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Item 2. Management’s Discussion and Analysis

2025-02-07 compared with 2024-08-02 · 42 added, 138 removed, 144 unchanged (56% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion includes comments and analysis relating to our results of operations and financial condition as of and for the three months ended June 23, 2024.

The following discussion includes comments and analysis relating to our results of operations and financial condition as of and for the three months ended December 29, 2024.

This discussion should be read in conjunction with the Consolidated Financial Statements and related Notes thereto, included herein, and our 2024 Annual Report on Form 10-K.

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RESULTS OF OPERATIONS

Three Months Ended June 23, 2024

Three Months Ended December 29, 2024

Operating results are summarized below.

(Thousands of Dollars, Except Per Common Share Data) June 23, 2024 June 25, 2023 Percent

(Thousands of Dollars, Except Per Common Share Data) December 29, 2024 December 24, 2023 Percent

Operating revenue:

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Equity in earnings of associated companies 1,122 1,541 (27.2) %

Operating income 4,925 12,208 (59.7) %

Operating (loss) income (3,352) 7,833 (142.8) %

Non-operating income (expense):

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Pension and OPEB related benefit and other, net 653 186 251.1 %

Curtailment/Settlement gains — 3,593 NM

Total non-operating expense, net (9,629) (6,352) 51.6 %

(Loss) income before income taxes (4,540) 2,528 NM

Income tax (benefit) expense (849) 394 NM

(Loss) before income taxes (12,981) 1,481 NM

Income tax expense 3,243 248 NM

Net (loss) income (16,224) 1,233 NM

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Diluted (2.80) 0.12 NM

References to the “2024 Quarter” refer to the three months ended June 23, 2024.

Similarly, references to the “2023 Quarter” refer to the three months ended June 25, 2023.

References to the “2025 Quarter” refer to the three months ended December 29, 2024.

Similarly, references to the “2024 Quarter” refer to the three months ended December 24, 2023.

Operating Revenue

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Print advertising revenues were $19.9 million in the 2025 Quarter, down 18.7% compared to the 2024 Quarter due to continued secular declines in demand for print advertising and a reduced product portfolio through sales and elimination of products that do not meet profitability standards.

Digital advertising and marketing services totaled $49.9 million in the 2024 Quarter, flat compared to the 2023 Quarter.

Digital advertising and marketing services totaled $46.7 million in the 2025 Quarter, up 0.6% compared to the 2024 Quarter.

Digital advertising and marketing services represented 70.2% of the 2025 Quarter total advertising and marketing services revenue, compared to 65.5% in the same period last year.

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Cash Costs, a non-GAAP financial measure used to summarize certain operating expense (see reconciliation of Non-GAAP financial measures below), were down 0.5% in the 2025 Quarter.

Compensation expense decreased $4.3 million in the 2024 Quarter, or 6.8%, compared to the 2023 Quarter from reductions in full time employees ("FTEs") due to continued business transformation efforts, partially offset by investments in digital talent.

Compensation expense increased $0.6 million in the 2025 Quarter, or 1.0%, compared to the 2024 Quarter due to investments in digital talent.

Newsprint and ink costs decreased $1.2 million in the 2025 Quarter, or 25.3%, compared to the 2024 Quarter.

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The decrease is primarily attributable to lower delivery and other print-related costs due to lower volumes of our print edition.

Restructuring costs and other was flat compared to the 2023 Quarter.

Restructuring costs and other increased $0.9 million compared to the 2024 Quarter.

Restructuring costs and other include severance costs, litigation expenses, and restructuring expenses.

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Assets gain on sales, impairments and other in the 2025 Quarter were primarily due to the result of the disposition of non-core assets, including real estate.

The factors noted above resulted in an operating income of $4.9 million in the 2024 Quarter compared to operating income of $12.2 million in the 2023 Quarter.

The factors noted above resulted in an operating loss of $3.4 million in the 2025 Quarter compared to operating income of $7.8 million in the 2024 Quarter.

Non-operating Income and Expense

Non-operating income and expense decreased by $0.2 million , or 2.2%.

The decrease is primarily driven by a decrease in Interest expense of $0.2 million, or 1.5%, to $10.1 million in the 2024 Quarter, compared to the same Quarter last year.

The decrease was due to a lower outstanding balance on our Term Loan.

Interest expense increased $0.2 million, or 1.5%, to $10.3 million in the 2025 Quarter, compared to the same Quarter last year.

Our weighted average cost of debt was 9% at the end of the 2025 Quarter and 2024 Quarter.

Other non-operating income and expense consists of benefits associated with our pension and other postretirement plans and the fair value adjustment of our Warrants.

We recorded $0.7 million periodic pension and other postretirement benefits in the 2025 Quarter compared to $3.9 million in the 2024 Quarter.

The decrease was a result of recognizing a non-cash curtailment gain of $1.2 million in the 2024 Quarter as a result of outsourcing certain postemployment defined benefit plan functions.

Additionally, during the 2024 Quarter, the Company completed a voluntary lump sum payment of future benefits to terminated vested participants.

The offer was accepted by 522 participants representing $22.6 million in plan liabilities.

As a result of the offer, a non-cash settlement gain of $2.4 million was recorded in Curtailment/Settlement gain on the Consolidated Statements of Income and Comprehensive Income.

Both assets and liabilities of the plan were reduced by $22.6 million.

Income Tax (Benefit) Expense

We recorded an income tax benefit of $0.8 million, or 18.7% of pretax loss in the 2024 Quarter.

We recorded an income tax expense of $3.2 million, or (25.0)% of pretax loss in the 2025 Quarter.

In the 2024 Quarter, we recognized an income tax expense of $0.2 million, or 16.7% of pretax income.

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The change reflects the various items discussed above.

Nine Months Ended June 23, 2024

Operating results are summarized below.

(Thousands of Dollars, Except Per Common Share Data) June 23, 2024 June 25, 2023 Percent Change

Operating revenue:

Print advertising revenue 62,118 102,503 (39.4) %

Digital advertising revenue 141,747 143,903 (1.5) %

Advertising and marketing services revenue 203,865 246,406 (17.3) %

Print subscription revenue 148,443 193,799 (23.4) %

Digital subscription revenue 60,429 42,039 43.7 %

Subscription revenue 208,872 235,838 (11.4) %

Print other revenue 24,839 30,542 (18.7) %

Digital other revenue 15,230 14,343 6.2 %

Other revenue 40,069 44,885 (10.7) %

Total operating revenue 452,806 527,129 (14.1) %

Operating expenses:

Compensation 175,757 207,859 (15.4) %

Newsprint and ink 13,101 20,244 (35.3) %

Other operating expenses 221,247 249,353 (11.3) %

Depreciation and amortization 21,438 23,097 (7.2) %

Assets loss (gain) on sales, impairments and other 4,727 (4,255) NM

Restructuring costs and other 12,199 8,120 50.2 %

Total operating expenses 448,469 504,418 (11.1) %

Equity in earnings of associated companies 3,869 3,534 9.5 %

Operating income 8,206 26,245 (68.7) %

Non-operating income (expense):

Interest expense (30,427) (31,144) (2.3) %

Pension and OPEB related benefit and other, net 1,096 2,255 (51.4) %

Curtailment/Settlement gains 3,593 — NM

Total non-operating expense, net (25,738) (28,889) (10.9) %

Loss before income taxes (17,532) (2,644) NM

Income tax benefit (3,438) (1,237) NM

Net loss (14,094) (1,407) NM

Loss per common share:

Basic (2.68) (0.56) NM

Diluted (2.68) (0.56) NM

References to the “2024 Period” refer to the nine months ended June 23, 2024.

Similarly, references to the “2023 Period” refer to the nine months ended June 25, 2023.

Operating Revenue

Total operating revenue was $452.8 million in the 2024 Period, down $74.3 million, or 14.1%, compared to the 2023 Period.

Advertising and marketing services revenue totaled $203.9 million in the 2024 Period, down 17.3% compared to the 2023 Period.

Print advertising revenues were $62.1 million in the 2024 Period, down 39.4% compared to the 2023 Period due to continued secular declines in demand for print advertising and a reduced product portfolio through sales and elimination of products that do not meet profitability standards.

Digital advertising and marketing services totaled $141.7 million in the 2024 Period, down 1.5% compared to the 2023 Period.

Digital advertising and marketing services represented 69.5% of the 2024 Period total advertising and marketing services revenue, compared to 58.4% during the 2023 Period.

Subscription revenue totaled $208.9 million in the 2024 Period, down 11.4% compared to the 2023 Period.

Decline in full access volume, consistent with historical and industry trends were partially offset by selective increases on our full access subscriptions, growth in digital-only subscribers and price increases on digital subscriptions.

Digital-only subscribers grew 23% since the 2023 Period and now total 748,000.

Digital-only subscription revenue grew 43.7% compared to the 2023 Period.

Other revenue, which primarily consists of commercial printing revenue and digital services from BLOX Digital, decreased $4.8 million, or 10.7%, in the 2024 Period compared to the 2023 Period.

Digital services revenue totaled $15.2 million in the 2024 Period, a 6.2% increase compared to the 2023 Period.

Commercial printing revenue totaled $13.1 million in the 2024 Period, a 14.8% decrease compared to the 2023 Period, primarily driven by reduction in print volumes from our partners.

Total digital revenue including digital advertising revenue, digital subscription revenue and digital services revenue totaled $217.4 million in the 2024 Period, an increase of 8.5% over the 2023 Period, and represented 48.0% of our total operating revenue in the 2024 Period.

Equity in earnings of TNI and MNI increased $0.3 million in the 2024 Period.

Operating Expenses

Total operating expenses were $448.5 million in the 2024 Period, a 11.1% decrease compared to the 2023 Period.

Cash Costs, a non-GAAP financial measure used to summarize certain operating expense (see reconciliation of Non-GAAP financial measures below), were down 14.1% in the 2024 Period.

Compensation expense decreased $32.1 million in the 2024 Period, or 15.4%, compared to the 2023 Period from reductions in full time employees ("FTEs") due to continued business transformation efforts, partially offset by investments in digital talent.

Newsprint and ink costs decreased $7.1 million in the 2024 Period, or 35.3%, compared to the 2023 Period.

The decrease is attributable to declines in newsprint volumes.

Other operating expenses decreased $28.1 million in the 2024 Period, or 11.3%, compared to the 2023 Period.

Other operating expenses include all operating costs not considered to be compensation, newsprint, depreciation and amortization, or restructuring costs and assets loss (gain) on sales, impairments, and other, net.

The largest components are costs associated with printing and distribution of our printed products, digital cost of goods sold and facility expenses.

The decrease is attributable to lower delivery and other print-related costs due to lower volumes of our print edition, partially increases in investments to fund our digital growth strategy partially offset by investments to fund our digital growth strategy.

Restructuring costs and other increased $4.1 million in the 2024 Period, or 50.2%, compared to the 2023 Period, respectively.

The increase is primarily driven from closing down outsourced production facilities, ongoing business transformation efforts, and severance.

Restructuring costs and other include severance costs, litigation expenses, restructuring expenses, and advisor expenses.

Depreciation and amortization expense decreased $1.7 million in the 2024 Period, or 7.2%, compared to the 2023 Period.

The decrease in both is attributable to assets becoming fully depreciated or amortized.

Assets loss (gain) on sales, impairments and other, was a net loss of $4.7 million in the 2024 Period compared to a net gain of $4.3 million in the 2023 Period.

Assets loss (gain) on sales, impairments and other in the 2024 Period were primarily due to non-cash charges of $7.6 million that were recorded to reduce the carrying value of mastheads, which are non-amortized intangible assets.

The 2023 Period were the result of the disposition of non-core assets, including real estate.

The factors noted above resulted in an operating income of $8.2 million in the 2024 Period compared to operating income of $26.2 million in the 2023 Period.

Non-operating Income and Expense

Interest expense decreased $0.7 million, or 2.3%, to $30.4 million in the 2024 Period, compared to the same period last year.

The decrease was due to a lower outstanding balance on our Term Loan.

Our weighted average cost of debt was 9.0% at the end of the 2024 Period and 2023 Period.

Other non-operating income and expense consists of benefits associated with our pension and other postretirement plans.

We recorded $4.7 million of periodic pension and other postretirement benefits in the 2024 Period compared to $0.9 million in the 2023 Period.

The increase was attributable due to the Company recognizing a non-cash curtailment gain of $1.2 million in the 2024 Period as a result of outsourcing certain postemployment defined benefit plan functions.

Additionally, during the 2024 Period, the Company completed a voluntary lump sum payment of future benefits to terminated vested participants.

The offer was accepted by 522 participants, representing a $22.6 million pension plan liability.

As a result of the offer, a non-cash settlement gain of $2.4 million was recorded in Curtailment/Settlement gain on the Consolidated Statements of Income and Comprehensive Income.

Both assets and liabilities of the plan were reduced by $22.6 million.

Income Tax Benefit

We recorded an income tax benefit of $3.4 million, or 19.6% of pretax loss in the 2024 Period.

In the 2023 Period, we recognized an income tax benefit of $1.2 million, or 46.8% of pretax loss.

Net loss and Loss Per Share

Net loss was $14.1 million and diluted loss per share were $2.68 for the 2024 Period compared to net loss of $1.4 million and diluted loss per share of $0.56 for the 2023 Period.

The change reflects the various items discussed above.

NON-GAAP FINANCIAL MEASURES

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This measure also provides users with a benchmark that can be used when forecasting future operating performance of the Company that excludes unusual, nonrecurring or one-time transactions.

EBITDA is also a component of the calculation used by stockholders and analysts to determine the value of our business when using the market approach, which applies a market multiple to financial metrics.

Adjusted EBITDA is also a component of the calculation used by stockholders and analysts to determine the value of our business when using the market approach, which applies a market multiple to financial metrics.

It is also a measure used to calculate the leverage ratio of the Company, which is a key financial ratio monitored and used by the Company and its investors.

Adjusted EBITDA is defined as net income (loss), plus non-operating expenses, income tax expense, depreciation and amortization, assets loss (gain) on sales, impairments and other, restructuring costs and other, stock compensation and our 50% share of EBITDA from TNI and MNI, minus equity in earnings of TNI and MNI.

Adjusted EBITDA is defined as net income (loss), plus non-operating expenses, income tax expense, depreciation and amortization, assets loss (gain) on sales, impairments and

other, restructuring costs and other, stock compensation and our 50% share of EBITDA from TNI and MNI, minus equity in earnings of TNI and MNI.

Cash Costs represent a non-GAAP financial performance measure of operating expenses which are measured on an accrual basis and settled in cash.

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The table below reconciles the non-GAAP financial performance measure of Adjusted EBITDA to net income, the most directly comparable GAAP measure:

Three months ended Nine months ended

(Thousands of Dollars) June 23, 2024 June 25, 2023 June 23, 2024 June 25, 2023

Three months ended

(Thousands of Dollars) December 29, 2024 December 24, 2023

Net (loss) income (16,224) 1,233

Adjusted to exclude

Income tax (benefit) expense (849) 394 (3,438) (1,237)

Income tax expense 3,243 248

Non-operating expenses, net 9,629 6,352

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Restructuring costs and other 5,150 4,265

Assets (gain) loss on sales, impairments and other, net (1,421) (900) 4,727 (4,255)

Assets gain on sales, impairments and other, net (929) (1,469)

Stock compensation 430 214

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The table below reconciles the non-GAAP financial performance measure of Cash Costs to Operating expenses, the most directly comparable GAAP measure:

Three months ended Nine months ended

(Thousands of Dollars) June 23, 2024 June 25, 2023 June 23, 2024 June 25, 2023

Three months ended

(Thousands of Dollars) December 29, 2024 December 24, 2023

Operating expenses 149,036 149,386

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LIQUIDITY AND CAPITAL RESOURCES

Our operations have historically generated strong positive cash flow and are expected to provide sufficient liquidity, together with cash on hand, to meet our requirements, primarily operating expenses, interest expense and capital expenditures for at least the next twelve months.

Our operations have historically generated cash flow and are expected to provide sufficient liquidity, together with cash on hand, to meet our requirements, primarily operating expenses, interest expense and capital expenditures for at least the next twelve months.

A summary of our cash flows is included in the narrative below.

Operating Activities

Cash provided by operating activities totaled $1.4 million in 2024 Period compared to cash required by operating activities of $1.7 million in 2023 Period, an increase of $3.1 million.

The increase was driven by an increase in working capital of $5.7 million, primarily related to favorable change in accounts receivable partially offset by a decrease in operating results of $2.6 million (defined as net loss adjusted for non-working capital items).

Cash required by operating activities totaled $7.3 million in 2025 Period compared to cash provided by operating activities of $0.1 million in 2024 Period, a decrease of $7.4 million.

The decrease was driven by a decrease in operating results of $13.6 million (defined as net loss adjusted for non-working capital items) partially offset by an increase in working capital of $6.2 million, primarily related to favorable change in accounts receivable.

Investing Activities

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Financing Activities

Cash required for financing activities totaled $3.0 million in the 2024 Period compared to $2.8 million in 2023 Period.

Debt reduction accounted for nearly all the usage of funds in both periods.

No cash was required for financing activities in the 2025 Period compared to $1.4 million in 2024 Period.

Debt reduction accounted for nearly all the usage of funds in the prior period.

Additional Information on Liquidity

Our liquidity, consisting of cash on the balance sheet, totaled $13.4 million on June 23, 2024.

Our liquidity, consisting of cash on the balance sheet, totaled $6.1 million on December 29, 2024.

This liquidity amount excludes any future cash flows from operations.

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The United States and various state and local governments are considering increasing their respective minimum wage rates.

Most of our employees are paid more than the current United States or state minimum

Most of our employees are paid more than the current United States or state minimum wage rates.

However, until changes to such rates are enacted, the impact of the changes cannot be determined.

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EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

As of September 24, 2023 and June 23, 2024, under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act.

Based on that evaluation the Company has concluded that, because the material weakness in the Company's internal control that existed as of September 24, 2023 and have not been remediated by the end of the period covered by this report, our disclosure controls and procedures were not effective.

The material weakness identified by the Company is described below:

• Management did not design and implement controls to assess the reliability of certain internally generated information, or evaluate information received from certain third-party service providers, that are relevant to certain revenue recognized in the Company's Consolidated Financial Statements.

Remediation Plans and Actions

Management is committed to remediating the material weakness that has been identified and maintaining an effective system of disclosure controls and procedures.

During fiscal 2023 and 2024, management executed certain actions steps to remediate the material weakness, including:

• Established a project team to review, evaluate and remediate the material weakness in internal controls over financial reporting.

• Invested in new technology and human capital in the development of new internal controls.

• Expanded Corporate Compliance function to lead management's efforts related to effective control design, documentation and implementation, as well as remediate ineffective controls.

• Implemented a new revenue IT system through collaboration among finance, accounting, sales, and IT with the focus on centralizing our products fulfillment process.

• Coordinated the flow of data with many of our third-party fulfillment vendors to improve processes surrounding customer acceptance and evidence of fulfillment.

• Retained Deloitte & Touche LLP to validate the design of these new controls prior to being reviewed by our independent registered public accounting firm.

• Implemented six additional internal controls focused on addressing the material weakness in internal controls over financial reporting.

The new controls were implemented in the third quarter and will be tested by the Company’s independent registered accounting firm beginning in the fourth quarter.

Management will continue to execute the remediation steps outlined above until the material weakness is remediated.

The material weakness will not be considered remediated until the remediated and/or newly implemented internal controls operate for a sufficient period of time and management has concluded, through testing, that these internal controls are operating effectively.

We expect the material weakness to be remediated by the end of the fiscal year 2024.

We continue to strengthen our internal control over financial reporting and are committed to ensuring that such controls are designed and operating effectively.

Under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”).

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the Evaluation Date, our disclosure controls and procedures were effective.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have been no changes in our internal control over financial reporting that occurred during the 13 weeks ended December 29, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

OTHER INFORMATION

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis