Time Inc. Grew Digital Advertising Revenues 65% in the Second Quarter

OREANDA-NEWS. Time Inc. (NYSE:TIME) reported financial results for its second quarter ended June 30, 2016.

Time Inc. Chairman and CEO Joe Ripp said, "We are entering an era where mobility and internet technology will touch every aspect of our lives. At Time Inc., we are positioning ourselves to benefit from the next wave of disruption. We are making progress to transform Time Inc. into a multi-platform, multimedia enterprise; and we are infusing digital and entrepreneurial culture into our day-to-day operations. In July, we announced our most far-reaching realignment program to date. It included very important changes to shed our siloed organizational structure. It enables us to integrate the Company across sales, edit, digital, brand management and native solutions and potentially unlock innovation, scale and synergy. I am confident that our new structure will enable us to seize the many new opportunities ahead.”

Results Summary
In millions (except per share amounts)
		Three Months Ended June 30,								Six Months Ended June 30,
		2016				2015				2016				2015
GAAP Measures
Revenues		$	769			$	773			$	1,459			$	1,453
Operating income (loss)		50				61				47				66
Net income (loss)		18				24				8				15
Diluted EPS		0.18				0.22				0.08				0.13
Cash provided by (used in) operations		79				63				27				43
Non-GAAP Measures
Adjusted OIBDA		$	89			$	117			$	132			$	168
Adjusted Net income (loss)		22				30				11				23
Adjusted Diluted EPS		0.22				0.27				0.11				0.20
Free Cash Flow		53				4				(34		)		(20		)

The Company’s Adjusted OIBDA, Adjusted Net income (loss), Adjusted Diluted EPS and Free Cash Flow are non-GAAP financial measures. See “Use of Non-GAAP Financial Measures” below and the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures in Schedules I through IV attached hereto.

*Excluding All You and This Old House

SECOND QUARTER RESULTS

Revenues decreased $4 million or 1% in the second quarter of 2016 from the year-earlier quarter to $769 million, primarily reflecting declines in Print and other advertising revenues and in Circulation revenues, partially offset by growth in Digital advertising revenues primarily driven by acquisitions. The stronger U.S. dollar relative to the British pound had a $6 million adverse impact on Revenues for the quarter ended June 30, 2016.

Advertising Revenues increased $6 million or 1% in the second quarter of 2016 from the year-earlier quarter to $426 million reflecting a 65% increase in Digital advertising revenues, primarily resulting from the benefit of the Viant acquisition and to a lesser extent growth in Digital advertising revenues relating to video and programmatic sales. Partially offsetting these increases was the decrease in Print and other advertising revenues.

Circulation Revenues decreased $18 million or 7% in the second quarter of 2016 from the year-earlier quarter to $236 million, primarily due to the continued shift in consumer preferences from print to digital media. We saw lower domestic Subscription revenues and lower international Newsstand revenues as well as a decline due to the net impact of acquisitions and dispositions.

Other Revenues, which include marketing and support services provided to third parties, branded book publishing, events, and licensing, increased $8 million or 8% in the second quarter of 2016 from the year-earlier quarter to $107 million, principally driven by the benefit of acquisitions partially offset by a decline in branded book publishing.

Revenues Summary
In millions
		Three Months Ended June 30,										Six Months Ended June 30,
		2016				2015				% Change		2016				2015				% Change
Print and other advertising		$	299			$	343			(13)%		$	569			$	623			(9)%
Digital advertising		127				77				65%		217				150				45%
Advertising revenues		426				420				1%		786				773				2%
Subscription		154				166				(7)%		315				331				(5)%
Newsstand		74				82				(10)%		142				159				(11)%
Other circulation		8				6				33%		17				14				21%
Circulation revenues		236				254				(7)%		474				504				(6)%
Other revenues		107				99				8%		199				176				13%
Revenues		$	769			$	773			(1)%		$	1,459			$	1,453			—%

Operating Expense, which consists of Cost of Revenues and Selling, General and Administrative Expenses ("SG&A"), increased $30 million or 5% to $687 million, principally driven by increased expenses related to costs of operations of acquired businesses and growth initiatives, partially offset by benefits realized from previously announced cost savings initiatives and lower production costs. Additionally, included in SG&A for the quarters ended June 30, 2016 and 2015 were $7 million and $1 million, respectively, of costs related to mergers, acquisitions, investments and dispositions ("transaction costs") which have been excluded from our Adjusted OIBDA calculation. The stronger U.S. dollar relative to the British pound had a $5 million favorable impact on Operating expense for the quarter ended June 30, 2016.

Operating Income (Loss) was income of $50 million and $61 million for the quarters ended June 30, 2016 and 2015, respectively. The decrease in Operating income in the second quarter of 2016 versus the second quarter of 2015 was primarily driven by higher expenses associated with operations of acquired businesses, growth initiatives and transaction costs as well as lower revenues, partially offset by a gain on sale of certain of our titles and lower depreciation expense.

Adjusted OIBDA of $89 million for the quarter ended June 30, 2016 represented a decrease of $28 million from the year-earlier quarter of 2015.

Cash Flow Provided By (Used in) Operations was an inflow of $79 million for the quarter ended June 30, 2016 versus an inflow of $63 million for the year-earlier period.

Free Cash Flow was an inflow of $53 million for the quarter ended June 30, 2016 versus an inflow of $4 million for the year-earlier quarter, primarily reflecting lower capital expenditures as well as improvements in operating cash flows.

During the three months ended June 30, 2016, we repurchased $10 million of aggregate principal amount of our 5.75% Senior Notes at a discount and recognized a nominal pretax gain on the extinguishment of such notes. We also repurchased 2.17 million shares of our common stock at a weighted average price of $15.56 per share during the three months ended June 30, 2016. Such repurchases were made in accordance with our Board of Directors' authorizations in November 2015.

OUTLOOK

Our Outlook for 2016 is as follows:
$ in millions
		2015 Actual		Previous Full Year 2016 Outlook Range (1)						Current Full Year 2016 Outlook Range (1)
Revenues		(5%)		1%		to		5%		—%		to		1.5%
Operating income (loss)		$(823)		$305				$340		$215				$240
Adjusted OIBDA		$440		$440		to		$490		$400		to		$430
Investment spending, net		$(30)				$(25)						($20)
Capital expenditures		$166		$85		to		$105		$95		to		$105
Real estate related(2)		$115				$40						$50
Core & growth		$51		$45		to		$65		$45		to		$55

(1)			The Previous Full Year 2016 Outlook assumed USD to GBP exchange rate of 1.42 for the remainder of the year. The Current Full Year 2016 Outlook assumes USD to GBP exchange rate of 1.3 for the remainder of the year.
(2)			2015 Actual capital expenditures were offset by $46 million of tenant improvements allowances.

_______________________________________________________________________________

The Company’s Adjusted OIBDA is a non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” below and the reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure in Schedule V attached hereto.

USE OF NON-GAAP FINANCIAL MEASURES

Time Inc. utilizes OIBDA, Adjusted OIBDA, Adjusted Net income (loss), Adjusted Diluted EPS and Free Cash Flow, among other measures, to evaluate the performance of its business and its liquidity. We believe that the presentation of these measures helps investors to analyze underlying trends in our business and to evaluate the performance of our business both on an absolute basis and relative to our peers and the broader market. We believe that these measures provide useful information to both management and investors by excluding certain items that may not be indicative of our core operating results and operational strength of our business and helps investors evaluate our liquidity and our ability to service our debt.

Some limitations of OIBDA, Adjusted OIBDA, Adjusted Net income (loss), Adjusted Diluted EPS and Free Cash Flow are that they do not reflect certain charges that affect the operating results of the Company’s business and they involve judgment as to whether items affect fundamental operating performance.

A general limitation of these measures is that they are not prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and may not be comparable to similarly titled measures of other companies due to differences in methods of calculation and excluded items. OIBDA, Adjusted OIBDA, Adjusted Net income (loss), Adjusted Diluted EPS and Free Cash Flow should be considered in addition to, not as a substitute for, the Company’s Operating income (loss), Net income (loss), Diluted Net income (loss) per common share and various cash flow measures (e.g., Cash provided by (used in) operations), as well as other measures of financial performance and liquidity reported in accordance with GAAP.

ABOUT TIME INC.

Time Inc. (NYSE:TIME) is one of the world's leading media companies, with a monthly global print audience of over 120 million and worldwide digital properties that attract more than 150 million visitors each month, including over 60 websites. Our influential brands include People, Sports Illustrated, InStyle, Time, Real Simple and Southern Living, as well as more than 50 diverse titles in the United Kingdom.

TIME INC. CONSOLIDATED BALANCE SHEETS (Unaudited; in millions, except share amounts)
		June 30, 2016				December 31, 2015
ASSETS
Current assets
Cash and cash equivalents		$	320			$	651
Short-term investments		60				60
Receivables, less allowances of $217 and $248 at June 30, 2016 and December 31, 2015, respectively		431				484
Inventories, net of reserves		33				35
Prepaid expenses and other current assets		162				187
Total current assets		1,006				1,417
Property, plant and equipment, net		300				267
Intangible assets, net		1,041				1,046
Goodwill		2,017				2,038
Other assets		140				116
Total assets		$	4,504			$	4,884
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities		$	520			$	683
Deferred revenue		419				436
Current portion of long-term debt		7				7
Total current liabilities		946				1,126
Long-term debt		1,240				1,286
Deferred tax liabilities		242				242
Deferred revenue		88				89
Other noncurrent liabilities		318				332
Stockholders' Equity
Common stock, $0.01 par value, 400 million shares authorized; 100.45 million and 106.03		1				1
million shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively
Preferred stock, $0.01 par value, 40 million shares authorized; none issued		—				—
Additional paid-in-capital		12,573				12,604
Accumulated deficit		(10,654		)		(10,570		)
Accumulated other comprehensive loss, net		(250		)		(226		)
Total stockholders' equity		1,670				1,809
Total liabilities and stockholders' equity		$	4,504			$	4,884

TIME INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited; in millions, except per share amounts)
		Three Months Ended June 30,								Six Months Ended  June 30,
		2016				2015				2016				2015
Revenues
Advertising
Print and other advertising		$	299			$	343			$	569			$	623
Digital advertising		127				77				217				150
Total advertising		426				420				786				773
Circulation
Subscription		154				166				315				331
Newsstand		74				82				142				159
Other circulation		8				6				17				14
Total circulation		236				254				474				504
Other		107				99				199				176
Total revenues		769				773				1,459				1,453
Costs of revenues
Production costs		165				176				324				336
Editorial costs		96				93				188				182
Other		69				26				114				48
Total costs of revenues		330				295				626				566
Selling, general and administrative expenses		357				362				722				721
Amortization of intangible assets		20				20				41				39
Depreciation		14				23				27				47
Restructuring and severance costs		10				12				11				14
Asset impairments		1				—				1				—
(Gain) loss on operating assets, net		(13		)		—				(16		)		—
Operating income (loss)		50				61				47				66
Bargain purchase (gain)		2				—				(3		)		—
Interest expense, net		18				20				35				39
Other (income) expense, net		1				2				7				5
Income (loss) before income taxes		29				39				8				22
Income tax provision (benefit)		11				15				—				7
Net income (loss)		$	18			$	24			$	8			$	15
Per share information attributable to Time Inc. common stockholders:
Basic net income (loss) per common share		$	0.18			$	0.22			$	0.08			$	0.13
Weighted average basic common shares outstanding		100.56				109.78				100.42				109.67
Diluted net income (loss) per common share		$	0.18			$	0.22			$	0.08			$	0.13
Weighted average diluted common shares outstanding		101.25				110.18				100.94				110.06
Cash dividends declared per share of common stock		$	0.19			$	0.19			$	0.38			$	0.38

TIME INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited; in millions)
		Six Months Ended June 30,
		2016				2015
Cash provided by (used in) operations		$	27			$	43
Cash provided by (used in) investing activities		(164		)		(168		)
Cash provided by (used in) financing activities		(186		)		(57		)
Effect of exchange rate changes on Cash and cash equivalents		(8		)		1
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(331		)		(181		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		651				519
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	320			$	338

Schedule I
TIME INC. RECONCILIATION OF OPERATING INCOME (LOSS) TO ADJUSTED OIBDA (Unaudited; in millions)
		Three Months Ended June 30,						Six Months Ended June 30,
		2016			2015			2016			2015
Operating income (loss)		$	50		$	61		$	47		$	66
Depreciation		14			23			27			47
Amortization of intangible assets		20			20			41			39
OIBDA(1)		84			104			115			152
Asset impairments		1			—			1			—
Restructuring and severance costs		10			12			11			14
(Gain) loss on operating assets, net(2)		(13)			—			(16)			—
Other costs(3)		7			1			21			2
Adjusted OIBDA(4)		$	89		$	117		$	132		$	168

______________

(1)			OIBDA is defined as Operating income (loss) excluding Depreciation and Amortization of intangible assets.
(2)			(Gain) loss on operating assets, net primarily reflects the recognition of a gain on sale of certain of our titles and the deferred gain from the sale-leaseback of the Blue Fin Building in the fourth quarter of 2015.
(3)			Other costs related to mergers, acquisitions, investments and dispositions during the periods presented are included within Selling, general and administrative expenses within the Statements of Operations.
(4)			Adjusted OIBDA is defined as OIBDA adjusted for impairments of Goodwill, intangibles, fixed assets and investments; Restructuring and severance costs; gains and losses on operating assets; pension plan settlements and/or curtailments; and Other costs related to mergers, acquisitions, investments and dispositions.

Schedule II
TIME INC. RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED NET INCOME (Unaudited; in millions)
		Three Months Ended June 30, 2016												Three Months Ended June 30, 2015
		Gross Impact				Tax Impact				Net Impact				Gross Impact				Tax Impact				Net Impact
Net income (loss)		$	29			$	(11	)		$	18			$	39			$	(15	)		$	24
Asset impairments		1				—				1				—				—				—
Restructuring and severance costs		10				(4		)		6				12				(5		)		7
(Gain) loss on operating assets, net(1)		(13		)		4				(9		)		—				—				—
Bargain purchase (gain)(2)		2				—				2				—				—				—
(Gain) loss on extinguishment of debt(3)		—				1				1				—				—				—
Other costs		7				(4		)		3				1				—				1
(Gain) loss on non-operating assets, net		—				—				—				(2		)		—				(2		)
Adjusted Net income (loss)(4)		$	36			$	(14	)		$	22			$	50			$	(20	)		$	30
		Six Months Ended June 30, 2016												Six Months Ended June 30, 2015
		Gross Impact				Tax Impact				Net Impact				Gross Impact				Tax Impact				Net Impact
Net income (loss)		$	8			$	—			$	8			$	22			$	(7	)		$	15
Asset impairments		1				—				1				—				—				—
Restructuring and severance costs		11				(4		)		7				14				(6		)		8
(Gain) loss on operating assets, net(1)		(16		)		4				(12		)		—				—				—
Bargain purchase (gain)(2)		(3		)		—				(3		)		—				—				—
(Gain) loss on extinguishment of debt(3)		(4		)		2				(2		)		—				—				—
Other costs		21				(9		)		12				2				—				2
(Gain) loss on non-operating assets, net		—				—				—				(2		)		—				(2		)
Adjusted Net income (loss)(4)		$	18			$	(7	)		$	11			$	36			$	(13	)		$	23

______________

(1)			(Gain) loss on operating assets, net primarily relates to the recognition of a gain on sale of certain of our titles and the deferred gain from the sale-leaseback of the Blue Fin Building in the fourth quarter of 2015.
(2)			Bargain purchase (gain) relates to the acquisition of certain assets of Viant in the first quarter of 2016.
(3)			Gain on extinguishment of debt in connection with repurchases of our Senior Notes are included within Other (income) expense, net on the Statements of Operations.
(4)			Adjusted Net income (loss) is defined as Net income (loss) adjusted for impairments of Goodwill, intangibles, fixed assets and investments; Restructuring and severance costs; gains and losses on operating and/or non-operating assets; pension plan settlements and/or curtailments; Bargain purchase (gain); gains and losses on extinguishment of debt; and Other costs related to mergers, acquisitions, investments and dispositions; as well as the impact of income taxes on the above items.

Schedule III
TIME INC. RECONCILIATION OF DILUTED EPS TO ADJUSTED DILUTED EPS (Unaudited; all per share amounts are net of tax)
		Three Months Ended June 30,								Six Months Ended June 30,
		2016				2015				2016				2015
Diluted EPS		$	0.18			$	0.22			$	0.08			$	0.13
Asset impairments		0.01				—				0.01				—
Restructuring and severance costs		0.06				0.06				0.07				0.07
(Gain) loss on operating assets, net(1)		(0.09		)		—				(0.12		)		—
Bargain purchase (gain)(2)		0.02				—				(0.03		)		—
(Gain) loss on extinguishment of debt(3)		0.01				—				(0.02		)		—
Other costs		0.03				0.01				0.12				0.02
(Gain) loss on non-operating assets, net		—				(0.02		)		—				(0.02		)
Adjusted Diluted EPS(4)(5)		$	0.22			$	0.27			$	0.11			$	0.20

______________

(1)			(Gain) loss on operating assets, net primarily relates to the recognition of a gain on sale of certain of our titles and the deferred gain from the sale-leaseback of the Blue Fin Building in the fourth quarter of 2015.
(2)			Bargain purchase (gain) relates to the acquisition of certain assets of Viant in the first quarter of 2016.
(3)			Gain on extinguishment of debt in connection with repurchases of our Senior Notes are included within Other (income) expense, net on the Statements of Operations.
(4)			Adjusted Diluted EPS is defined as Diluted EPS adjusted for impairments of Goodwill, intangibles, fixed assets and investments; Restructuring and severance costs; gains and losses on operating and/or non-operating assets; pension plan settlements and/or curtailments; Bargain purchase (gain); gains and losses on extinguishment of debt; and Other costs related to mergers, acquisitions, investments and dispositions; as well as the impact of income taxes on the above items.
(5)			For periods in which we were in a net loss position, we have used the expected diluted shares in the calculation of Adjusted Diluted EPS as if we were in a net income position, without giving effect to the impact of participating securities.

Schedule IV
TIME INC. RECONCILIATION OF CASH PROVIDED BY (USED IN) OPERATIONS TO FREE CASH FLOW (Unaudited; in millions)
		Three Months Ended June 30,								Six Months Ended June 30,
		2016				2015				2016				2015
Cash provided by (used in) operations		$	79			$	63			$	27			$	43
Less: Capital expenditures		(26		)		(59		)		(61		)		(63		)
Free Cash Flow(1)		$	53			$	4			$	(34	)		$	(20	)

______________

(1)			Free Cash Flow is defined as Cash provided by (used in) operations, less Capital expenditures. Capital expenditures in the three and six months ended June 30, 2016 are primarily associated with concluding our real estate relocations.

Schedule V
TIME INC. RECONCILIATION OF OPERATING INCOME (LOSS) TO ADJUSTED OIBDA - 2016 OUTLOOK (Unaudited; in millions)
						Previous 2016 Outlook								Current 2016 Outlook
		2015 Actual				Low				High				Low				High
Operating income (loss)		$	(823	)		$	305			$	340			$	215			$	240
Depreciation		92				60				70				60				60
Amortization of intangible assets		80				75				80				80				80
OIBDA(1)		$	(651	)		$	440			$	490			$	355			$	380
Asset impairments, Goodwill
impairment, Restructuring and
severance costs, (Gains) losses on
operating assets, net; Pension plan
settlements and/or curtailments; and
Other costs related to mergers,
acquisitions, investments and
dispositions		1,091				—				—				45				50
Adjusted OIBDA(2)		$	440			$	440			$	490			$	400			$	430

______________

(1)			OIBDA is defined as Operating income (loss) excluding Depreciation and Amortization of intangible assets.
(2)			Adjusted OIBDA is defined as OIBDA adjusted for impairments of Goodwill, intangibles, fixed assets and investments; Restructuring and severance costs; gains and losses on operating assets; pension plan settlements and/or curtailments; and Other costs related to mergers, acquisitions, investments and dispositions.