Postmedia Reports Third Quarter Results

TORONTO--(BUSINESS WIRE)--Postmedia Network Canada Corp. ("Postmedia" or the "Company") today released financial information for the three and nine months ended May 31, 2023 which includes 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").

"A challenging economic landscape continues to affect all industries and requires a continued focus on aggressive transformation," said Andrew MacLeod, President and Chief Executive Officer, Postmedia. "We have undertaken and continue to implement a number of important initiatives focused on a sustainable future including the repayment of the balance on our senior secured asset based facility - with the strong support of our stakeholders, cost reduction initiatives - including a company-wide external spend review, and support of the recent passage of Bill C-18 which will ultimately benefit publishers across Canada. We are also seeing positive indicators from our growing parcel delivery business and modest, yet positive, growth in digital subscriptions."

Third Quarter Operating Results

Revenue for the quarter was $111.2 million as compared to $120.6 million in the same period in the prior year, representing a decrease of $9.4 million (7.8%). The revenue decrease was primarily due to decreases in advertising revenue of $9.9 million (15.3%) and circulation revenue of $6.7 million (15.6%), partially offset by increases in parcel revenue of $4.6 million and other revenue of $2.5 million. Excluding the impact of the BNI Acquisition, revenue for the three months ended May 31, 2023 was $96.2 million, a decrease of $13.0 million (11.9%) relative to the same period in the prior year. The revenue decline, excluding the impact of the BNI Acquisition, was primarily due to decreases in advertising revenue of $9.4 million (15.4%) and circulation revenue of $6.7 million (16.5%).

Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $11.3 million or 9.6% for the quarter ended May 31, 2023, 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 decreased $14.7 million or 13.9%. The decrease, excluding the BNI Acquisition, was experienced across all expense categories.

Operating income before depreciation, amortization, impairment and restructuring in the quarter was $4.5 million, an increase of $1.9 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 $5.0 million, an increase of $1.6 million relative to the prior year. The increase in operating income before depreciation, amortization, impairment and restructuring, excluding the impact of the BNI Acquisition, is due to the decrease in operating expenses excluding depreciation, amortization, impairment and restructuring partially offset by the decrease in total revenues.

Net loss in the quarter ended May 31, 2023 was $24.8 million, as compared to $16.8 million in the same period in the prior year. The increase in net loss was primarily the result of increases in restructuring and interest expenses and foreign exchange losses, partially offset by an increase in operating income before depreciation, amortization, impairment and restructuring, a decrease in impairment expense, a gain on derivative financial instruments and financial assets at fair value through profit and loss in the three months ended May 31, 2023 and a loss on debt refinancing in the three months ended May 31, 2022.

Year-to-Date Operating Results

Revenue for the nine months ended May 31, 2023 was $347.2 million as compared to $341.2 million in the same period in the prior year, an increase of $6.0 million or 1.8%. The revenue increase was primarily due to increases in parcel services revenue of $24.4 million and other revenue of $9.2 million, partially offset by decreases in advertising revenue of $15.8 million or 8.3% and circulation revenue of $11.8 million or 9.5%. Excluding the impact of the BNI Acquisition, revenue for the nine months ended May 31, 2023 was $299.9 million, a decrease of $29.8 million (9.1%) relative to the same period in the prior year. The revenue decline, excluding the impact of the BNI Acquisition, was primarily due to decreases in advertising revenue of $24.3 million (13.0%) and circulation revenue of $16.4 million (13.4%).

Total operating expenses excluding depreciation, amortization, impairment and restructuring increased $9.1 million or 2.8% for the nine months ended May 31, 2023, 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 decreased $29.4 million or 9.3%. The decrease, excluding the BNI Acquisition, relates to compensation, distribution and production expenses, partially offset by increases in newsprint and other operating expenses.

Operating income before depreciation, amortization, impairment and restructuring of $8.8 million in the nine months ended May 31, 2023 represents a decrease of $3.0 million relative to the same period in the prior year. Excluding the impact of the BNI Acquisition, operating income before depreciation, amortization, impairment and restructuring was $12.1 million, a decrease of $0.4 million relative to the prior year. The decrease, excluding the impact of the BNI Acquisition, is due to the decrease in total revenues, partially offset by the decrease in operating expenses excluding depreciation, amortization, impairment and restructuring.

Net loss in the nine months ended May 31, 2023 was $61.5 million, as compared to $43.3 million in the same period in the prior year. The increase in net loss was primarily the result of a decrease in operating income before depreciation, amortization, impairment and restructuring, increases in depreciation, amortization, restructuring and interest expenses and foreign exchange losses, partially offset by a gain on disposal of assets held-for-sale and other assets, a decrease in loss on derivative financial instruments and financial assets at fair value through profit and loss and impairment expense and a loss on debt refinancing in the nine months ended May 31, 2022.

Acquisition of Brunswick News Inc.

On February 17, 2022 the Company entered into a purchase agreement with J. D. Irving, Limited to purchase all of the issued and outstanding shares of Brunswick News Inc. ("BNI"). The acquisition closed on March 25, 2022 and includes BNI's daily and weekly newspapers, digital properties and parcel delivery business. The purchase price consisted of cash consideration of $7.5 million and share consideration of 4,282,920 Class NC variable voting shares with a fair value of $7.6 million.

Debt Repayment and Refinancing

During the nine months ended May 31, 2023, the Company redeemed $21.1 million of first-lien debt with the proceeds of asset sales. Subsequent to May 31, 2023, the Company redeemed $1.6 million of first-lien debt with the proceeds of asset sales. After this redemption, the Company has $24.5 million of first-lien debt outstanding of the original $225.0 million that was issued in October 2016.

Subsequent to May 31, 2023, on June 30, 2023, the Company repaid $27.3 million of the senior secured asset based facility through the issuance of a $27.3 million unsecured promissory note to Chatham Asset Management LLC and certain investment funds or accounts for which Chatham LLC or its affiliates acts as an investment advisor, sub-advisor or manager ("Unsecured Promissory Note"). The Unsecured Promissory Note bears interest at 1% paid-in-kind interest issued as additional Unsecured Promissory Notes semi-annually on January 31 and July 31 of each year with maturity on August 17, 2027. Upon issuance of the Unsecured Promissory Note, the Company has no amount drawn and availability of $30.0 million on the ABL Facility.

Business Transformation Initiatives

During the three and nine months ended May 31, 2023, the Company implemented cost reduction and transformation initiatives related to compensation expense reductions, real estate rationalization, production efficiencies and other programs, which are expected to result in approximately $21 million and $61 million of net annualized cost savings, respectively.

As previously stated, in F23 the Company intends to focus on key growth areas of Digital Advertising, Digital Subscriptions and Parcel Services. Transformation initiatives for the year ahead include a combination of streamlining resources, product mix rationalization, outsourcing where possible and real estate divesture.

Merger Speculation

On June 27, 2023, the Company announced that Nordstar Capital LP ("Nordstar"), owner of Metroland Media Group and the Toronto Star, and Postmedia had entered into non-binding discussions to consider a combination of Postmedia, together with the Metroland newspapers and certain operational assets of the Toronto Star, through a potential merger transaction. On July 10, 2023, the Company confirmed that discussions with Nordstar regarding a potential merger transaction have ceased as the parties were unable to come to agreement on the terms of the merger.

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 Our expertise in home delivery and expanding distribution network powers Postmedia Parcel Services. For more information, visit www.postmedia.com, www.postmediasolutions.com and www.postmediaparcelservices.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 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 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.

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, 2022 and 2021. 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,
	2023			2022			2023			2022
Revenues
Advertising		54,554			64,407			174,310			190,080
Circulation		36,028			42,711			112,666			124,491
Parcel services		10,746			6,151			31,704			7,294
Other		9,880			7,354			28,529			19,311
Total revenues		111,208			120,623			347,209			341,176
Expenses
Compensation		38,058			44,844			122,913			128,282
Newsprint		4,273			4,409			13,920			12,866
Distribution		31,473			31,140			97,777			77,541
Production		13,599			18,150			44,047			53,404
Other operating		19,342			19,482			59,789			57,278
Operating income before depreciation, amortization, impairment and restructuring		4,463			2,598			8,763			11,805
Depreciation		2,757			2,619			9,641			8,298
Amortization		2,397			2,252			7,015			6,779
Impairment		-			4,300			-			7,900
Restructuring		15,476			1,200			21,535			2,200
Operating loss		(16,167	)		(7,773	)		(29,428	)		(13,372	)
Interest expense		8,560			7,774			25,502			23,302
Net financing expense related to employee benefit plans		349			235			1,048			704
(Gain) loss on disposal of property and equipment, assets held-for-sale, right of use assets and other assets		(41	)		(540	)		(3,177	)		223
(Gain) loss on derivative financial instruments and financial assets at fair value through profit and loss		(246	)		813			140			3,700
Loss on debt refinancing		-			1,477			-			1,477
Foreign currency exchange losses (gains)		48			(766	)		8,583			520
Loss before income taxes		(24,837	)		(16,766	)		(61,524	)		(43,298	)
Provision for income taxes		-			-			-			-
Net loss attributable to equity holders of the Company		(24,837	)		(16,766	)		(61,524	)		(43,298	)
Earnings (loss) per share attributable to equity holders of the Company
Basic	$	(0.25	)	$	(0.17	)	$	(0.62	)	$	(0.46	)
Diluted	$	(0.25	)	$	(0.17	)	$	(0.62	)	$	(0.46	)

Postmedia Network Canada Corp. Consolidated Statements of Financial Position (UNAUDITED)
(In thousands of Canadian dollars)	As at May 31, 2023		As at August 31, 2022
Assets
Current Assets
Cash	9,827		12,061
Restricted cash	1,589		730
Trade and other receivables	49,833		49,118
Assets held-for-sale	4,428		17,727
Inventory	4,165		4,950
Prepaid expenses and other assets	9,273		8,275
Total current assets	79,115		92,861
Non-Current Assets
Property and equipment	51,524		66,747
Right of use assets	28,530		30,095
Derivative financial instruments and other assets	3,602		3,742
Intangible assets	16,512		17,930
Total assets	179,283		211,375
Liabilities and Deficiency
Current Liabilities
Accounts payable and accrued liabilities	47,940		39,440
Provisions	13,254		3,766
Deferred revenue	17,403		21,262
Current portion of lease obligations	8,293		8,312
Current portion of long-term debt	33,069		13,000
Total current liabilities	119,959		85,780
Non-Current Liabilities
Long-term debt	259,504		260,909
Employee benefit obligations and other liabilities	35,487		38,169
Lease obligations	26,131		27,749
Total liabilities	441,081		412,607
Deficiency
Capital stock	820,131		820,131
Contributed surplus	18,759		17,973
Deficit	(1,100,688	)	(1,039,336	)
Total deficiency	(261,798	)	(201,232	)
Total liabilities and deficiency	179,283		211,375

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,
	2023		2022		2023		2022
Cash Generated (Utilized) by:
Operating Activities
Net loss attributable to equity holders of the Company	(24,837	)	(16,766	)	(61,524	)	(43,298	)
Items not affecting cash:
Depreciation	2,757		2,619		9,641		8,298
Amortization	2,397		2,252		7,015		6,779
Impairment	-		4,300		-		7,900
Loss on debt refinancing	-		1,477		-		1,477
(Gain) loss on derivative financial instruments and financial assets at fair value through profit and loss	(246	)	813		140		3,700
Non-cash interest	6,694		5,832		19,631		16,798
(Gain) loss on disposal of property and equipment, assets held-for-sale, right of use assets and other assets	(41	)	(540	)	(3,177	)	223
Non-cash foreign currency exchange losses (gains)	23		(828	)	8,563		453
Share-based compensation plans	255		44		786		50
Net financing expense relating to employee benefit plans	349		235		1,048		704
Employee benefit plan funding in excess of compensation expense	(996	)	(909	)	(2,882	)	(3,314	)
Net change in non-cash operating accounts	8,368		(1,977	)	5,555		(17,289	)
Cash flows used in operating activities	(5,277	)	(3,448	)	(15,204	)	(17,519	)
Investing Activities
Net proceeds from the sale of property and equipment, assets held-for-sale and other assets	1,596		1,404		22,462		1,974
Purchases of property and equipment	(299	)	(1,025	)	(406	)	(1,794	)
Purchases of intangible assets	(258	)	(543	)	(423	)	(816	)
Acquisition, net of cash acquired	-		(6,636	)	-		(6,636	)
Cash flows from (used in) investing activities	1,039		(6,800	)	21,633		(7,272	)
Financing activities
Repayment of long-term debt	-		(15,990	)	(21,060	)	(18,386	)
Restricted cash	(1,589	)	(365	)	(859	)	(948	)
Advances from senior secured asset-based revolving credit facility	4,500		-		18,500		-
Debt issuance costs	-		(418	)	-		(418	)
Lease payments	(1,793	)	(1,501	)	(5,244	)	(5,395	)
Cash flows from (used in) financing activities	1,118		(18,274	)	(8,663	)	(25,147	)
Net change in cash for the period	(3,120	)	(28,522	)	(2,234	)	(49,938	)
Cash at beginning of period	12,947		40,580		12,061		61,996
Cash at end of period	9,827		12,058		9,827		12,058
Supplemental disclosure of operating cash flows
Interest paid	2,191		3,321		6,303		7,994
Income taxes paid	-		-		-		-

Contacts

For more information:
Media
Phyllise Gelfand
Vice President, Communications
[phone]
[e-mail]

Investor
Mary Anne Lavallee
Executive Vice President, Chief Financial Officer and Chief Transformation Officer
[phone]
[e-mail]