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, 2023 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”).

“Economic uncertainty persists and Postmedia, like countless other corporations, is aggressively managing our costs to reflect this challenging environment,” said Andrew MacLeod, President and Chief Executive Officer, Postmedia. “We are using this opportunity to proactively transform our business to architect a sustainable news media model for the future. In spite of the difficult environment, we continue to see positive early indications of growth and opportunities from digital subscriptions and parcel distribution.”

Second Quarter Operating Results

Revenue for the quarter was $111.8 million as compared to $102.5 million in the same period in the prior year, representing an increase of $9.3 million (9.1%). The revenue increase was primarily due to increases in parcel services revenue of $11.2 million and other revenue of $2.9 million partially offset by decreases in advertising revenue of $1.8 million (3.2%) and circulation revenue of $2.9 million (7.2%). Excluding the impact of the BNI Acquisition, revenue for the three months ended February 28, 2023 was $95.3 million, a decrease of $7.2 million (7.0%) 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 $5.7 million (10.1%) and circulation revenue of $5.1 million (12.8%).

Total operating expenses excluding depreciation, amortization, impairment and restructuring increased $7.2 million or 6.8% for the quarter ended February 28, 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 $10.7 million or 10.1%. The decrease, excluding the BNI Acquisition, was experienced across all expense categories.

Operating loss before depreciation, amortization, impairment and restructuring in the quarter was $0.5 million, a decrease of $2.2 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 $0.8 million, as compared to operating loss before depreciation, amortization, impairment and restructuring of $2.7 million relative to the prior year. 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 February 28, 2023 was $20.8 million, as compared to $22.1 million in the same period in the prior year. The decrease in net loss was primarily the result of decreases in operating loss before depreciation, amortization, impairment and restructuring and impairment expense, a gain on disposal of assets held-for-sale and other assets, and a gain on derivative financial instruments and financial assets at fair value through profit and loss, partially offset by increases in restructuring, amortization and interest expenses and foreign exchange losses.

Year-to-Date Operating Results

Revenue for the six months ended February 28, 2023 was $236.0 million as compared to $222.1 million in the same period in the prior year, an increase of $15.4 million or 7.0%. The revenue increase was primarily due to increases in parcel services revenue of $19.8 million and other revenue of $6.7 million, partially offset by decreases in advertising revenue of $5.9 million or 4.7% and circulation revenue of $5.1 million or 6.3%. Excluding the impact of the BNI Acquisition, revenue for the six months ended February 28, 2023 was $203.7 million, a decrease of $16.8 million (7.6%) 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 $14.9 million (11.9%) and circulation revenue of $9.7 million (11.9%).

Total operating expenses excluding depreciation, amortization, impairment and restructuring increased $20.4 million or 9.6% for the six months ended February 28, 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 7.0%. 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 $4.3 million in the six months ended February 28, 2023 represents a decrease of $4.9 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 $7.1 million, a decrease of $2.1 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 six months ended February 28, 2023 was $36.7 million, as compared to a net loss of $26.5 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, restructuring and interest expenses and foreign exchange losses, partially offset by a gain on disposal of assets held-for-sale and other assets, and a decrease in loss on derivative financial instruments and financial assets at fair value through profit and loss.

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 three months ended February 28, 2023, the Company amended the senior secured asset-based revolving credit facility (“ABL Facility”) to increase both the availability to the maximum amount of $30.0 million and the interest rate on amounts drawn to the bankers acceptance rate plus 8.0% and extended the maturity date to October 1, 2026. In addition, the Company entered into a $5.0 million Unsecured Revolving Promissory Note with the lender of the ABL Facility at similar terms.

During the three months ended February 28, 2023, the Company redeemed $21.1 million of first-lien debt with the proceeds of asset sales. After this redemption, the Company has $26.0 million of first-lien debt 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, 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 $22 million and $40 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.

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 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.

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.

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