GateHouse CEO trumpets big gains online, but company suffered big losses overall

In a news release issued Thursday, GateHouse Media, owner of the Carthage Press, Neosho Daily News, and Pittsburg Morning Sun trumpeted its gains online, but those fell far short of the money the company hemorrhaged from its newspaper publishing. CEO Michael Reed hints at cuts to come though he refers to it as "our efforts to reduce the overall cost structure."

FAIRPORT, N.Y. March 7, 2013 - GateHouse Media, Inc. (the “Company” or “GateHouse Media”) (OTC Pink Sheets: GHSE), a leading multi-media company providing news and information to local
communities, today reported financial results for the fourth quarter and full year ended December 30,
2012.

Same Store Results 

Comparisons to the prior year were influenced by two factors which impacted the number of days in the 2011 reporting periods and by the sale of a group of weekly publications in suburban Chicago on October 1, 2012. In fiscal 2011, there was a 53rd week, falling in Q4, for approximately 60% of the business which was already on a 52 week (5-4-4 quarterly) reporting cycle. Also in 2011, the remaining 40% of the business changed its reporting period from a calendar year to a 52 week reporting period to be consistent with the rest of the Company, which resulted in one additional net day in 2011, but an additional 6 days in Q4. The Company estimated the impact of these two factors for better comparability year over year in reporting same store results. The 2011 fourth quarter results from the suburban Chicago weekly publications that were sold on October 1, 2012, were excluded for comparison purposes.

Commenting on GateHouse Media’s results, Michael E. Reed, Chief Executive Officer of GateHouse
Media, said, “During 2012 we made significant progress along the path of transforming our organization into a truly multi-media company, focusing on our primary strategic objectives, including growing our digital product portfolio, audience and revenues, stabilizing the core business, driving permanent expense reduction and redeploying some of those expenses toward growth initiatives that leverage our key assets and strengths. We experienced strong growth in digital revenues this year with an increase of 28.0% on a same store basis, and we saw some improvement in circulation revenues. While we continued to make progress on reducing core operating expenses, some of these cost savings were invested in new growth initiatives, particularly new digital service offerings, which extend our product offerings with the goal of capturing a greater portion of our advertising customers’ marketing spend and reaching new customers.

“After adjusting for one-time and non-cash items, our operating expenses declined 3.1% for the year on a same store basis, and 4.7% when the investment in new strategic growth initiatives is factored out. While our As Adjusted EBITDA was down 9.1% for the year on a same store basis, we made strategic decisions to invest in new initiatives during the year, particularly in the second half of 2012. Excluding these investments, As Adjusted EBITDA decreased 2.1% for the year.

“As we previously announced, our fourth quarter trends were negatively impacted by several factors we believe to be temporary. New Massachusetts legislation has altered and slowed the foreclosure process leading to large delays in the timing of foreclosure revenues, which negatively impacted classified revenues. In addition, a soft economic climate for small businesses in the quarter combined with uncertainty surrounding the “fiscal cliff” caused local small businesses to pull back on advertising spend, particularly in mid to late December. Our 9.1% decline in advertising revenue was the worst quarterly comparison to prior year since mid-2011. We are seeing improving trends in the beginning of 2013.

“In 2013, we will continue to focus on our key transformative objectives. Growing in the digital space will remain a primary objective. At the same time, we understand the importance of our traditional business and the need to put in place measures that will help to stabilize our print advertising revenues while remaining diligent in our efforts to reduce the overall cost structure. We expect to continue to invest in new digital products and the scaling of our digital offerings as we leverage our core assets.

Additionally, we plan to explore alternatives to strengthen our capital structure.”

Fourth Quarter 2012 

Total revenues were $125.6 million for the quarter, a decline of 11.6% compared to the prior year and
6.1% on a same store basis. Total advertising revenue declined 9.1% on a same store basis. The
decline in total advertising revenue was driven by local retail and classified revenue, which were down
8.2% and 16.7%, respectively and were partially offset by 16.4% growth in online advertising revenues.

Circulation revenue decreased 0.6% and commercial print and other revenues increased 8.5% on a same store basis.

Total operating and SG&A expenses in the quarter were $104.0 million, down 5.5% compared to the prior year and down 0.5% on a same store basis after adjusting for one-time and non-cash items.
Operating income for the quarter was $10.0 million, a decrease of $8.2 million as compared to the prior
year. As Adjusted EBITDA for the quarter was $23.3 million, a decrease of $7.6 million or 24.7% from the prior year on a same store basis, primarily due to revenue declines that outpaced expense reduction initiatives as well as $3.2 million of investment in new strategic growth initiatives.
Levered Free Cash Flow for the quarter declined $5.9 million, or 39.0%, to $9.2 million as compared to
$15.1 million for the prior year.

One-time costs incurred and other non-cash expenses in the quarter were $3.3 million, related primarily
to reorganization efforts and initiatives introduced to realize permanent expense reductions.

Full Year 2012 

Total revenues were $491.0 million for the full year 2012, a decrease of 5.0% over the prior year and
4.2% on a same store basis. Total advertising revenue declined 6.4% on a same store basis. The
decline in total advertising revenue was driven by local retail and classified revenue, which were down
9.3% and 7.7%, respectively and were partially offset by 22.8% growth in online advertising revenues.
Circulation revenue increased 1.0% and commercial print and other revenues increased 1.5% on a same
store basis.

Full year 2012 operating costs and SG&A expense declined $15.6 million or 3.6% compared to the prior year, and $13.4 million or 3.1% on a same store basis after adjusting for one-time and non-cash items.

The expense declines were driven primarily by lower compensation expense and newsprint costs partiallyoffset by investments in new strategic growth initiatives.

Operating income for the full year 2012 was $28.5 million, compared to $33.6 million in 2011. As
Adjusted EBITDA for the year was $81.0 million, a decrease of $8.1 million or 9.1% on a same store
basis, primarily due to $6.2 million of investment in new strategic growth initiatives as revenue declines
were nearly offset by core reduction initiatives.

Levered Free Cash Flow for the full year 2012 was $20.4 million compared to $28.9 million in 2011.
One-time costs incurred and other non-cash expenses in 2012 were $11.0 million, and related primarily to reorganization efforts and initiatives introduced to realize permanent expense reductions.