Torstar Corporation Reports First Quarter Results

TORONTO, ON--(Marketwired - May 03, 2017) - Torstar Corporation (TSX: TS.B) today reported financial results for the first quarter ended March 31, 2017.

Highlights for the first quarter:

• On March 31, 2017, John Boynton was appointed President and Chief Executive Officer of Torstar and Publisher of the Toronto Star. Mr. Boynton comes to Torstar with deep expertise in marketing, technology and business transformation.
• Ended the first quarter of 2017 with $59.4 million of cash and cash equivalents and $9.1 million of restricted cash; Torstar has no bank indebtedness.
• Our net loss was $24.4 million ($0.30 per share) in the first quarter of 2017. This compares to a net loss of $53.5 million ($0.66 per share) in the first quarter of 2016.
• Our net loss attributable to equity shareholders was $24.3 million ($0.30 per share) in the first quarter of 2017 compared to a net loss attributable to equity shareholders of $53.5 million ($0.66 per share) in the first quarter of 2016.
• Adjusted loss per share was $0.22 in the first quarter of 2017, an improvement of $0.18 from adjusted loss per share of $0.40 in the first quarter of 2016. Adjusted loss per share in 2017 and 2016 included $0.21 and $0.52 per share effects of amortization and depreciation.
• Our segmented operating loss was $23.4 million in the first quarter of 2017 which included $17.2 million of non-cash amortization and depreciation expense as well as $4.9 million of restructuring and other charges and $3.0 million of impairment charges.
• Our segmented adjusted EBITDA was $2.0 million in the first quarter of 2017 up $2.7 million from the prior year. Segmented adjusted EBITDA in the Digital Ventures segment was $5.1 million in the quarter which benefitted from 21% growth in adjusted EBITDA at VerticalScope (25% growth in USD). In the newspaper operations the segmented adjusted EBITDA loss at the Star Media Group was $2.9 million, an improvement of $3.3 million, while segmented adjusted EBITDA at the Metroland Media Group was $1.8 million, down $1.5 million in the quarter.
• Segmented revenue was $156.7 million in the first quarter of 2017, down $18.1 million (10%) from $174.8 million in the first quarter of 2016 and which included revenue growth of $1.5 million or 18% (22% growth in USD) from VerticalScope.

"Segmented adjusted EBITDA was up $2.7 million to $2.0 million in the first quarter and included $5.1 million from our Digital Ventures segment which continues to benefit from very strong year over year growth in revenue and adjusted EBITDA at VerticalScope. At Metroland and the Star Media Group, we benefitted from continuing efforts on costs which offset the impact of the continuing challenges in the print advertising environment with earnings up $1.9 million across the two operations," said John Boynton, President and CEO of Torstar Corporation. "Looking forward, we expect earnings in the balance of the year to continue to benefit from growth at VerticalScope and efforts on reducing costs."

The following chart provides a continuity of earnings per share from the first quarter of 2016 to the first quarter of 2017:

*Includes proportionately consolidated share of joint venture and VerticalScope's operations. These include Non-IFRS or additional IFRS measures.
** Refer to discussion of "Non-IFRS measures" including definition of adjusted earnings (loss) per share.

OPERATING RESULTS - FIRST QUARTER 2017
The following tables sets out, in $000's the segmented results for the three months ended March 31, 2017 and 2016

¹Reflects eliminations of proportionate share of joint ventures and VerticalScope.
* Includes proportionately consolidated share of joint venture operations and VerticalScope.
** These are non-IFRS or additional IFRS measures, see "Non-IFRS measures".

Revenue
Segmented revenue was down $18.1 million or 10% in the first quarter of 2017, which included revenue growth of $1.5 million or 18% from VerticalScope (22% revenue growth in USD). Segmented revenue in the first quarter of 2017 reflected declines of 19% in print advertising revenues, with particular softness in national advertising revenues, a 9.5% decrease in subscriber revenue and a 0.6% increase in distribution revenues.

Operating revenue (excluding our proportionate share of revenues from our joint ventures and our 56% interest in VerticalScope) was down $18.0 million or 11% in the first quarter 2017.

Digital revenue decreased 4% in the first quarter of 2017 reflecting lower revenues at Workopolis, WagJag and Save.ca, partially offset by strong growth at VerticalScope as well as in local digital advertising within the community websites at Metroland Media Group. Digital revenues were 18% of total revenue in the first quarter of 2017 compared to 17% in the first quarter of 2016.

Salaries and benefits
Segmented salaries and benefits costs were down $12.8 million (15%) in the first quarter of 2017 reflecting the benefit of savings from restructuring initiatives, including the closure of the Vaughan Printing Facility and lower staffing costs associated with Toronto Star Touch.

Other operating costs
Segmented other operating costs primarily include newspaper circulation and flyer distribution costs, production costs and newsprint costs which represented 40%, 13% and 12% respectively of segmented other operating costs for the first quarter of 2017.

Segmented other operating costs were down $7.9 million or 8.6% in the first quarter of 2017 as a result of lower print volumes and the impact of other cost reductions.

Adjusted EBITDA
Our segmented adjusted EBITDA was $2.0 million in the first quarter of 2017 up $2.7 million from the prior year. Segmented adjusted EBITDA in the Digital Ventures segment was $5.1 million in the quarter which benefitted from 21% growth in adjusted EBITDA at VerticalScope (25% growth in USD). In the newspaper operations the segmented adjusted EBITDA loss at the Star Media Group was $2.9 million, an improvement of $3.3 million, while segmented adjusted EBITDA at the Metroland Media Group was $1.8 million, down $1.5 million in the quarter.

Amortization and depreciation
Total segmented amortization and depreciation decreased $24.7 million in the first quarter of 2017, primarily the result of lower amortization associated with our investment in VerticalScope as well as the absence of accelerated amortization of equipment related to the transition of printing of the Toronto Star to Transcontinental Printing in the first quarter of 2016.

Operating earnings (loss)
Segmented operating loss was $15.5 million in the first quarter of 2017 compared to an operating loss of $43.0 million in the first quarter of 2016. This improvement was the result of an increase in adjusted EBITDA combined with lower amortization and depreciation expense.

Restructuring and other charges
Total segmented restructuring and other charges were $4.9 million in the first quarter of 2017 and $31.8 million in the first quarter of 2016. Restructuring charges in the first quarter of 2017 are expected to result in annualized net savings of $5.3 million and a reduction of approximately 110 positions. $0.8 million of the savings associated with these initiatives were realized in the first quarter of 2017. Restructuring charges in the first quarter of 2016 included a charge of $22.4 million for severance and facility related expenses in respect of our decision to outsource printing of the Toronto Star.

Impairment of assets
During the first quarter of 2017, we incurred non-cash charges related to asset impairment of our joint venture investment in Workopolis totalling $3.0 million (2016 - nil). This charge had no impact on cash flows and was the result of a further downward revision in longer term forecasted revenues reflecting further increased competition in the online recruitment and job search markets as well as general market conditions.

Operating profit (loss)
Segmented operating loss of $23.4 million decreased $51.4 million in the first quarter. Operating loss for the first quarter of 2017 included $17.2 million of non-cash amortization and depreciation expense as well as $4.9 million of restructuring and other charges and $3.0 million of impairment charges. Our loss in the first quarter of 2016 included $41.9 million of amortization and depreciation expense and $31.8 million of restructuring and other charges.

Our operating loss excluding our proportionate share of operating profit (loss) from VerticalScope and our joint ventures decreased $32.8 million in the first quarter of 2017 compared to the first quarter of 2016.

Income (loss) from joint ventures
Our loss from joint ventures was $2.8 million in the first quarter of 2017 compared to income of $0.6 million in the first quarter of 2016.The loss from joint ventures in the first quarter of 2017 includes an impairment charge of $3.0 million.

Loss from associated businesses
Our loss from associated businesses was $2.2 million in the first quarter of 2017 compared to a loss of $17.2 million in the first quarter of 2016.

The loss in the first quarter of 2017 included a loss of $0.5 million from Black Press, income of $0.3 million from Blue Ant and a loss of $2.0 million from VerticalScope. The loss from VerticalScope included $6.6 million of amortization expense. The loss in the first quarter of 2016 included income of $0.8 million from Black Press and income of $0.2 million from Blue Ant, offset by a loss of $0.6 million from Shop.ca and a loss of $17.5 million from VerticalScope which included $27.6 million of amortization expense.

Investment in VerticalScope
During 2015, we acquired a 56% interest in VerticalScope. In connection with the investment in VerticalScope, during the first quarters of 2017 and 2016 we recorded $6.6 million and $27.6 million of amortization and depreciation expense.

During the first quarter 2017 VerticalScope generated U.S. $7.9 million of cash from operations and made acquisitions totalling U.S. $1.3 million. VerticalScope's debt, net of cash on hand, was U.S. $67.8 million at March 31, 2017 down U.S. $6.6 million from U.S. $74.4 million at December 31, 2016.

Other income
Other income of $1.3 million in the first quarter of 2016 primarily reflected a gain recognized on the sale of one of Metroland Media Group's real estate properties.

Income and other taxes
We recorded a tax recovery of $1.1 million in the first quarter of 2017 compared to a recovery of $13.0 million in the first quarter of 2016. Excluding the impact of deferred income tax assets not recognized in 2017 our effective tax rate was 18.8% in the first quarter of 2017 and 19.5% in the first quarter of 2016.

Net loss
Our net loss was $24.4 million ($0.30 per share) in the first quarter of 2017. This compares to a net loss of $53.5 million ($0.66 per share) in the first quarter of 2016. The first quarter of 2017 included $6.6 million of non-cash amortization and depreciation expense associated with our investment in VerticalScope and $4.9 million of restructuring charges and $3.0 million of impairment charges. The first quarter of 2016 included $27.6 million of non-cash amortization and depreciation expense associated with our investment in VerticalScope as well as $22.4 million of restructuring charges and $4.8 million of additional non-cash amortization and depreciation expense related to the transition of printing of the Toronto Star to Transcontinental Printing.

Net loss attributable to equity shareholders
Our net loss attributable to equity shareholders was $24.3 million ($0.30 per share) in the first quarter of 2017 compared to net loss attributable to equity shareholders of $53.5 million ($0.66 per share) in the first quarter of 2016.

OUTLOOK
In first quarter of 2017, Metroland Media Group and Star Media Group continued to face a challenging print advertising market resulting from ongoing shifts in spending by advertisers, particularly in the national advertising category. Declines were more moderate in the retail and local advertising categories. While these trends have continued early into the second quarter, it is difficult to predict if these trends will continue in the balance of 2017. We currently expect that flyer distribution revenues will decline modestly in the balance of the year. Subscriber revenues declined moderately in the first quarter of 2017 and this trend is expected to continue in the balance of the year. In the balance of 2017, Metroland Media Group and Star Media Group overall digital revenue is expected to be relatively stable with continued growth at thestar.com and in local digital advertising at the Metroland community sites being partially offset by expected continued declines in other areas.

Within the Digital Ventures segment, the trend in revenue growth from a combination of acquisitions and organic revenue growth at VerticalScope experienced in the first quarter of 2017 is expected to continue in the balance of the year. In addition, the revenue trends experienced at Workopolis and eyeReturn in the first quarter of 2017 are expected to continue through the balance of the year.

Cost reduction will remain an important area of focus for us in the balance of 2017. Net savings related to restructuring initiatives undertaken through the end of the first quarter of 2017 are expected to be $13.0 million in the balance of 2017 ($6.3 million in Metroland Media Group and $6.7 million in the Star Media Group). In addition to the $3.7 million of lower net investment in Toronto Star Touch in the first quarter of 2017, we currently expect approximately $2 million of lower net investment in the balance of the year. While newsprint pricing has increased in 2017, we expect that any impact of price increases will continue to be more than offset by lower consumption in the balance of the year.

DIVIDEND
On May 2, 2017, Torstar declared a quarterly dividend of 2.5 cents per share on its Class A shares and Class B non-voting shares, payable on June 30, 2017, to shareholders of record at the close of business on June 9, 2017. Torstar advises that, for the purposes of the Income Tax Act, Canada and for any relevant provincial tax legislation, this dividend is designated as an eligible dividend.

ADDITIONAL INFORMATION
For additional information, please refer to Torstar's condensed consolidated financial statements for the period ended March 31, 2017 (the "Condensed Consolidated Financial Statements") and the Interim Management's Discussion and Analysis ("MD&A"). Both documents will be filed today on SEDAR and are available on Torstar's corporate website www.torstar.com.

CONFERENCE CALL
Torstar has scheduled a conference call for May 3, 2017 at 8:15 a.m. to discuss its first quarter results. The dial-in number is 844-348-7075. A live broadcast of the conference call will be available over the internet on the Presentations, Events and Conference Calls page (Investor Relations) on Torstar's website www.torstar.com. A recording of the conference call will be available for 9 days at 855-859-2056 reservation number 81868286. An online archive of the broadcast will be available shortly after the completion of the call and will be accessible by visiting the Presentations, Events and Conference Calls (Investor Relations) page on Torstar's website www.torstar.com.

ANNUAL GENERAL MEETING
Torstar will be holding its Annual General Meeting at 10:00 a.m. on May 3, 2017 at 1 Yonge Street, 3^rd Floor Auditorium, Toronto, Ontario. The Annual General Meeting will also be webcast live on the Presentations, Events and Conference Calls page (Investor Relations) at www.torstar.com with interactive capabilities. An online archive of the broadcast will be available shortly after the completion of the call and will be accessible by visiting the Presentations, Events and Conference Calls page (Investor Relations) on the www.torstar.com website.

About Torstar Corporation
Torstar Corporation is a broadly based media company listed on the Toronto Stock Exchange (TS.B). Its businesses include the Star Media Group led by the Toronto Star, Canada's largest daily newspaper and Free Daily News Group Inc., which publishes the English-language Metro newspapers in several Canadian cities; Metroland Media Group, publisher of community and daily newspapers in Ontario; and also include digital properties including thestar.com, Toronto Star Touch, Workopolis, wagjag.com, toronto.com, save.ca and eyeReturn Marketing Inc. It also holds a majority interest in VerticalScope, a North American vertically-focused digital media company.

Non-IFRS measures
In addition to operating profit (loss), an additional IFRS measure, as presented in the consolidated statement of income (loss), management uses segmented revenue, adjusted EBITDA (and where applicable segmented adjusted EBITDA), operating earnings (loss) (and where applicable segmented operating earnings (loss)), and adjusted earnings (loss) per share as measures to assess the consolidated performance and the performance of the reporting units and business segments. Please refer to Section 11 of Torstar's MD&A for the three months ended March 31, 2017 for a reconciliation of adjusted EBITDA and operating earnings (loss) (and segmented adjusted EBITDA/segmented operating earnings (loss) -- as applicable) with operating profit(loss) (segmented operating profit (loss) -- as applicable) and adjusted earnings (loss) per share to earnings (loss) per share.

Segmented revenue
Segmented revenue is calculated in the same manner as operating revenue in the Condensed Consolidated Financial Statements, except that it is calculated using total segment results which includes our proportionately consolidated share of revenues from joint ventures and our 56% interest in VerticalScope. Management of each segment is accountable for the revenues, including the proportionately consolidated share of revenues from joint venture operations. We believe that segmented revenue is a useful measure for investors as it is a measure of the revenues for which management of each segment is accountable. The intent of segmented revenue is to provide additional useful information to investors, analysts and readers of our financial statements. The measure does not have any standardized meaning under IFRS and accordingly may not be comparable to measures used by other companies.

Adjusted EBITDA (Segmented Adjusted EBITDA)
As a result of the increasing significance of segmented financial results from our investment in VerticalScope relative to our total segmented financial results, effective the third quarter of 2016 we have revised our definition of adjusted EBITDA to exclude share based compensation. We made this change because of the relative significance and variability of this non-cash expense in our proportionate share of VerticalScope's financial results. We believe that the exclusion of this non-cash expense from adjusted EBITDA provides greater insight for investors, analysts and readers, in regards to our segmented earnings excluding non-cash expenses. We have accordingly restated prior period comparative figures.

Management believes that adjusted EBITDA is an important proxy for the amount of cash generated by our ongoing operations (or by a reporting unit or business segment) to generate liquidity to fund future capital needs and we use this metric for this purpose. Adjusted EBITDA is not the actual cash provided by operating activities and is not a recognized measure of financial performance under IFRS. We calculate adjusted EBITDA as operating revenue, less salaries and benefits and other operating costs, as presented on the consolidated statement of income, and exclude restructuring and other charges, share based compensation and impairment of assets. Share based compensation is eliminated as it is a non-cash expense that fluctuates significantly from period to period, in particular for VerticalScope as a result of industry compensation practices. Restructuring and other charges and impairment of assets are eliminated as these activities are not related to ongoing operations as of the end of the period. The exclusion of impairment of assets also eliminates the non-cash impact. Adjusted EBITDA is also used by investors and analysts for valuation purposes. The intent of adjusted EBITDA is to provide additional useful information to investors, analysts and readers of our financial statements. The measure does not have any standardized meaning under IFRS and accordingly may not be comparable to measures used by other companies (including calculating EBITDA on an adjusted basis to exclude restructuring and other charges, share based compensation and impairment of assets). Segmented adjusted EBITDA is calculated in the same manner described above, except that it is calculated using total segment results including our proportionately consolidated results for joint ventures and our 56% interest in VerticalScope for which management is accountable.

Operating earnings (loss)/Segmented operating earnings (loss)
Operating earnings (loss) is used by management to represent the results of ongoing operations inclusive of amortization and depreciation. We use operating earnings (loss) as a measure of the amount of income generated by our ongoing operations (or by a reporting unit or business segment) after giving effect to amortization and depreciation. We believe this metric is also useful for investors for this purpose. We calculate operating earnings (loss) as operating revenue less salaries and benefits, other operating costs, share based compensation and amortization and depreciation. Operating earnings (loss) excludes restructuring and other charges and impairment of assets. Restructuring and other charges and impairment of assets are eliminated as these activities are not related to ongoing operations as of the end of the period. Our method of calculating operating earnings (including calculating operating earnings (loss) on an adjusted basis to exclude restructuring and other charges and impairment of assets) may differ from other companies and accordingly may not be comparable to measures used by other companies. The intent of operating earnings (loss) is to provide additional useful information to investors, analysts and readers of our financial statements. The measure does not have any standardized meaning under IFRS, is not a recognized measure of financial performance under IFRS, and accordingly may not be comparable to measures used by other companies. Segmented operating earnings (loss) is calculated in the same manner described above, except that it is calculated using total segment results including proportionately consolidated operating earnings (loss) for our joint ventures and our 56% interest in VerticalScope for which management is accountable.

Adjusted earnings (loss) per share
Adjusted earnings (loss) per share is used by management to represent the per share earnings (loss) of results of our ongoing operations (or by a reporting unit or business segment) and is not a recognized measure of financial performance under IFRS. We believe this metric is also useful for investors for this purpose. We calculate adjusted earnings (loss) per share as earnings (loss) per share from continuing operations less the per share effect of restructuring and other charges, impairment of assets, non-cash foreign exchange, other income (expense) and change in deferred taxes. Restructuring and other charges and impairment of assets are eliminated as these activities are not related to ongoing operations as of the end of the period. Non-cash foreign exchange, other income (expense) and changes in deferred taxes are eliminated as these are not related to routine operating activities. The intent of presenting adjusted earnings (loss) per share is to provide additional useful information to investors, analysts and readers of our financial statements. Our method of calculating adjusted earnings (loss) per share may differ from other companies and accordingly may not be comparable to measures used by other companies. The measure does not have any standardized meaning under IFRS, is not a recognized measure of financial performance under IFRS, and accordingly may not be comparable to measures used by other companies.

Operating profit (loss)/Segmented operating profit (loss)
Operating profit (loss) is an additional IFRS measure. Management uses operating profit (loss) to measure the results of operations inclusive of impairments and restructuring and other charges. Operating profit (loss) appears in our consolidated statement of income (loss). We believe that operating profit (loss) provides additional useful information to investors, analysts and readers of our financial statements. The measure does not have any standardized meaning under IFRS and accordingly may not be comparable to measures used by other companies. Our method of calculating operating profit (loss) may differ from other companies and accordingly may not be comparable to measures used by other companies. Segmented operating profit (loss) is calculated in the same manner described above, except that it is calculated using total segment results including proportionately consolidated results for our joint ventures and our 56% interest in VerticalScope for which management is accountable.

Forward-looking statements
Certain statements in this press release and in Torstar's oral and written public communications may constitute forward-looking statements that reflect management's expectations regarding Torstar's future growth, financial performance and business prospects and opportunities as of the date of this press release. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as "anticipate", "believe", "plan", "forecast", "expect", "estimate", "intend", "would", "could", "if", "may" and similar expressions.

This press release includes, among others, forward-looking statements regarding Torstar's expectations in relation to earnings, growth including growth at VerticalScope and cost reductions, expected savings including savings from restructuring initiatives, expectations in relation to impairment of assets, and Torstar's outlook for the balance of 2017, including anticipated revenue trends, expected net investment in Toronto Star Touch and expectations regarding newsprint costs. All such statements are made pursuant to the "safe harbour" provisions of applicable Canadian securities legislation. These statements reflect current expectations of management regarding future events and operating performance, and speak only as of the date of this press release. In addition, forward-looking statements are provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that reliance on such information may not be appropriate for other purposes.

By their very nature, forward-looking statements require management to make assumptions and are subject to inherent risks and uncertainties. There is a significant risk that predictions, forecasts, conclusions or projections will not prove to be accurate, that management's assumptions may not be accurate and that actual results, performance or achievements may differ significantly from such predictions, forecasts, conclusions or projections expressed or implied by such forward-looking statements. We caution readers not to place undue reliance on the forward-looking statements in this press release as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, outlooks, expectations, goals, estimates or intentions expressed in the forward-looking statements.

These factors include, but are not limited to: Torstar's ability to operate in highly competitive industries; Torstar's ability to compete with digital media, other newspapers and other forms of media; Torstar's ability to respond to the shift to digital media and the shift by advertisers to other digital platforms; Torstar's ability to attract, grow and retain its digital audience and profitably develop its digital platforms; Torstar's ability to attract and retain advertisers; Torstar's ability to maintain adequate circulation/subscription levels; Torstar's ability to attract and retain readers and traffic; Torstar's ability to integrate the technology associated with new digital platforms; general economic conditions and customer prospects in the principal markets in which Torstar operates; Torstar's ability to reduce costs; loss of reputation; dependence on third party suppliers and service providers; reliance on technology and information systems and risks of security breaches; changes in employee future benefit obligations; Torstar's ability to execute appropriate strategic growth initiatives including acquisitions; unexpected costs or liabilities related to acquisitions and dispositions; investments in other businesses; labour disruptions; reliance on printing operations, newsprint costs; litigation; privacy, anti-spam, communications, e-commerce and environmental laws, health and safety regulations and other laws and regulations applicable generally to Torstar's businesses; foreign exchange fluctuations and foreign operations; availability of insurance; dependence on key personnel; intellectual property rights; credit risk; availability of capital and restrictions imposed by credit facilities; income tax and other taxes; dividend policy; results of impairment tests and uncertainties associated with critical accounting estimates; holding company structure; and control of Torstar by the Voting Trust.

Torstar cautions that the foregoing list is not exhaustive of all possible factors, as other factors could adversely affect our results.

In addition, a number of assumptions, including those assumptions specifically identified throughout this press release, were applied in making the forward-looking statements set forth in this press release. Some of the key assumptions include, without limitation, assumptions regarding the performance of the North American economies; tax laws; continued availability of printing operations; availability of financing on appropriate terms; exchange rates; market competition; rates of return and discount rates relating to pension expense and pension plan obligations; expected future revenues; expected future liabilities; expected future cash flows and discount rates relating to valuation of goodwill and intangible assets; and successful development and launch of new products. There is a risk that some or all of these assumptions may prove to be incorrect. There is no assurance regarding the amount and timing of future dividends. When relying on our forward-looking statements to make decisions with respect to Torstar and its securities, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Torstar does not intend, and disclaims any obligation, to update any forward-looking statements, whether written or oral, or whether as a result of new information or otherwise, except as may be required by law.

For more information, please see the discussion of risks affecting Torstar and its businesses in Torstar's 2016 Management's Discussion & Analysis which has been filed on www.sedar.com and is available on Torstar's corporate website www.torstar.com.

Torstar's news releases are available on the Internet at www.torstar.com.