Business News

PRIMEDIA Reports Second Quarter 2009 Results

Thursday 06. August 2009 - PRIMEDIA Inc. (NYSE: PRM), a leading provider of print, Internet and mobile solutions to help consumers find a place to live, today reported results for the quarter ended June 30, 2009.

Second Quarter Highlights

Total revenue of $65.2 million, representing an $11.6 million decrease compared to second quarter 2008, primarily due to lower New Homes and DistribuTech revenue.
Apartments, the Company’s largest division, representing 92% of second quarter advertising revenue, recorded a 1.0% decline in revenue compared to second quarter 2008.
Adjusted EBITDA decreased $1.3 million to $13.6 million; however, Adjusted EBITDA margin increased to 20.9% from 19.4% compared to second quarter 2008.
Provision for restructuring costs was $21.5 million, primarily as a result of previously announced actions to optimize the Company’s distribution footprint by eliminating underperforming locations.
Income from Continuing Operations decreased $11.8 million to $(8.3) million, or $(0.19) per common share, primarily due to lower revenue and higher restructuring costs, partially offset by gain on redemption of debt.
Net Loss of $(11.8) million, or $(0.27) per common share.
Retired $14.0 million in long-term debt, resulting in a net gain of $3.6 million.
Adjusted EBITDA is a non-GAAP financial measure that is described and reconciled to the corresponding GAAP measure in the accompanying Financial Tables.

“We strengthened our competitive positioning and made significant improvements in operating efficiency during the second quarter,” said Charles Stubbs, president and CEO of PRIMEDIA. “Despite challenging economic conditions, our Apartments businesses achieved gains in customer count, expanded markets and produced relatively stable financial results. The ongoing weakness in the residential real estate market continued to adversely impact our New Homes and DistribuTech businesses, which contributed to a decline in total revenue.

“We generated strong cash flow and improved the overall financial health of the organization by effectively executing against our strategic objectives and initiatives,” added Mr. Stubbs. “By applying rigorous financial discipline to all of our operations, we now expect to reduce our 2009 operating expenses by at least $20 million compared to the 2008 operating expense base, a $5 million improvement over the objective that we announced earlier this year. PRIMEDIA has a strong financial foundation, and we remain committed to managing our businesses with focused discipline, while investing in growth opportunities to increase our customer count and enhance long-term shareholder value.”

Second Quarter Revenue and Operations

Apartments – Apartment Guide, ApartmentGuide.com, Rentals.com and RentalHouses.com

The Apartments division, representing approximately 92% of second quarter 2009 advertising revenue, declined by 1.0% to $51.9 million from $52.5 million. Apartment Guide and ApartmentGuide.com increased customer count and grew the number of apartment community listings, while revenue declined 1.2% due to expansion of lower-priced offerings and declines in premium advertising spending. Revenue from the Company’s online single-unit real estate rental product line, Rentals.com, increased by 2.9% compared to the second quarter of 2008, primarily due to an increase in customer listings. The Company currently anticipates that Apartments division revenue for 2009 is likely to be essentially flat to slightly down compared to last year, primarily as clients struggle with the weakened national economy.

During the second half of 2009, the Company is focused on continuing to grow its customer count in its largest business, Apartment Guide, while enhancing the product portfolio. The Company will continue to increase its investment in search engine optimization and marketing over the prior year. The Apartment Guide and ApartmentGuide.com mobile platform recently expanded through the launch of its Android application, while its iPhone app has generated over 300,000 downloads. The Company also intends to continue to grow its Rentals.com business by focusing on driving revenue and improving site engineering and performance, while increasing traffic, primarily through search engine optimization.

New Homes – NewHomeGuide.com, AmericanHomeGuides.com

Revenue from New Homes, representing approximately 8% of second quarter 2009 advertising revenue, declined by 56.0% to $4.7 million from $10.5 million in the second quarter of 2008. The U.S. recession, particularly as it affects the residential real estate market, continues to adversely impact this business. The revenue decline was primarily due to reductions in the number of new home community listings and revenue per community.

The Company anticipates continued pressure on this business for the foreseeable future and remains focused on reducing costs for this business to offset expected revenue losses and maintaining close relationships with its advertising clients to best position this business for opportunities as macroeconomic conditions improve. The Company currently expects full year percentage decline in revenue for this business to exceed that experienced during the second quarter of 2009 compared to the same period in 2008. The Company suspended two publications during the quarter and may suspend additional, less effective publications based on local market conditions. The Company has increased its focus on its Internet offerings in all markets through NewHomeGuide.com and related websites.

DistribuTech

DistribuTech, the Company’s print distribution operation, generated revenue of $8.6 million, compared to $13.8 million in the second quarter of 2008, a 37.4% decline. This decline was primarily due to the ongoing impact of lost business from third-party customers, who are scaling back or ceasing to publish resale home and automotive and employment classifieds publications or providing an Internet-only product, and a decrease in the average revenue per pocket due to continued decline in demand.

During the quarter, the Company eliminated approximately 2,000 retail locations as part of its initiative to optimize the distribution footprint by eliminating underperforming locations. These actions were the main driver of the $21.5 million in restructuring costs in the second quarter. The Company currently expects full year percentage decline in revenue for this business to exceed that experienced during the second quarter of 2009 as compared to the same period in 2008. For the remainder of the year, the Company intends to continue to reduce the cost structure of this business to offset, in part, expected revenue losses. The Company’s overall goal is to create a more efficient distribution network for the longer term by streamlining the expense structure of this business.

Other Second Quarter Financial Highlights

Operating Expenses

The decrease in Operating Expenses by 16.7% to $51.6 million was driven primarily by reductions in General and Administrative, Distribution and Circulation, and Cost of Sales. This reflects a post-headquarters relocation overhead structure, the reduction of certain professional fees and the initial results of various cost-cutting initiatives, partially offset by an incremental increase in Internet and sales channel expenses of $1.2 million. The total net expense savings from the cost-cutting initiatives were previously targeted to be at least $15.0 million compared to the 2008 operating expense base. The Company now expects that these initiatives will generate at least $20.0 million in savings during 2009.

Adjusted EBITDA

Total Adjusted EBITDA decreased 8.4% to $13.6 million from $14.9 million. This decline was driven primarily by a decrease in revenue of $11.6 million and $1.2 million increase in Internet and the sales channel spend. This was partially offset by lower non-revenue generating headcount, the completion of the headquarters relocation and initiatives to reduce operating expenses. Adjusted EBITDA as a percentage of total net revenue increased to 20.9% from 19.4% in the second quarter of 2008 and from 16.8% in the first quarter of 2009.

Income and Earnings per Share from Continuing Operations

Income from continuing operations decreased to $(8.3) million from $3.5 million in the second quarter of 2008. Earnings per share from continuing operations decreased $0.27 to $(0.19) from $0.08 in the second quarter of 2008. These decreases were primarily due to lower revenue of $11.6 million and a $20.3 million increase in restructuring costs, primarily for retail display allowances, partially offset by cost and expense reductions of $11.2 million and a $3.6 million net gain on redemption of debt.

Net Income

Net income decreased $13.7 million to $(11.8) million, compared to $1.9 million in the second quarter of 2008. This reduction was primarily due to lower income from continuing operations and a $1.9 million decrease in income from discontinued operations, net of tax.

Free Cash Flow and Capital Expenditures

Free cash flow was $6.0 million compared to $(1.1) million for the second quarter of 2008. This change was primarily due to a $15.8 million federal income tax refund, partially offset by prepayments associated with distribution locations. The Company invested $2.5 million in capital expenditures, compared to $2.9 million in the second quarter of 2008. Free cash flow is a non-GAAP financial measure that is described and reconciled to the corresponding GAAP measure in the accompanying Financial Tables.

Balance Sheet

As of June 30, 2009, the Company’s cash and cash equivalent balance was $2.1 million, versus $6.8 million as of June 30, 2008. The Company had debt, net of cash, of $231.0 million at June 30, 2009, compared to net debt of $247.1 million at June 30, 2008. In addition to the required quarterly repayment under the Company’s Term Loan Facility and repayment of $4.4 million outstanding under the revolving credit facility, the Company used excess cash to retire an incremental $14.0 million of its Term Loan B Facility.

Dividend

The Board of Directors of the Company has authorized a regular quarterly cash dividend of $0.07 per share of common stock, payable on September 2, 2009, to stockholders of record on August 17, 2009. The Company currently expects to continue to pay a regular quarterly dividend.