additional expense management that took place in the second quarter, but substantially, we took out a number of resources to rightsize the business in Q3 of last year.Going into Q4, we had launched the voluntary program, which also had a number of employees that voluntarily decided to exit. And then the beginning of the year, we had some restructuring in both Chicago and New York for our driver base.And so those comp expenses are all kind of rolling through on a full run rate basis in Q2. And then also, we had some of the executive changes at the beginning of the year that also we got the benefit in Q2 for as well.

[Michael Kupinski:]

And then on the newsprint side, can you just give us some thought. I know it's not a huge component of total cost anymore, but could you just give us some thought of maybe usage versus pricing on newsprint.

[Terry Jimenez:]

Yes. So pricing was, for the quarter, up slightly year over year, volume down in the teens range. We have been focused, as you recall, as the tariffs were rolled out last year, the peak pricing really occurred in Q3 of last year, end of August. And so we'll have the benefit on a year-over-year basis for the first time in a number of quarters of hopefully, pricing being down year over year.That's what we anticipate. And so as we kind of hit that peak pricing year over year, we'll see some benefit moving forward. But a number of the things that we've laid in to kind of reduce the volume in light of the high newsprint pricing will actually still continue as well. So we'll have kind of the benefit of both.Hopefully, the price tailwind for us as well as some volume action that we were taking as well.

[Michael Kupinski:]

And other companies are looking at other additional cost reduction efforts. Some publishers are even looking at the prospect of not printing a Saturday edition. Has the company been testing this concept? And if so, have you determined how much savings you might have versus the impact on revenues? Just your thoughts.

[Terry Jimenez:]

Yes. So we periodically look at this. I'd say for our footprint and the assets that we have, each day incrementally is profitable. So we haven't had -- we haven't been forced to look at how do we reduce the days. We continue to look at how we can increase the value to the customer. Certainly, it doesn't mean that someday in the future, we may have fewer days that we're printing than we do today, but at least short term and near term, we haven't tested this. We've done a couple of reductions on our free products, where they used to be weekly. We moved to a -- I'm sorry, every day during the week. And then we moved those to a Wednesday or Thursday product. But outside of the free products, we haven't done this on the paid side.

[Michael Kupinski:]

And then my final question is that, obviously, we're seeing industry consolidation, and I'm going to ask the elephant in the room-type question in terms of the post New Media and Gannett planned merger. Can you just give me your thoughts in terms of how this might affect Tribune, what your thoughts are in terms of further industry consolidation and potential competition, whatever or however you might want to address the post-merger between those two companies.

[Terry Jimenez:]

Yes. So for us, I think it's relatively -- it's business as usual for us. We've had a couple of good quarters in a row that we want to keep, continue that momentum as we finish out this year into next year. Certainly, that transaction, as they had mentioned, likely wouldn't close before too far into the year this year. And then there's a lot of heavy lifting they'll have on integration and move forward in the next year. So, I think for us, it's relatively isolated. There's a few markets that we operate adjacencies to in Florida, but not a heck of a lot. So we don't think competitively, we'll see any challenges there. Certainly, we're focused on making sure that we operate the business as well as we can on a stand-alone basis. And if there's a strategic opportunity for us to match up with somebody else, certainly, our board would consider that, but that's not something we're focused on. We're focused on doing the best that we can with the existing Tribune Publishing assets.

[Michael Kupinski:]

And just as a quick follow-up. Are there other -- are there assets in the combination of New Media and Gannett that may be, let's say, not in their interest in terms of consolidation of distribution or facilities that may be more of interest to you and might be opportunities for you to pick up a few papers here and there that make sense to you?

[Terry Jimenez:]

Yes. I'll pass on commenting on any of that speculation at this stage.

[Operator:]

Thank you. And I'm showing no further questions. I'd like now to turn the call back to Tim Knight for closing remarks.

[Tim Knight:]

Thank you, everyone, for joining us on today's call. The second quarter of 2019 was a strong one for the company, and we look forward to building on the momentum we gained throughout the first half of the year. Thank you very much.

[Operator:]

Ladies and gentlemen, Thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone have a great day.