Postmedia Network Canada Corp. (“Postmedia” or the “Company”) today released financial information for the three and nine months ended May 31, 2022 which include the results of the daily and weekly newspapers, digital properties and parcel delivery business acquired from J. D. Irving, Limited on March 25, 2022 (the “BNI Acquisition”).

“This quarter we welcomed the Brunswick News teams and brands to Postmedia and extended our reach across Canada. Looking ahead, management continues to plan for an uncertain future economic environment while our teams remain focused on delivering value to our audiences, advertisers and partners.” said Andrew MacLeod, President and Chief Executive Officer, Postmedia.

Third Quarter Operating Results

Revenue for the quarter was $120.6 million as compared to $111.7 million in the same period in the prior year, representing an increase of $8.9 million or 7.9%. Excluding the impact of the BNI Acquisition, revenue for the three months ended May 31, 2022 was $109.2 million, a decrease of $2.5 million (2.3%) relative to the prior year. The revenue decline excluding the impact of the BNI Acquisition was primarily due to decreases in print circulation revenue of $4.5 million (10.4%) and print advertising revenue of $1.6 million (4.3%). Partially offsetting these decreases was an increase in digital revenue of $2.4 million or 8.9% and an increase in other revenue of $1.2 million or 29.9%.

Total operating expenses excluding depreciation, amortization, impairment and restructuring increased $17.4 million or 17.3% for the quarter ended May 31, 2022, relative to the same period in the prior year. Excluding the impact of the BNI Acquisition, total operating expenses excluding depreciation, amortization, impairment and restructuring increased $5.3 million or 5.2%. The increase primarily relates to compensation expense as a result of a reduction in government assistance as well as production costs related to the increase in digital revenue. The compensation expense increase includes a reduction in the compensation expense recovery related to the Canada Emergency Wage Subsidy (“CEWS”) of $5.7 million and journalism tax credits of $0.2 million.

Operating income before depreciation, amortization, impairment and restructuring in the quarter was $2.6 million, a decrease of $8.5 million relative to the prior year. Excluding the impact of the BNI Acquisition, operating income before depreciation, amortization, impairment and restructuring in the quarter was $3.3 million, a decrease of $7.8 million relative to the prior year. The decrease is due to the decline in total revenue and the increase in operating expenses excluding depreciation, amortization, impairment and restructuring.

Net loss in the quarter ended May 31, 2022 was $16.8 million, as compared to net earnings of $8.7 million in the same period in the prior year. The change was primarily the result of the decrease in operating income before depreciation, amortization, impairment and restructuring, increases in impairment and restructuring expenses, losses on derivative financial instruments and debt refinancing in the three months ended May 31, 2022 and a decrease in foreign currency exchange gains.

Year-to-Date Operating Results

Revenue for the nine months ended May 31, 2022 was $341.2 million as compared to $334.7 million in the same period in the prior year, an increase of $6.5 million or 1.9%. Excluding the impact of the BNI Acquisition, revenue for the nine months ended May 31, 2022 was $329.8 million, a decrease of $4.9 million (1.5%) relative to the prior year. The revenue decline excluding the impact of the BNI Acquisition was primarily due to decreases in print circulation revenue of $14.1 million (10.8%) and print advertising revenue of $7.1 million (6.1%). Partially offsetting these decreases was an increase in digital revenue of $14.8 million or 19.7%.

Total operating expenses excluding depreciation, amortization, impairment, settlement gain and restructuring increased $31.3 million or 10.5% for the nine months ended May 31, 2022, relative to the same period in the prior year. Excluding the impact of the BNI Acquisition, total operating expenses excluding depreciation, amortization, impairment, settlement gain and restructuring increased $19.1 million or 6.4% for the nine months ended May 31, 2022, relative to the same period in the prior year. The increase primarily relates to compensation expense as a result of a reduction in government assistance as well as production costs related to the increase in digital revenue. The compensation expense increase includes a reduction in the compensation expense recovery related to CEWS of $16.4 million, partially offset by an increase in compensation recovery related to journalism tax credits of $1.3 million.

Operating income before depreciation, amortization, impairment, settlement gain and restructuring of $11.8 million for the nine months ended May 31, 2022 represents a decrease of $24.8 million relative to the same period in the prior year. Excluding the impact of the BNI Acquisition, operating income before depreciation, amortization, impairment, settlement gain and restructuring of $12.5 million for the nine months ended May 31, 2022 represents a decrease of $24.1 million relative to the same period in the prior year. The decrease is due to the decline in total revenue and the increase in operating expenses excluding depreciation, amortization, impairment, settlement gain and restructuring.

Net loss in the nine months ended May 31, 2022 was $43.3 million, as compared to net earnings of $62.3 million in the same period in the prior year. The change was primarily the result of the decrease in operating income before depreciation, amortization, impairment, settlement gain and restructuring, losses on derivative financial instruments, foreign currency exchange and debt refinancing in the nine months ended May 31, 2022, the settlement gain of $63.1 million in the nine months ended May 31, 2021, partially offset by decreases in impairment and restructuring expenses.

COVID-19 Update

The COVID-19 pandemic resulted in governments worldwide enacting emergency measures to combat the spread of the virus which included travel bans, self-imposed quarantine periods and social distancing that caused disruption to businesses resulting in an economic slowdown. The Company has been generally exempt from mandates requiring closures of non-essential businesses and therefore has been able to continue operations, however, advertising revenue declines accelerated during the first twelve months of the COVID-19 pandemic with a gradual return to previous trends in recent quarters. Recently, government measures have been significantly reduced, however the duration of the COVID-19 pandemic and the impact on the Company’s revenue continues to be uncertain as a result of the unknown duration of the COVID-19 pandemic and its associated effect on the labour market and supply chains. 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 provided a reimbursement of compensation expense to October 23, 2021, provided the applicant has met the applicable criteria. During the nine months ended May 31, 2022, the Company filed and received all the remaining claims available under the program and during the three and nine months ended May 31, 2022, recognized a recovery of compensation expense of nil and $1.6 million, respectively, related to CEWS (2021 - $5.7 million and $18.0 million, respectively) and in total recognized $64.9 million related to CEWS since the program was announced.

Acquisition of Brunswick News Inc.

On February 17, 2022 the Company entered into a purchase agreement with J. D. Irving, Limited (“JDI”) to purchase all of the issued and outstanding shares of Brunswick News Inc. (“BNI”). The acquisition closed on March 25, 2022 and included BNI’s daily and weekly newspapers, digital properties and parcel delivery business. The purchase price consisted of cash consideration of $7.5M and share consideration of 4,092,857 Class NC variable voting shares (“Variable Voting Shares”) of the Company at an implied price of $2.10 per Variable Voting Share, or $8.6 million. The share consideration was adjusted for a preliminary working capital adjustment of a nominal amount. Subject to acceptance from JDI, the final working capital adjustment will result in additional share consideration of 190,063 Variable Voting shares, or $0.4 million.

Debt Repayment and Refinancing

On April 7, 2022, the Company completed a refinancing transaction (“Refinancing Transaction”) that included a voluntary redemption of $15.0 million of 8.25% Senior Secured Notes due 2023 (“First-Lien Notes”) and accrued interest of $0.5 million and extended the maturity of its First-Lien Notes and 10.25% Senior Secured Notes due 2024 (‘Second-Lien Notes”) by approximately three and a half years to February 17, 2027 and August 17, 2027, respectively, on substantially similar terms to the existing terms of the original First-Lien Notes and Second-Lien Notes. In connection with the extension of the maturity of the First Lien Notes, the Company issued 794,630 Variable Voting Shares to the holders of the First Lien Notes at an implied price of $2.10 per share as a fee for the extension. The Company also extended the maturity of the senior secured asset-based revolving credit facility (“ABL Facility”) by three years to October 1, 2025.

During the three and nine months ended May 31, 2022, the Company redeemed $16.0 million and $18.4 million, aggregate principal amount of First-Lien Notes, respectively, which includes a voluntary redemption of $15.0 million related to the Refinancing Transaction and a redemption of $1.0 million related to the sale of assets, both in the three months ended May 31, 2022. Subsequent to May 31, 2022, the Company redeemed $1.4 million of First-Lien Notes on June 23, 2022 with the proceeds of asset sales. After this redemption, the Company has $47.1 million of First-Lien Notes outstanding of the original $225.0 million that was issued in October 2016.

Business Transformation Initiatives

During the three and nine months ended May 31 2022, 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 $11 million and $26 million of net annualized cost savings, respectively.

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

Additional information, including financial statements and management’s discussion and analysis can be found on the Company’s website at www.postmedia.com 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 130 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.

Forward-Looking Information

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 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 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 caused disruption to businesses resulting in an economic slowdown. We have been generally exempted from mandates requiring closures of non-essential businesses and therefore have been able to continue operations however, advertising revenues 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, 2021 and 2020. 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.

Postmedia Network Canada Corp.

Consolidated Statements of Operations

(UNAUDITED)

 

(In thousands of Canadian dollars, except per share amounts)

For the three months ended May 31,

For the nine months ended May 31,

 

2022

2021

2022

2021

 

 

 

 

 

Revenues

 

 

 

 

Print advertising

38,976

37,822

112,472

116,829

Print circulation

40,480

43,022

117,998

130,150

Digital

30,338

27,015

91,129

75,364

Other

10,829

3,889

19,577

12,349

Total revenues

120,623

111,748

341,176

334,692

Expenses

 

 

 

 

Compensation

44,844

38,538

128,282

113,953

Newsprint

4,409

4,132

12,866

13,249

Distribution

31,140

23,684

77,541

71,221

Production

18,150

15,247

53,404

44,720

Other operating

19,482

19,008

57,278

54,933

Operating income before depreciation, amortization, impairment, settlement gain and restructuring

 

2,598

 

11,139

 

11,805

 

36,616

Depreciation

2,619

2,808

8,298

8,402

Amortization

2,252

2,382

6,779

7,414

Impairment

4,300

700

7,900

21,164

Settlement gain

-

-

-

(63,079)

Restructuring

1,200

100

2,200

4,896

Operating income (loss)

(7,773)

5,149

(13,372)

57,819

Interest expense

7,774

7,756

23,302

23,127

Net financing expense related to employee benefit plans

235

229

704

1,095

(Gain) loss on disposal of property and equipment, assets held-for-sale,

right of use assets and other assets

 

(540)

 

(240)

 

223

 

(516)

Loss (gain) on derivative financial instruments

813

(2,467)

3,700

(14,181)

Loss on debt refinancing

1,477

-

1,477

-

Foreign currency exchange (gains) losses

(766)

(8,871)

520

(13,990)

Earnings (loss) before income taxes

(16,766)

8,742

(43,298)

62,284

Provision for income taxes

-

-

-

-

Net earnings (loss) attributable to equity holders of the Company

(16,766)

8,742

(43,298)

62,284

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share attributable to equity holders of the Company

 

 

 

 

Basic

$(0.17)

$0.09

$(0.46)

$0.66

Diluted

$(0.17)

$0.09

$(0.46)

$0.63

Postmedia Network Canada Corp.

Consolidated Statements of Financial Position

(UNAUDITED)

 

(In thousands of Canadian dollars)

As at May 31, 2022

As at August 31, 2021

 

 

 

Assets

 

 

Current Assets

 

 

Cash

12,058

61,996

Restricted cash

1,385

437

Trade and other receivables

50,703

41,255

Assets held-for-sale

17,727

17,727

Inventory

4,199

3,348

Prepaid expenses and other assets

8,960

8,697

Total current assets

95,032

133,460

Non-Current Assets

 

 

Property and equipment

70,032

76,390

Right of use assets

31,529

35,646

Derivative financial instruments and other assets

3,665

6,914

Intangible assets and goodwill

27,568

23,791

Total assets

227,826

276,201

 

 

 

Liabilities and Deficiency

 

 

Current Liabilities

 

 

Accounts payable and accrued liabilities

50,657

49,599

Provisions

1,356

2,257

Deferred revenue

21,519

22,351

Current portion of lease obligations

8,096

8,120

Current portion of long-term debt

6,368

7,409

Total current liabilities

87,996

89,736

Non-Current Liabilities

 

 

Long-term debt

241,810

248,262

Employee benefit obligations and other liabilities

36,668

44,753

Lease obligations

29,205

33,161

Total liabilities

395,679

415,912

 

 

 

Deficiency

 

 

Capital stock

821,124

810,861

Contributed surplus

16,620

16,570

Deficit

(1,005,597)

(967,142)

Total deficiency

(168,595)

(139,711)

Total liabilities and deficiency

227,084

276,201

Postmedia Network Canada Corp.

Consolidated Statements of Cash Flows

(UNAUDITED)

 

(In thousands of Canadian dollars)

For the three months ended May 31,

For the nine months ended May 31,

 

2022

2021

2022

2021

 

 

 

 

 

Cash Generated (Utilized) by:

 

 

 

 

Operating Activities

 

 

 

 

Net earnings (loss) attributable to equity holders of the Company

(16,766)

8,742

(43,298)

62,284

Items not affecting cash:

 

 

 

 

Depreciation

2,619

2,808

8,298

8,402

Amortization

2,252

2,382

6,779

7,414

Impairment

4,300

700

7,900

21,164

Loss on debt refinancing

1,477

-

1,477

-

Loss (gain) on derivative financial instruments

813

(2,467)

3,700

(14,181)

Non-cash interest

6,418

5,929

18,610

17,483

(Gain) loss on disposal of property and equipment, assets held-for-sale, right of use assets and other assets

 

(540)

 

(240)

 

223

 

(516)

Non-cash foreign currency exchange (gains) losses

(828)

(8,930)

453

(13,988)

Share-based compensation plans

44

142

50

524

Net financing expense relating to employee benefit plans

235

229

704

1,095

Non-cash settlement gain relating to employee benefit plans

-

-

-

(63,079)

Employee benefit plan funding in excess of compensation expense

(909)

(1,399)

(3,314)

(2,717)

Net change in non-cash operating accounts

(1,977)

2,848

(17,289)

3,226

Cash flows from (used in) operating activities

(2,862)

10,744

(15,707)

27,111

 

 

 

 

 

Investing Activities

 

 

 

 

Net proceeds from the sale of property and equipment, assets held-for-sale

and other assets

 

1,404

 

564

 

1,974

 

5,889

Purchases of property and equipment

(1,025)

(469)

(1,794)

(1,438)

Purchases of intangible assets

(543)

(139)

(816)

(177)

Net proceeds from the sale of shares

-

10,675

-

10,675

Purchases of shares

-

(1,696)

-

(1,696)

Acquisition, net of cash acquired

(6,636)

-

(6,636)

-

Cash flows from (used in) investing activities

(6,800)

8,935

(7,272)

13,253

 

 

 

 

 

Financing activities

 

 

 

 

Repayment of long-term debt

(15,990)

(16,933)

(18,386)

(32,305)

Restricted cash

(365)

101

(948)

2,965

Debt issuance costs

(418)

-

(418)

-

Lease payments

(2,087)

(2,322)

(7,207)

(7,457)

Cash flow used in financing activities

(18,860)

(19,154)

(26,959)

(36,797)

 

 

 

 

 

Net change in cash for the period

(28,522)

525

(49,938)

3,567

Cash at beginning of period

40,580

52,837

61,996

49,795

Cash at end of period

12,058

53,362

12,058

53,362

   

Supplemental disclosure of operating cash flows

 

Interest paid

2,735

3,629

6,182

7,932

Income taxes paid

-

-

-

-

 

Media Contact Phyllise Gelfand Vice President, Communications (647) 273-9287 pgelfand@postmedia.com

Investor Contact Mary Anne Lavallee Executive Vice President, Chief Operating Officer and Interim Chief Financial Officer (416) 442-3448 mLavallee@postmedia.com

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