Postmedia Reports Third Quarter Results
July 8, 2021 (TORONTO) – Postmedia Network Canada Corp. (“Postmedia” or the “Company”) today released financial information for the three and nine months ended May 31, 2021.
“As we emerge from the pandemic, we are cautiously optimistic about early signs of economic rebound as we report a return to double-digit digital advertising revenue growth and our third consecutive quarter of net gains versus the peak impact of the pandemic,” said Andrew MacLeod, President & CEO, Postmedia. “We are pleased with the stability of our balance sheet and reduction in first lien debt and grateful for the support of our employees, subscribers, advertisers, investors and government throughout this difficult time. However, the media industry continues to face structural challenges due to the monopolistic dominance of international digital giants. We encourage the government to implement regulatory and legislative change to level the digital playing field.”
Updates from the Quarter
• Constraining Costs – In the quarter we realized a 1.1% reduction in operating costs , which includes the impact of initiatives implemented in the quarter that are expected to result in approximately $3 million of net annualized cost savings.
• Preserving Liquidity – Cash management, including the impact of cost savings, government assistance and a repayment of $16.9 million of first-lien debt – representing a 70% reduction in first-lien debt since Postmedia’s recapitalization transaction in 2016 – has resulted in an unrestricted cash balance of $53.4 million as at May 31, 2021.
• Maximizing Revenue – Third quarter revenue was down 0.6% from the same period in the prior year with total advertising revenue up 1.5% showing modest improvement each quarter since the peak of the pandemic in Q4 of fiscal 2020.
Third Quarter Operating Results
Revenue for the quarter was $111.7 million as compared to $112.4 million in the same period in the prior year, representing a decrease of $0.7 million or 0.6%. Declines were primarily due to decreases in print advertising revenue of $3.2 million or 7.8% and print circulation revenue of $3.0 million or 6.4%. Total digital revenue increased by of $4.7 million or 21.6% with digital advertising revenue up 22.6%.
Total operating expenses excluding depreciation, amortization, impairment and restructuring increased $12.4 million or 14.0% for the quarter, relative to the same period in the prior year. The increase was the result of increased compensation expenses, which is primarily result of the impact of CEWS and journalism tax credits, partially offset by the implementation of various cost reduction initiatives. Included in the operating expense increase is a decrease in compensation expense recovery of $13.6 million related to CEWS, partially offset by an increase in compensation recovery related to journalism tax credits of $1.2 million.
Operating income before depreciation, amortization, impairment and restructuring of $11.1 million in the quarter represents a decrease of $13.1 million relative to the same period in the prior year. The decrease is due to an increase in operating expenses excluding depreciation, amortization, impairment and restructuring and a decrease in total revenues. Included in the operating expense increase is the impact of the compensation expense recoveries related to CEWS and journalism tax credits.
Net earnings in the quarter ended May 31, 2021 were $8.7 million, as compared to a net loss of $13.8 million in the same period in the prior year. The change was primarily the result of gains on derivative financial instruments and foreign exchange in the three months ended May 31, 2021, decreases in impairment and restructuring expenses, partially offset by the decrease in operating income before depreciation, amortization, impairment and restructuring
Year-to-Date Operating Results
Revenue for the nine months ended May 31, 2021 was $334.7 million as compared to $403.2 million in the same period in the prior year, a decrease of $68.6 million or 17.0%. The revenue decline was primarily due to decreases in print advertising revenue of $38.5 million or 24.8% and decreases in print circulation revenue of $14.8 million or 10.2%. Digital revenue declined $12.1 million or 13.9%.
Total operating expenses excluding depreciation, amortization, impairment, settlement gains and restructuring decreased $54.2 million or 15.4% for the nine months ended May 31, 2021, relative to the same period in the prior year. The decrease was a result of lower compensation expense and newspaper circulation volumes as well as the implementation of various cost reduction initiatives.
Operating income before depreciation, amortization, impairment, settlement gains and restructuring of $36.6 million in the quarter represents a decrease of $14.4 million or 28.2% relative to the same period in the prior year. The decrease is due to the decrease in total revenue partially offset by decreases in operating expenses before depreciation, amortization, impairment, settlement gains and restructuring.
Net earnings in the nine months ended May 31, 2021 were $62.3 million, as compared to a net loss of $29.6 million in the same period in the prior year. The change was primarily the result of a non-cash settlement gain related to employee benefit plans of $63.1 million, gains on derivative financial instruments and foreign exchange in the nine months ended May 31, 2021, decreases in depreciation, amortization and restructuring expenses partially offset by an increase in impairment expense and the decrease in operating income depreciation, amortization, impairment, settlement gains and restructuring.
The COVID-19 pandemic has resulted in governments worldwide enacting emergency measures to combat the spread of the virus including travel bans, self-imposed quarantine periods and social distancing that have caused disruption to businesses resulting in an economic slowdown. The Company is generally exempt from mandates requiring closures of non-essential businesses and therefore has been able to continue operations, however, advertising revenue declines have accelerated as a result of the COVID-19 pandemic and related government measures. On April 11, 2020, the Government of Canada passed CEWS to support employers facing financial hardship as measured by certain revenue declines as a result of the COVID-19 pandemic. CEWS currently provides a reimbursement of compensation expense to September 25, 2021, provided the applicant has met the applicable criteria. During the three and nine months ended May 31, 2021, the Company recognized a recovery of compensation expense of $5.7 million and $18.0 million, respectively, related to CEWS (2019 – $19.3 million) and in total has recognized $58.3 million related to CEWS since the program was announced. As at May 31, 2021, the Company has a receivable related to CEWS in the amount of $4.9 million.
During the three and nine months ended May 31, 2021, the Company redeemed $16.9 million aggregate principal amount of first-lien debt including $9.6 million on April 30, 2021 with the net proceeds from the sale of assets and $7.3 million on May 27, 2021 related to the excess cash flow redemption for the six months ended February 28, 2021. As at the end of the quarter, the Company has $66.9 million of first-lien debt outstanding of the original $225.0 million that was issued in October 2016.
Business Transformation Initiatives
During the three months ended May 31, 2021, the Company implemented initiatives related to compensation expense reductions, real estate rationalization, production efficiencies and other transformation programs, which are expected to result in approximately $3 million of net annualized cost savings.
The Company intends to continue to identify and undertake ongoing cost reduction initiatives in an effort to address revenue declination in the legacy print business.
Additional information, including financial statements and management’s discussion and analysis can be found on the Company’s website at www.postmedia.com/investors-governance/quarterly-filings or on SEDAR at www.sedar.com.
Note: All dollar amounts are expressed in Canadian dollars unless otherwise specified.
About Postmedia Network Canada Corp.
Postmedia Network Canada Corp. (TSX:PNC.A, PNC.B) is the holding company that owns Postmedia Network Inc., a Canadian newsmedia company representing more than 120 brands across multiple print, online, and mobile platforms. Award-winning journalists and innovative product development teams bring engaging content to millions of people every week whenever and wherever they want it. This exceptional content, reach and scope offers advertisers and marketers compelling solutions to effectively reach target audiences. For more information, visit www.postmedia.com.
This news release may include information that is “forward-looking information” under applicable Canadian securities laws. The Company has tried, where possible, to identify such information and statements by using words such as “believe,” “expect,” “intend,” “estimate,” “anticipate,” “may,” “will,” “could,” “would,” “should” and similar expressions and derivations thereof in connection with any discussion of future events, trends or prospects or future operating or financial performance. Forward-looking statements in this news release include statements with respect to the impact of the COVID-19 pandemic on the Company’s business, the implementation and results of the Company’s transformation initiatives, continued benefits of historical results into future periods, the realization of anticipated cost savings, the receipt of anticipated government assistance and the identification and undertaking of ongoing cost savings initiatives. By their nature, forward-looking information and statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. These risks and uncertainties include, among others: competition from digital and other forms of media; the effect of economic conditions on advertising revenue; the ability of the Company to build out its digital media and online businesses; the failure to maintain current print and online newspaper readership and circulation levels; the realization of anticipated cost savings; possible damage to the reputation of the Company’s brands or trademarks; possible labour disruptions; possible environmental liabilities, litigation and pension plan obligations; fluctuations in foreign exchange rates and the prices of newsprint and other commodities.
In addition, we are subject to the risk and uncertainties related to the COVID-19 pandemic. The pandemic has resulted in governments worldwide enacting emergency measures to combat the spread of the virus including travel bans, self-imposed quarantine periods and social distancing that have caused disruption to businesses resulting in an economic slowdown. We are generally exempt from mandates requiring closures of non-essential businesses and therefore have been able to continue operations however, advertising revenues have declined as a result of COVID-19 pandemic and related government measures. The outbreak of contagious illness such as this can impact our operations in a number of ways including quarantined employees, travel restrictions, temporary closure of our facilities, a decrease in demand for advertising, as well as interruptions to our supply chain, including temporary closure of supplier facilities. Given the high level of uncertainty surrounding the duration of the COVID-19 pandemic it is difficult to reliably estimate its potential impact on the financial condition and results of our business. We are continuing to address the current challenges related to the COVID-19 pandemic and monitoring these challenges as they evolve so as to minimize this risk however it could have a material adverse effect on our business, financial condition, results of operations, liquidity and cash flow. For a complete list of our risk factors please refer to the section entitled “Risk Factors” contained in our annual management’s discussion and analysis for the years ended August 31, 2020 and 2019. Although the Company bases such information and statements on assumptions believed to be reasonable when made, they are not guarantees of future performance and actual results of operations, financial condition and liquidity, and developments in the industry in which the Company operates, may differ materially from any such information and statements in this press release. Given these risks and uncertainties, undue reliance should not be placed on any forward-looking information or forward-looking statements, which speak only as of the date of such information or statements. Other than as required by law, the Company does not undertake, and specifically declines, any obligation to update such information or statements or to publicly announce the results of any revisions to any such information or statements.
For more information:
Vice President, Communications
Executive Vice President and Chief Financial Officer
1 Operating expenses excluding depreciation, amortization and restructuring as adjusted for the impact of the Canada Emergency Wage Subsidy (“CEWS”).