Postmedia Reports Second Quarter Results

Postmedia Network Canada Corp. (“Postmedia” or the “Company”) today released financial information for the three and six months ended February 28, 2022.

“We are in the early stages of a post-pandemic world which is still in recovery mode. The Omicron surge and resulting shutdowns and restrictions have clearly had an impact on the economic rebound broadly and can be seen in our Q2 results. Our focus will remain on our transformation and managing through a challenging environment for both our industry and the Canadian economy,” said Andrew MacLeod, President and Chief Executive Officer, Postmedia.

In addition, Postmedia is pleased to announce the appointment of Jamie Irving to the boards of both Postmedia Network Canada Corp. and its subsidiary Postmedia Network Inc.

“Jamie Irving’s background in media and role as a strong advocate for the industry make him an exceptional addition to our boards. We welcome his insight and involvement in architecting Postmedia’s future,” said Mr. MacLeod.

Mr. Irving previously led Brunswick News Inc. for 13 years and currently serves as the chair of News Media Canada. In addition Mr. Irving chairs the Board of Trustees at the Beaverbrook Art Gallery in Fredericton, New Brunswick.

“I am pleased to join Postmedia’s boards,” said Jamie Irving. “I look forward to contributing to the company’s transformation at a critical time for our industry and working with my fellow directors and Postmedia’s strong management team.”

Second Quarter Operating Results

Revenue for the quarter was $102.5 million as compared to $106.0 million in the same period in the prior year, representing a decrease of $3.5 million or 3.3%. The revenue decrease was due to decreases in print circulation of $5.3 million or 12.4% and print advertising of $1.9 million or 5.2%. Partially offsetting these decreases was an increase in digital revenue of $3.4 million or 14.5%.

Total operating expenses excluding depreciation, amortization, impairment, settlement gain and restructuring increased $7.5 million or 7.6% for the quarter ended February 28, 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 advertising 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, partially offset by an increase in compensation recovery related to journalism tax credits of $0.8 million.

Operating loss before depreciation, amortization, impairment, settlement gain and restructuring in the quarter was $2.7 million, as compared to operating income before depreciation, amortization, impairment, settlement gain and restructuring of $8.3 million in the same period in the prior year. The change 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 quarter ended February 28, 2022 was $22.1 million, as compared to net earnings of $0.7 million in the same period in the prior year. The change was primarily the result of the operating loss before depreciation, amortization, impairment, settlement gain and restructuring, losses on derivative financial instruments and foreign exchange in the three months ended February 28, 2022, partially offset by decreases in impairment and restructuring expenses.

Year-to-Date Operating Results

Revenue for the six months ended February 28, 2022 was $220.6 million as compared to $222.9 million in the same period in the prior year, a decrease of $2.4 million or 1.1%. The revenue decline was primarily due to decreases in print circulation revenue of $9.6 million or 11.0% and print advertising revenue of $5.5 million or 7.0%. Partially offsetting these decreases was an increase in digital revenue of $12.4 million or 25.7%.

Total operating expenses excluding depreciation, amortization, impairment, settlement gain and restructuring increased $13.9 million or 7.0% for the six months ended February 28, 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 advertising revenue. The compensation expense increase includes a reduction in the compensation expense recovery related to CEWS of $10.7 million, partially offset by an increase in compensation recovery related to journalism tax credits of $1.5 million.

Operating income before depreciation, amortization, impairment, settlement gain and restructuring of $9.2 million in the quarter represents a decrease of $16.3 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 six months ended February 28, 2022 was $26.5 million, as compared to net earnings of $53.5 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 and foreign exchange in the six months ended February 28, 2022, the settlement gain of $63.1 million in the six months ended February 28, 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 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. 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 six months ended February 28, 2022, the Company filed and received all the remaining claims available under the program and during the three and six months ended February 28, 2022, recognized a recovery of compensation expense of nil and $1.6 million, respectively, related to CEWS (2021 - $5.7 million and $12.3 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 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 $7.5M and share consideration of $8.6M in Class NC variable voting shares (“Variable Voting Shares”) of Postmedia Network Canada Corp. at an implied price of $2.10 per Variable Voting Share. The share consideration has been adjusted for a preliminary working capital adjustment of a nominal amount.

Debt Repayment and Refinancing

Subsequent to February 28, 2022, the Company redeemed $1.0 million of 8.25% Senior Secured Notes due 2023 (“First-Lien Notes”) on March 11, 2022 with the proceeds of asset sales. In addition, on April 7, 2022, the Company completed a previously announced refinancing transaction that included the redemption of $15.0 million of the First-Lien Notes plus accrued interest of $0.5 million and extended the maturity of its First-Lien Notes and second lien notes by approximately three and a half years to February 17, 2027 and August 17, 2027, respectively, on substantially similar terms (including interest rates) to the existing terms. In connection with the extension of the maturity of the Company’s First-Lien Notes, the Company has agreed to issue approximately 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 its asset-based revolving credit facility (the “ABL Facility”) by three years to October 1, 2025. After the refinancing transaction the Company will have $48.5 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 six months ended February 28, 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 $6 million and $15 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 exempt 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.

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