GANNETT CO., INC.
10-Qs and 10-Ks
PROXIES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM
10-Q
_______________________
For the quarterly period ended
March 31, 2024
OR
For the transition period from ___ to ___
Commission file number
001-36097
___________________________
(Exact name of registrant as specified in its charter)
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| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |||||||||||||
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Registrant's telephone number, including area code: (
585
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598-0030
(Former name, former address and former fiscal year if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
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No
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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
☒
No
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer
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Non-Accelerated Filer
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Smaller Reporting Company
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Emerging Growth Company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes
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No
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As of April 29, 2024,
147,547,609
shares of the registrant's Common Stock were outstanding.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including "Part I,
Item 2 — Management's Discussion and Analysis of Financial Condition and Results of Operations,
" and "Part II, Item 1A
—
Risk Factors" contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect our current views regarding, among other things, our future growth, results of operations, performance, business prospects and opportunities, stock repurchases, and our environmental, social and governance goals, and are not statements of historical fact. Words such as "anticipate(s)," "expect(s)," "intend(s)," "plan(s)," "target(s)," "focus," "goal," "project," "believe(s)," "will," "aim," "would," "could," "can," "may," "seek(s)," "estimate(s)" and similar expressions are intended to identify such forward-looking statements.
Forward-looking statements are based on management's current expectations and beliefs and are subject to a number of known and unknown risks, uncertainties, and other factors that could lead to actual results materially different from those described in the forward-looking statements. We can give no assurance our expectations will be attained. Our actual results, liquidity, and financial condition may differ from the anticipated results, liquidity, and financial condition indicated in the forward-looking statements. Forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause our actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including, among others, the risks identified by us under the heading "Risk Factors" in this Quarterly Report on Form 10-Q, and under the heading "Risk Factors" in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the Securities and Exchange Commission on February 22, 2024, as well as other risks and factors identified from time to time in our subsequent filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. Except to the extent required by law, we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or change in events, conditions, or circumstances on which any statement is based.
INDEX TO GANNETT CO., INC.
Q1 2024 FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
2
GANNETT CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| In thousands, except share data | March 31, 2024 | December 31, 2023 | |||||||||
| Assets | (Unaudited) | ||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ |
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$ |
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Accounts receivable, net of allowance of $
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| Inventories |
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| Prepaid expenses |
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| Other current assets |
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| Total current assets |
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Property, plant and equipment, net of accumulated depreciation of $
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| Operating lease assets |
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| Goodwill |
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| Intangible assets, net |
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| Deferred tax assets |
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| Pension and other assets |
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| Total assets | $ |
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$ |
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| Liabilities and equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued liabilities | $ |
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$ |
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| Deferred revenue |
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| Current portion of long-term debt |
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| Operating lease liabilities |
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| Other current liabilities |
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| Total current liabilities |
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| Long-term debt |
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| Convertible debt |
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| Deferred tax liabilities |
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| Pension and other postretirement benefit obligations |
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| Long-term operating lease liabilities |
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| Other long-term liabilities |
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| Total noncurrent liabilities |
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| Total liabilities |
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Commitments and contingent liabilities (See Note 11)
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| Equity | |||||||||||
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Preferred stock, $
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Common stock, $
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Treasury stock, at cost,
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(
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(
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| Additional paid-in capital |
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| Accumulated deficit |
(
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(
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| Accumulated other comprehensive loss |
(
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(
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| Total Gannett stockholders' equity |
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| Noncontrolling interests |
(
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(
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| Total equity |
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| Total liabilities and equity | $ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
GANNETT CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
| Three months ended March 31, | |||||||||||
| In thousands, except per share amounts | 2024 | 2023 | |||||||||
| Digital | $ |
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$ |
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| Print and commercial |
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| Total revenues |
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| Operating costs |
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| Selling, general and administrative expenses |
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| Depreciation and amortization |
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| Integration and reorganization costs |
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| Asset impairments |
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| Loss (gain) on sale or disposal of assets, net |
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(
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| Other operating expenses |
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| Total operating expenses |
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| Operating (loss) income |
(
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| Interest expense |
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| Gain on early extinguishment of debt |
(
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(
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| Non-operating pension income |
(
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(
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| Equity loss (income) in unconsolidated investees, net |
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(
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| Other non-operating expense, net |
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| Non-operating expenses |
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| Loss before income taxes |
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(
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| Provision (benefit) for income taxes |
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| Net (loss) income |
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| Net loss attributable to noncontrolling interests |
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(
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| Net (loss) income attributable to Gannett | $ |
(
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$ |
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| (Loss) income per share attributable to Gannett - basic | $ |
(
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$ |
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| (Loss) income per share attributable to Gannett - diluted | $ |
(
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$ |
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| Other comprehensive income (loss): | |||||||||||
| Foreign currency translation adjustments | $ |
(
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$ |
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| Pension and other postretirement benefit items: | |||||||||||
| Net actuarial (loss) gain |
(
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| Amortization of net actuarial gain |
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| Amortization of prior service cost |
(
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| Equity method investments |
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| Other |
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(
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| Total pension and other postretirement benefit items |
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| Other comprehensive income before tax |
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| Income tax provision related to components of other comprehensive income (loss) |
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| Other comprehensive income, net of tax |
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| Comprehensive (loss) income |
(
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| Comprehensive loss attributable to noncontrolling interests |
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(
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| Comprehensive (loss) income attributable to Gannett | $ |
(
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
GANNETT CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three months ended March 31, | |||||||||||
| In thousands | 2024 | 2023 | |||||||||
| Operating activities | |||||||||||
| Net (loss) income | $ |
(
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$ |
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| Adjustments to reconcile net (loss) income to operating cash flows: | |||||||||||
| Depreciation and amortization |
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| Share-based compensation expense |
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| Non-cash interest expense |
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| Loss (gain) on sale or disposal of assets, net |
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(
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| Gain on early extinguishment of debt |
(
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(
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| Asset impairments |
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| Pension and other postretirement benefit obligations |
(
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(
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| Equity loss (income) in unconsolidated investees, net |
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(
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| Change in other assets and liabilities, net |
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(
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| Cash provided by operating activities |
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| Investing activities | |||||||||||
| Purchase of property, plant and equipment |
(
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(
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| Proceeds from sale of real estate and other assets |
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| Change in other investing activities |
(
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| Cash (used for) provided by investing activities |
(
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| Financing activities | |||||||||||
| Repayments of long-term debt |
(
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(
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| Treasury stock |
(
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(
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| Changes in other financing activities |
(
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(
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| Cash used for financing activities |
(
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(
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| Effect of currency exchange rate change on cash |
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| Decrease in cash, cash equivalents and restricted cash |
(
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(
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| Cash, cash equivalents and restricted cash at beginning of period |
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| Cash, cash equivalents and restricted cash at end of period | $ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
GANNETT CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
| Three months ended March 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock |
Additional
paid-in capital |
Accumulated other comprehensive loss | Accumulated deficit | Treasury stock | Non-controlling interest | ||||||||||||||||||||||||||||||||||||||||||||||||
| In thousands | Shares | Amount | Shares | Amount | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
(
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$ |
(
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$ |
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| Net loss attributable to Gannett | — | — | — | — |
(
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— | — | — |
(
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Other comprehensive income, net
(a)
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— | — | — |
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— | — | — | — |
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| Share-based compensation expense | — | — |
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— | — | — | — | — |
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| Issuance of common stock |
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— |
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— | — | — | — | — |
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| Treasury stock | — | — | — | — | — |
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(
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— |
(
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| Restricted share forfeiture | — | — | — | — | — |
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(
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— |
(
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| Other activity | — | — |
(
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— | — | — | — | — |
(
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| Balance at March 31, 2024 |
|
$ |
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$ |
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$ |
(
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$ |
(
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$ |
(
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$ |
(
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$ |
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| Three months ended March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock |
Additional
paid-in capital |
Accumulated other comprehensive loss | Accumulated deficit | Treasury stock | Non-controlling interest | ||||||||||||||||||||||||||||||||||||||||||||||||
| In thousands | Shares | Amount | Shares | Amount | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
(
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$ |
(
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$ |
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| Net income (loss) attributable to Gannett | — | — | — | — |
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— | — |
(
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| Restricted share grants |
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(
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— | — | — | — | — |
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Other comprehensive income, net
(a)
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— | — | — |
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— | — | — | — |
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| Share-based compensation expense | — | — |
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— | — | — | — | — |
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| Issuance of common stock |
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— |
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— | — | — | — | — |
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| Treasury stock | — | — | — | — | — |
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(
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— |
(
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| Restricted share forfeiture | — | — | — | — | — |
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(
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— |
(
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| Other activity | — | — |
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— | — | — | — | — |
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| Balance at March 31, 2023 |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
(
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$ |
(
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$ |
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(a)
For the three months ended March 31, 2024 and 2023, Other comprehensive income is net of an income tax provision of $
0.2
million and $
2.4
million, respectively.
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — Description of business and basis of presentation
Description of business
Gannett Co., Inc. ("Gannett", "we", "us", "our", or the "Company") is a diversified media company with expansive reach at the national and local level dedicated to empowering and enriching communities. We seek to inspire, inform, and connect audiences as a sustainable, growth focused media and digital marketing solutions company. We endeavor to deliver essential content, marketing solutions, and experiences for curated audiences, advertisers, consumers, and stakeholders by leveraging our diverse teams and suite of products to enrich the local communities and businesses we serve.
Our current portfolio of trusted media brands includes the USA TODAY NETWORK, comprised of the national publication, USA TODAY, and local media organizations in the United States (the "U.S."), and Newsquest, a wholly-owned subsidiary operating in the United Kingdom (the "U.K."). Our digital marketing solutions brand, LocaliQ, uses innovation and software to enable small and medium-sized businesses ("SMBs") to grow, and USA TODAY NETWORK Ventures, our events division, creates impactful consumer engagements, promotions, and races.
Through USA TODAY, our network of local properties, and Newsquest, we deliver high-quality, trusted content with a commitment to balanced, unbiased journalism, where and when consumers want to engage. We have strong relationships with hundreds of thousands of local and national businesses in both our U.S. and U.K. markets due to our large local and national sales forces and a robust advertising and digital marketing solutions product suite. Our strategy prioritizes maximizing the monetization of our audience through the growth of increasingly diverse and highly recurring digital businesses. We deliver value to our customers, advertisers, partners and shareholders with essential content, joyful experiences, and relevant digital solutions.
The Company reports in
three
segments: Domestic Gannett Media, Newsquest and Digital Marketing Solutions ("DMS"). We also have a Corporate and other category that includes activities not directly attributable to a specific reportable segment and includes broad corporate functions, such as legal, human resources, accounting, analytics, finance, marketing and technology, as well as other general business costs. A full description of our reportable segments is included in Note 12 — Segment reporting.
Basis of presentation
The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. As permitted under those rules, certain notes or other financial information that are normally required by U.S. GAAP have been condensed or omitted from these interim financial statements. The unaudited condensed consolidated financial statements should therefore be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.
Use of estimates
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and footnotes thereto. Actual results could differ materially from those estimates.
Significant estimates inherent in the preparation of the unaudited condensed consolidated financial statements include pension and postretirement benefit obligation assumptions, income taxes, goodwill and intangible asset impairment analysis,
7
Reclassifications
Certain reclassifications have been made to the prior year unaudited condensed consolidated financial statements to conform to classifications used in the current year. Beginning in the first quarter of 2024, the Company updated the presentation of its revenues to reflect the disaggregation between Digital revenues and Print and commercial revenues. These reclassifications had no impact on net income (loss), stockholders' equity or cash flows as previously reported.
Recent accounting pronouncements not yet adopted
Disclosure improvements
In November 2023, the FASB issued guidance, ASU 2023-07, which will improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 applies to all public entities that are required to report segment information in accordance with ASC 280, "Segment Reporting." The Company will be required to report these enhanced segment disclosures starting in annual periods beginning after December 15, 2023 and requires retrospective application to all prior periods presented in the financial statements. The Company does not expect the adoption of this guidance will have a material impact on the condensed consolidated financial statements and disclosures.
In November 2023, the FASB issued guidance, ASU 2023-09, which enhances annual income tax disclosures. ASU 2023-09 requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 will be effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the provisions of the updated guidance and assessing the impact on the condensed consolidated financial statements and disclosures.
NOTE 2 — Revenues
Revenues are recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
The Company's condensed consolidated statements of operations and comprehensive income (loss) present revenues disaggregated by revenue type. Sales taxes and other usage-based taxes are excluded from revenues.
The following tables present our revenues disaggregated by segment and revenue type:
| Three months ended March 31, 2024 | |||||||||||||||||||||||||||||||||||
| In thousands | Domestic Gannett Media | Newsquest | Digital Marketing Solutions | Corporate and other | Intersegment eliminations | Consolidated | |||||||||||||||||||||||||||||
| Digital advertising | $ |
|
$ |
|
$ | — | $ | — | $ | — | $ |
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| Digital marketing services |
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— |
(
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| Digital-only subscription |
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— | — | — |
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Digital other
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— |
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— |
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| Digital |
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(
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| Print advertising |
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— | — | — |
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| Print circulation |
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— | — | — |
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| Commercial and other |
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— | — | — |
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| Print and commercial |
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— | — | — |
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| Total revenues | $ |
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$ |
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$ |
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$ |
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$ |
(
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$ |
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8
| Three months ended March 31, 2023 | |||||||||||||||||||||||||||||||||||
| In thousands | Domestic Gannett Media | Newsquest | Digital Marketing Solutions | Corporate and other | Intersegment eliminations | Consolidated | |||||||||||||||||||||||||||||
| Digital advertising | $ |
|
$ |
|
$ | — | $ | — | $ | — | $ |
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| Digital marketing services |
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— |
(
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| Digital-only subscription |
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— | — | — |
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Digital other
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— |
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— |
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| Digital |
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(
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| Print advertising |
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— | — | — |
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| Print circulation |
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— | — | — |
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| Commercial and other |
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— | — | — |
|
|||||||||||||||||||||||||||||
| Print and commercial |
|
|
— | — | — |
|
|||||||||||||||||||||||||||||
| Total revenues | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||||||
Revenues generated from international operations comprised
11.0
% and
10.2
% of total revenues for the three months ended March 31, 2024 and 2023, respectively.
Deferred revenues
The Company records deferred revenues when cash payments are received in advance of the Company's performance obligation. The Company's primary source of deferred revenues is from circulation subscriptions paid in advance of the service provided, which represents future delivery of publications (the performance obligation) to subscription customers. The Company expects to recognize the revenue related to unsatisfied performance obligations over the next
to
twelve months
in accordance with the terms of the subscriptions.
The Company's payment terms vary by the type and location of the customer and the products or services offered. The period between invoicing and when payment is due is not significant. For certain products or services and customer types, the Company requires payment before the products or services are delivered to the customer.
The majority of our subscription customers are billed and pay on monthly terms.
The following table presents the change in the deferred revenues balance:
| Three months ended March 31, | |||||||||||
| In thousands | 2024 | 2023 | |||||||||
| Beginning balance | $ |
|
$ |
|
|||||||
| Receipts, net of refunds |
|
|
|||||||||
| Revenue recognized |
(
|
(
|
|||||||||
| Ending balance | $ |
|
$ |
|
|||||||
9
NOTE 3 — Accounts receivable, net
Receivables are presented net of allowances, which reflect the Company's expected credit losses based on historical experience as well as current and expected economic conditions.
The following table presents changes in the allowance for doubtful accounts:
| Three months ended March 31, | |||||||||||
| In thousands | 2024 | 2023 | |||||||||
| Beginning balance | $ |
|
$ |
|
|||||||
| Current period provision |
|
|
|||||||||
| Write-offs charged against the allowance |
(
|
(
|
|||||||||
| Recoveries of amounts previously written-off |
|
|
|||||||||
| Other |
|
|
|||||||||
| Ending balance | $ |
|
$ |
|
|||||||
NOTE 4 — Goodwill and intangible assets
Goodwill and intangible assets consisted of the following:
| March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||||||||
| In thousands | Gross carrying amount |
Accumulated
amortization |
Net carrying
amount |
Gross carrying amount |
Accumulated
amortization |
Net carrying
amount |
|||||||||||||||||||||||||||||
| Finite-lived intangible assets: | |||||||||||||||||||||||||||||||||||
| Advertiser relationships | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Other customer relationships |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Subscriber relationships |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Other intangible assets |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Sub-total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Indefinite-lived intangible assets: | |||||||||||||||||||||||||||||||||||
| Mastheads |
|
|
|||||||||||||||||||||||||||||||||
| Total intangible assets | $ |
|
$ |
|
|||||||||||||||||||||||||||||||
| Goodwill | $ |
|
$ |
|
|||||||||||||||||||||||||||||||
The Company performs its annual goodwill and indefinite-lived intangible impairment assessments as of November 30. In addition to the annual impairment test, the Company is required to regularly assess whether a triggering event has occurred under both ASC 350 "Intangibles - Goodwill and Other" ("ASC 350"), and ASC 360 "Property, Plant and Equipment" ("ASC 360"), which would require interim impairment testing.
As of March 31, 2024, the Company performed a review of potential impairment indicators under both ASC 350 and ASC 360, and it was determined that
no
indicators of impairment were present.
NOTE 5 — Integration and reorganization costs, and asset impairments
Integration and reorganization costs
Integration and reorganization costs include severance costs as well as other reorganization costs associated with individual restructuring programs, designed primarily to right-size the Company's employee base, consolidate facilities and improve operations. These initiatives impact all the Company's operations and can be influenced by the terms of union contracts. Costs related to these programs, which primarily include severance and other restructuring-related expenses, are accrued when probable and reasonably estimable or at the time of program announcement.
10
Severance-related expenses
The Company recorded severance-related expenses by segment as follows:
| Three months ended March 31, | |||||||||||
| In thousands | 2024 | 2023 | |||||||||
| Domestic Gannett Media | $ |
|
$ |
|
|||||||
| Newsquest |
|
|
|||||||||
| Digital Marketing Solutions |
|
|
|||||||||
| Corporate and other |
|
|
|||||||||
| Total | $ |
|
$ |
|
|||||||
A roll-forward of the accrued severance and related expenses included in Accounts payable and accrued liabilities on the condensed consolidated balance sheets for the three months ended March 31, 2024 is as follows:
| In thousands |
Severance and
related expenses |
||||
| Beginning balance | $ |
|
|||
| Restructuring provision included in integration and reorganization costs |
|
||||
| Cash payments |
(
|
||||
| Ending balance | $ |
|
|||
Other restructuring-related expenses
Other restructuring-related expenses represent costs for consolidating operations, systems implementation, outsourcing of corporate functions and facility consolidations.
The Company recorded Other restructuring-related costs as follows:
| Three months ended March 31, | |||||||||||
| In thousands | 2024 | 2023 | |||||||||
|
Domestic Gannett Media
(a)
|
$ |
|
$ |
(
|
|||||||
| Corporate and other |
|
|
|||||||||
| Total | $ |
|
$ |
|
|||||||
(a)
For the three months ended March 31, 2024, Other restructuring-related costs at the Domestic Gannett Media segment primarily reflected $
9.7
million expensed as of the cease-use date related to certain licensed content. For the three months ended March 31, 2023
,
Other restructuring-related costs at the Domestic Gannett Media segment primarily reflected the reversal of a withdrawal liability related to a multiemployer pension plan of $
2.0
million based on the settlement of the withdrawal liability.
Asset impairments
Corporate office relocation
On March 1, 2024, we
exited and ceased use of our leased facility in McLean, Virginia and moved our corporate headquarters to our existing office space in New York. We will continue to seek subleases for the leased facility in McLean. As a result of the headquarters relocation, we recorded an impairment charge of approximately $
46.0
million during the three months ended March 31, 2024 related to the McLean operating lease right-of-use asset and the associated leasehold improvements. The fair value was measured using a discounted cash flow model based on market rents projected over the remaining lease term.
11
NOTE 6 — Debt
The Company's debt consisted of the following:
| March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||||
| In millions | Principal balance | Unamortized original issue discount | Unamortized deferred financing costs | Carrying value | Principal balance | Unamortized original issue discount | Unamortized deferred financing costs | Carrying value | ||||||||||||||||||
| Senior Secured Term Loan | $ |
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
||||||||||
| 2026 Senior Notes |
|
(
|
(
|
|
|
(
|
(
|
|
||||||||||||||||||
| 2027 Notes |
|
(
|
(
|
|
|
(
|
(
|
|
||||||||||||||||||
| 2024 Notes |
|
|
|
|
|
|
|
|
||||||||||||||||||
| Total debt | $ |
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
||||||||||
| Less: Current portion of long-term debt | $ |
(
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
$ |
(
|
||||||||||
| Non-current portion of long-term debt | $ |
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
||||||||||
Senior Secured Term Loan
On October 15, 2021, Gannett Holdings LLC ("Gannett Holdings"), a wholly-owned subsidiary of the Company, entered into the
five-year
senior secured term loan facility in an original aggregate principal amount of $
516.0
million (the "Senior Secured Term Loan") with Citibank N.A., as collateral agent and administrative agent for the lenders. On January 31, 2022, Gannett Holdings entered into an amendment (the "Term Loan Amendment") to the Senior Secured Term Loan to provide for new incremental senior secured term loans (the "Incremental Term Loans") in an aggregate principal amount of $
50
million. The Incremental Term Loans have substantially identical terms as the Senior Secured Term Loan and are treated as a single tranche with the Senior Secured Term Loan. The Term Loan Amendment also amended the Senior Secured Term Loan to transition the interest rate base from the London Inter-bank Offered Rate ("LIBOR") to the Adjusted Term Secured Overnight Financing Rate ("Adjusted Term SOFR"). During 2022, Gannett Holdings entered into
two
separate amendments to the Senior Secured Term Loan to provide for incremental senior secured term loans totaling an aggregate principal amount of $
30.0
million (collectively, the "Exchanged Term Loans"). The Exchanged Term Loans have substantially identical terms as the Senior Secured Term Loan and Incremental Term Loans and are treated as a single tranche with the Senior Secured Term Loan and the Incremental Term Loans.
The Senior Secured Term Loan
bears interest at a per annum rate equal to the Adjusted Term SOFR (which shall not be less than
0.50
% per annum) plus a margin equal to
5.00
% or an alternate base rate (which shall not be less than
1.50
% per annum) plus a margin equal to
4.00
%.
Loans under the Senior Secured Term Loan
may be prepaid, at the option of Gannett Holdings, at any time without premium. In addition, we are required to repay the Senior Secured Term Loan from time to time with (i) the proceeds of non-ordinary course asset sales and casualty and condemnation events, (ii) the proceeds of indebtedness not permitted under the Senior Secured Term Loan, and (iii) the aggregate amount of cash and cash equivalents on hand at the Company and its restricted subsidiaries in excess of $
100
million at the end of each fiscal year of the Company. Subsequent to the amendment effective as of April 8, 2022, the Senior Secured Term Loan is amortized at $
15.1
million per quarter (or, if the ratio of debt secured on an equal basis with the Senior Secured Term Loan less unrestricted cash of the Company and its restricted subsidiaries to Consolidated EBITDA (as such terms are defined in the Senior Secured Term Loan
)
(such ratio, the "First Lien Net Leverage Ratio"), for the most recently ended period of four consecutive fiscal quarters is equal to or less than
1.20
to 1.00, $
7.6
million per quarter).
All obligations under the Senior Secured Term Loan are secured by all or substantially all of the assets of the Company and the wholly-owned domestic subsidiaries of the Company (the "Senior Secured Term Loan Guarantors"). The obligations of Gannett Holdings under the Senior Secured Term Loan are guaranteed on a senior secured basis by the Company and the Senior Secured Term Loan Guarantors.
12
The Senior Secured Term Loan contains usual and customary covenants for credit facilities of this type, including a requirement to have minimum unrestricted cash of $
30
million as of the last day of each fiscal quarter, and restricts, among other things, our ability to incur debt, grant liens, sell assets, make investments and pay dividends, in each case with customary exceptions, including an exception that permits dividends and repurchases of outstanding junior debt or equity in (i) an amount of up to $
25
million per fiscal quarter if the First Lien Net Leverage Ratio for such fiscal quarter is equal to or less than
2.00
to 1.00, (ii) an amount of up to $
50
million per fiscal quarter if the First Lien Net Leverage Ratio for such fiscal quarter is equal to or less than
1.50
to 1.00, and (iii) an unlimited amount if First Lien Net Leverage Ratio for such fiscal quarter is equal to or less than
1.00
to 1.00. As of March 31, 2024, the Company was in compliance with all of the covenants and obligations under the Senior Secured Term Loan.
As of March 31, 2024 and December 31, 2023, the Senior Secured Term Loan was recorded at carrying value, which approximated fair value, in the condensed consolidated balance sheets and was classified as Level 2.
During the three months ended March 31, 2024, the Company received a waiver from certain lenders of the Senior Secured Term Loan that reduced the scheduled quarterly amortization payments payable to those lenders by approximately $
12.0
million for the three months ended March 31, 2024 (the "First Quarter 2024 Waiver"), and which was the amount used by the Company to repurchase a portion of its 2026 Senior Notes (defined below). For the three months ended March 31, 2024, the Company made payments of $
3.3
million of our Senior Secured Term Loan (net of the First Quarter 2024 Waiver), including quarterly amortization payments, which were classified as financing activities in the condensed consolidated statements of cash flows.
For the three months ended March 31, 2024, the Company recognized interest expense of $
9.3
million and paid cash interest of $
9.3
million. For the three months ended March 31, 2023, the Company recognized interest expense of $
10.3
million and paid cash interest of $
10.4
million. For the three months ended March 31, 2024, the Company recognized amortization of original issue discount of $
0.6
million and amortization of deferred financing costs of $
0.1
million. For the three months ended March 31, 2023, the Company recognized amortization of original issue discount of $
0.8
million and amortization of deferred financing costs of $
0.1
million. Additionally, for the three months ended March 31, 2024 and 2023, the Company recognized losses on the early extinguishment of debt, which were
immaterial
and $
0.4
million, respectively, related to the write-off of original issue discount and deferred financing costs as a result of prepayments on the Senior Secured Term Loan. As of March 31, 2024, the effective interest rate for the Senior Secured Term Loan was
11.2
%.
Senior Secured Notes due 2026
On October 15, 2021, Gannett Holdings completed a private offering of $
400
million aggregate principal amount of
6.00
% first lien notes due November 1, 2026 (the "2026 Senior Notes"). The 2026 Senior Notes were issued pursuant to an indenture, dated October 15, 2021 (the "2026 Senior Notes Indenture") among Gannett Holdings, the Company, the guarantors from time to time party thereto (the "2026 Senior Notes Guarantors"), U.S. Bank National Association, as trustee, and U.S. Bank National Association, as collateral agent, registrar, paying agent and authenticating agent. During 2022, the Company exchanged an aggregate principal amount equal to $
30.0
million of the 2026 Senior Notes for $
30.0
million of the Exchanged Term Loans.
Interest on the 2026 Senior Notes is payable semi-annually in arrears, beginning on May 1, 2022. The 2026 Senior Notes mature on November 1, 2026, unless redeemed or repurchased earlier pursuant to the 2026 Senior Notes Indenture. The 2026 Senior Notes may be redeemed at the option of Gannett Holdings, in whole or in part, at any time and from time to time after November 1, 2023, at the redemption prices set forth in the 2026 Senior Notes Indenture. If certain changes of control with respect to Gannett Holdings or the Company occur, Gannett Holdings must offer to purchase the 2026 Senior Notes at a purchase price in cash equal to
101
% of the principal amount thereof on the date of purchase, plus accrued and unpaid interest to, but excluding, the date of purchase.
The 2026 Senior Notes are unconditionally guaranteed, jointly and severally, on a senior secured basis by the 2026 Senior Notes Guarantors. The 2026 Senior Notes and such guarantees are secured on a first-priority basis by the collateral, consisting of substantially all of the assets of Gannett Holdings and the 2026 Senior Notes Guarantors, subject to certain intercreditor arrangements.
The 2026 Senior Notes Indenture limits the Company and its restricted subsidiaries' ability to, among other things, make investments, loans, advances, guarantees and acquisitions; incur or guarantee additional debt and issue certain disqualified equity interests and preferred stock; make certain restricted payments, including a limit on dividends on equity securities or payments to redeem, repurchase or retire equity securities or other indebtedness; dispose of assets; create liens on assets to secure debt; engage in transactions with affiliates; enter into certain restrictive agreements; and consolidate, merge, sell or
13
otherwise dispose of all or substantially all of their or the 2026 Senior Notes Guarantor's assets. These covenants are subject to a number of limitations and exceptions. The 2026 Senior Notes Indenture also contains customary events of default.
As of March 31, 2024 and December 31, 2023, the 2026 Senior Notes were recorded at carrying value in the condensed consolidated balance sheets, which did not approximate fair value. The 2026 Senior Notes were classified as Level 2, and based on unadjusted quoted prices in the active market obtained from third-party pricing services, the Company determined that the estimated fair value of the 2026 Senior Notes was $
254.5
million and $
256.6
million as of March 31, 2024 and December 31, 2023, respectively, and was primarily affected by fluctuations in market interest rates.
In March 2024, the Company entered into a privately negotiated agreement with certain holders of our 2026 Senior Notes, and for the three months ended March 31, 2024, repurchased $
13.0
million of principal of our outstanding 2026 Senior Notes at a discount to par value. In connection with repurchase of our 2026 Senior Notes in March 2024, the Company received the First Quarter 2024 Waiver from certain lenders of the Senior Secured Term Loan, which was used to reduce the scheduled quarterly amortization payments payable to those lenders by approximately $
12.0
million. As a result of this repurchase of our 2026 Senior Notes, the Company recognized a gain on the early extinguishment of debt of approximately $
0.6
million during the three months ended March 31, 2024, which included the write-off of unamortized original issue discount and deferred financing costs. Additionally, for the three months ended March 31, 2023, the Company recognized a gain on the early extinguishment of debt of approximately $
0.9
million, which included the write-off of unamortized original issue discount and deferred financing costs.
The unamortized original issue discount and deferred financing costs will be amortized over the remaining contractual life of the 2026 Senior Notes using the effective interest method. For the three months ended March 31, 2024, the Company recognized interest expense of $
4.4
million and paid cash interest of $
0.3
million. For the three months ended March 31, 2023, the Company recognized interest expense of $
5.0
million and paid cash interest of $
0.1
million. For the three months ended March 31, 2024, the Company recognized amortization of original issue discount of $
0.5
million and amortization of deferred financing costs of $
0.4
million. For the three months ended March 31, 2023, the Company recognized amortization of original issue discount of $
0.6
million and amortization of deferred financing costs of $
0.5
million. As of March 31, 2024, the effective interest rate on the 2026 Senior Notes was
7.3
%.
Senior Secured Convertible Notes due 2027
The $
497.1
million in aggregate principal amount of
6.0
% Senior Secured Convertible Notes due 2027 (the "2027 Notes") were issued pursuant to an Indenture dated as of November 17, 2020, as amended by the First Supplemental Indenture dated as of December 21, 2020 and the Second Supplemental Indenture dated as of February 9, 2021 (collectively, the "2027 Notes Indenture"), between the Company and U.S. Bank National Association, as trustee.
In connection with the issuance of the 2027 Notes, the Company entered into an Investor Agreement (the "Investor Agreement") with the holders of the 2027 Notes (the "Holders") establishing certain terms and conditions concerning the rights and restrictions on the Holders with respect to the Holders' ownership of the 2027 Notes. The Company also entered into an amendment to the Registration Rights Agreement dated November 19, 2019, between the Company and FIG LLC.
Interest on the 2027 Notes is payable semi-annually in arrears. The 2027 Notes mature on December 1, 2027, unless earlier repurchased or converted. The 2027 Notes may be converted at any time by the holders into cash, shares of the Company's common stock, par value $
0.01
per share (the "Common Stock") or any combination of cash and Common Stock, at the Company's election. The initial conversion rate is
200
shares of Common Stock per $1,000 principal amount of the 2027 Notes, which is equal to a conversion price of $
5.00
per share of Common Stock (the "Conversion Price").
The conversion rate is subject to customary adjustment provisions as provided in the 2027 Notes Indenture. In addition, the conversion rate will be subject to adjustment in the event of any issuance or sale of Common Stock (or securities convertible into Common Stock) at a price equal to or less than the Conversion Price in order to ensure that following such issuance or sale, the 2027 Notes would be convertible into approximately
42
% (adjusted for repurchases and certain other events that reduce the outstanding amount of the 2027 Notes) of the Common Stock after giving effect to such issuance or sale (assuming the initial principal amount of the 2027 Notes remains outstanding). After giving effect to the repurchase of $
11.8
million in aggregate principal amount of outstanding 2027 Notes during the year ended December 31, 2021, such percentage was approximately
41
%.
Upon the occurrence of a "Make-Whole Fundamental Change" (as defined in the 2027 Notes Indenture), the Company will in certain circumstances increase the conversion rate for a specified period of time. If a "Fundamental Change" (as defined in
14
the 2027 Notes Indenture) occurs, the Company will be required to offer to repurchase the 2027 Notes at a repurchase price of
110
% of the principal amount thereof.
Holders of the 2027 Notes will have the right to put up to approximately $
100
million of the 2027 Notes at par on or after the date that is 91 days after the maturity date of the Senior Secured Term Loan.
Under the 2027 Notes Indenture, the Company can only pay cash dividends up to an agreed-upon amount, provided the ratio of consolidated debt to EBITDA (as such terms are defined in the 2027 Notes Indenture) does not exceed a specified ratio. In addition, the 2027 Notes Indenture provides that, at any time that the Company's Total Gross Leverage Ratio (as defined in the 2027 Notes Indenture) exceeds
1.5
and the Company approves the declaration of a dividend, the Company must offer to purchase a principal amount of 2027 Notes equal to the proposed amount of the dividend.
Until the
four-year
anniversary of the issuance date, the Company will have the right to redeem for cash up to approximately $
99.4
million of the 2027 Notes at a redemption price of
130
% of the principal amount thereof, with such amount reduced ratably by any principal amount of 2027 Notes that has been converted by the holders or redeemed or purchased by the Company.
The 2027 Notes are guaranteed by Gannett Holdings and any subsidiaries of the Company that guarantee the Senior Secured Term Loan. The 2027 Notes are secured by the same collateral that secures the Senior Secured Term Loan. The 2027 Notes rank as senior secured debt of the Company and are secured by a second priority lien on the same collateral package that secured the indebtedness incurred in connection with the Senior Secured Term Loan.
The 2027 Notes Indenture includes affirmative and negative covenants, including limitations on liens, indebtedness, dispositions, loans, advances and investors, sale and leaseback transactions, restricted payments, transactions with affiliates, restrictions on dividends and other payment restrictions affecting restricted subsidiaries, negative pledges, and modifications to certain agreements. The 2027 Notes Indenture also requires that the Company maintain, as of the last day of each fiscal quarter, at least $
30.0
million of Qualified Cash (as defined in the 2027 Notes Indenture). The 2027 Notes Indenture includes customary events of default.
The 2027 Notes have
two
components: (i) a debt component, and (ii) an equity component. As of March 31, 2024 and December 31, 2023, the debt component of the 2027 Notes was recorded at carrying value in the condensed consolidated balance sheets. The carrying value of the 2027 Notes reflected the balance of the unamortized discount related to the value of the conversion feature assessed at inception. As of March 31, 2024, the carrying value of the 2027 Notes approximated fair value. The 2027 Notes were classified as Level 2, and based on unadjusted quoted prices in the active market obtained from third-party pricing services, the Company determined that the estimated fair value of the 2027 Notes was $
434.0
million and $
395.6
million as of March 31, 2024 and December 31, 2023, respectively, and was primarily affected by fluctuations in market interest rates and the price of the Company's Common Stock. The fair value of the equity component was classified as Level 3 because it was measured at fair value using a binomial lattice model using assumptions based on market information and historical data, and significant unobservable inputs. As of March 31, 2024 and December 31, 2023, the amount of the conversion feature recorded in Additional paid-in capital was $
279.6
million.
For the three months ended March 31, 2024, the Company recognized interest expense of $
7.2
million and paid
no
cash interest. For the three months ended March 31, 2023, the Company recognized interest expense of $
7.2
million and paid
no
cash interest. In addition, during the three months ended March 31, 2024, the Company recognized amortization of the original issue discount of $
3.6
million and an
immaterial
amount of amortization of deferred financing costs. For the three months ended March 31, 2023, the Company recognized amortization of original issue discount of $
3.2
million and an
immaterial
amount of amortization of deferred financing costs. As of March 31, 2024, the effective interest rate on the liability component of the 2027 Notes was
10.5
%.
For the three months ended March 31, 2024, no shares were issued upon conversion, exercise, or satisfaction of the required conditions. Refer to Note 10 — Supplemental equity and other information for details on the impact of the 2027 Notes to diluted earnings per share under the if-converted method.
Senior Convertible Notes due 2024
The $
3.3
million principal value of the remaining
4.75
% convertible senior notes were due and repaid on April 15, 2024 (the "2024 Notes"). As of March 31, 2024 and December 31, 2023, the 2024 Notes were reported within the Current portion of long-term debt in the condensed consolidated balance sheets. As of March 31, 2024, the effective interest rate on the 2024
15
NOTE 7 — Pensions and other postretirement benefit plans
We, along with our subsidiaries, sponsor various defined benefit retirement plans, including plans established under collective bargaining agreements. Our retirement plans include the Gannett Retirement Plan (the "GR Plan"), the Newsquest and Romanes Pension Schemes in the U.K., and other defined benefit and defined contribution plans. We also provide health care and life insurance benefits to certain retired employees who meet age and service requirements.
Retirement plan costs include the following components:
| Pension benefits |
Postretirement benefits
|
||||||||||||||||||||||
| Three months ended March 31, | Three months ended March 31, | ||||||||||||||||||||||
| In thousands | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Service cost - benefits earned during the period | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Non-operating expenses: | |||||||||||||||||||||||
| Interest cost on benefit obligations |
|
|
|
|
|||||||||||||||||||
| Expected return on plan assets |
(
|
(
|
|
|
|||||||||||||||||||
| Amortization of prior service cost (benefit) |
|
|
(
|
|
|||||||||||||||||||
| Amortization of actuarial cost (benefit) |
|
|
(
|
(
|
|||||||||||||||||||
| Total non-operating (benefit) expense | $ |
(
|
$ |
(
|
$ |
(
|
$ |
|
|||||||||||||||
| Total (benefit) expense for retirement plans | $ |
(
|
$ |
(
|
$ |
(
|
$ |
|
|||||||||||||||
Contributions
We are contractually obligated to contribute to our pension and postretirement benefit plans. During the three months ended March 31, 2024, we contributed $
6.6
million and $
1.8
million to our pension and other postretirement plans, respectively. Beginning with the quarter ended December 31, 2022, and ending with the quarter ending September 30, 2024, the GR Plan's appointed actuary has and will certify the GR Plan's funded status for each quarter (the "Quarterly Certification") in accordance with U.S. GAAP. If the GR Plan is less than
100
% funded, the Company will make a $
1.0
million contribution to the GR Plan no later than
60
days following the receipt of the Quarterly Certification, provided, however, that the Company's obligation to make additional contractual contributions will terminate the earlier of (a) the day following the date that a contractual contribution would be due for the quarter ending September 30, 2024, and (b) the date the Company has made a total of $
5.0
million of contractual contributions subsequent to June 30, 2022. As of March 31, 2024, the
GR Plan was more than
100
% funded.
NOTE 8 — Fair value measurement
In accordance with ASC 820, "Fair Value Measurement," fair value measurements are required to be disclosed using a three-tiered fair value hierarchy which distinguishes between assumptions based on market data (observable inputs) and the Company's own assumptions (unobservable inputs). Level 1 refers to fair values determined based on quoted prices in active markets for identical assets or liabilities, Level 2 refers to fair values estimated using significant other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs.
As of March 31, 2024 and December 31, 2023, assets and liabilities recorded at fair value and measured on a recurring basis primarily consist of pension plan assets. As permitted by U.S. GAAP, we use net asset values ("NAV") as a practical expedient to determine the fair value of certain investments. These investments measured at NAV have not been classified in the fair value hierarchy.
The Company's debt is recorded on the condensed consolidated balance sheets at carrying value. Refer to Note 6 — Debt for additional discussion regarding fair value of the Company's debt instruments.
Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). Assets held for sale (Level 3), which are recorded in Other current assets on the condensed consolidated balance
16
sheets, are measured on a nonrecurring basis and are evaluated using executed purchase agreements, letters of intent or third-party valuation analyses when certain circumstances arise.
The Company performs its annual goodwill and indefinite-lived intangible impairment assessment during the fourth quarter of the year. Any resulting asset impairment would require that the asset be recorded at its fair value. The resulting fair value measurements of the assets are considered to be Level 3 measurements. Refer to Note 4 — Goodwill and intangible assets for additional discussion regarding the annual impairment assessment.
NOTE 9 — Income taxes
The following table outlines our pre-tax net loss and income tax amounts:
| Three months ended March 31, | |||||||||||
| In thousands | 2024 | 2023 | |||||||||
| Loss before income taxes | $ |
(
|
$ |
(
|
|||||||
| Provision (benefit) for income taxes |
|
(
|
|||||||||
| Effective tax rate |
(
|
% |
|
% | |||||||
The provision for income taxes is calculated by applying the projected annual effective tax rate for the year to the current period income or loss before tax plus the tax effect of any significant or unusual items (discrete events), and changes in tax laws. The provision for income taxes for the three months ended March 31, 2024, was mainly driven by the pre-tax book loss, the increase in valuation allowances on non-deductible U.S. interest expense carryforwards, the global intangible low-taxed income inclusion and state tax expense. The provision was calculated using an estimated annual effective tax rate of negative
11.1
%. The estimated annual effective tax rate is principally impacted by valuation allowances on non-deductible interest expense carryforwards, foreign tax expense, and the global intangible low-taxed income inclusion, partially offset by the benefit of U.S. pre-tax book loss. The estimated annual effective tax rate is based on the projected tax expense for the full year.
The total amount of unrecognized tax benefits that, if recognized, may impact the effective tax rate was approximately $
52.9
million and $
52.6
million as of March 31, 2024 and December 31, 2023, respectively. It is reasonably possible that the total amount of unrecognized tax benefits related to certain of the Company's uncertain tax positions could decrease by as much as $
10
million to $
16
million within the next twelve months as a result of ongoing audits, foreign judicial proceedings, lapses of statutes of limitations, or regulatory developments. The Company recognizes interest and penalties related to unrecognized tax benefit as a component of income tax expense. The amount of accrued interest and penalties payable related to unrecognized tax benefits was $
4.8
million and $
4.6
million as of March 31, 2024 and December 31, 2023, respectively.
The benefit for income taxes for the three months ended March 31, 2023, was mainly driven by the tax benefit of the pre-tax book loss, the change in valuation allowances on non-deductible U.S. interest expense carryforwards, the global intangible low-taxed income inclusion and stock compensation. The benefit was calculated using the estimated annual effective tax rate of negative
273.3
%.
U.S. and international tax legislation
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the "Inflation Reduction Act"), which includes, among other provisions, changes to the U.S. corporate income tax system, including a 15% minimum tax based on "average adjusted financial statement income" exceeding $1 billion for any three consecutive years preceding the tax year and a 1% excise tax on net repurchases of stock in excess of $1 million after December 31, 2022. During the three months ended March 31, 2024, we did not experience a material financial impact from the Inflation Reduction Act. Additionally, we do not anticipate a material financial impact from the Inflation Reduction Act for the remainder of 2024.
We are subject to income taxes and various other taxes in the U.S. and in many foreign jurisdictions; therefore, changes in both domestic and international tax laws or regulations have affected and may affect our effective tax rate, results of operations, and cash flows. The Organization for Economic Co-operation and Development (the "OECD")/G20 Inclusive Framework on Base Erosion and Profit Shifting has agreed on a two-pillar approach to address tax challenges arising from the digitalization of the global economy by (i) allocating profits to market jurisdictions ("Pillar One") and (ii) ensuring multinational enterprises pay a minimum level of tax regardless of where the headquarters are located or the jurisdictions in which the company operates ("Pillar Two"). Pillar One targets multinational groups with global revenue exceeding €20 billion and a profit-to-revenue ratio of more than 10%. Companies subject to Pillar One will be required to allocate profits and pay taxes to market jurisdictions.
17
Based on the current proposed revenue and profit thresholds, we do not expect to be subject to tax changes associated with Pillar One. Pillar Two focuses on global profit allocation and a global minimum tax rate. In December 2022, the European Union ("EU") Member States formally adopted the EU's Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the OECD Pillar Two Framework that was supported by over 130 countries worldwide. The EU Pillar Two Directive became effective on January 1, 2024. Pillar Two did not have a material impact on the condensed consolidated financial statements.
NOTE 10 — Supplemental equity and other information
(Loss) income per share
The following table sets forth the information to compute basic and diluted (loss) income per share:
| Three months ended March 31, | |||||||||||
| In thousands, except per share data | 2024 | 2023 | |||||||||
| Net (loss) income attributable to Gannett | $ |
(
|
$ |
|
|||||||
| Basic weighted average shares outstanding |
|
|
|||||||||
| Effect of dilutive securities: | |||||||||||
| Restricted stock grants |
|
|
|||||||||
| Diluted weighted average shares outstanding |
|
|
|||||||||
| (Loss) income per share attributable to Gannett - basic | $ |
(
|
$ |
|
|||||||
| (Loss) income per share attributable to Gannett - diluted | $ |
(
|
$ |
|
|||||||
The Company excluded the following securities from the computation of diluted (loss) income per share because their effect would have been antidilutive:
| Three months ended March 31, | |||||||||||
| In thousands | 2024 | 2023 | |||||||||
|
Warrants
(a)
|
|
|
|||||||||
| Stock options |
|
|
|||||||||
|
Restricted stock grants
(b)
|
|
|
|||||||||
|
2027 Notes
(c)
|
|
|
|||||||||
(a)
The warrants expired on November 26, 2023.
(b)
Includes restricted stock awards ("RSAs"), restricted stock units ("RSUs") and performance stock units ("PSUs").
(c)
Represents the total number of shares that would be convertible at March 31, 2024 and 2023 as stipulated in the 2027 Notes Indenture.
The 2027 Notes may be converted at any time by the holders into cash, shares of the Company's Common Stock or any combination of cash and Common Stock, at the Company's election. Conversion of all of the 2027 Notes into Common Stock (assuming the maximum increase in the conversion rate as a result of a Make-Whole Fundamental Change but no other adjustments to the conversion rate), would result in the issuance of an aggregate of
287.2
million shares of Common Stock.
The Company has excluded approximately
190.1
million
shares from the
loss
per share calculation, representing the difference between the total number of shares that would be convertible at
March 31, 2024
and the total number of shares issuable assuming the maximum increase in the conversion rate.
Share-based compensation
Share-based compensation expense was $
2.8
million and $
3.7
million for the three months ended March 31, 2024 and 2023, respectively, and is included in Selling, general and administrative expenses on the condensed consolidated statements of operations and comprehensive income (loss).
The total compensation cost not yet recognized related to non-vested awards as of March 31, 2024 was $
12.8
million, and is expected to be recognized over a weighted-average period of
1.4
years through August 2025.
18
Equity awards
There were
no
RSAs granted during the three months ended March 31, 2024.
Cash awards
The Company grants certain employees either long-term cash awards ("LTCAs") or cash performance units ("CPUs"). During 2023, our LTCAs and CPUs were granted during the first quarter, and in the future we anticipate the majority of our LTCAs and CPUs to be granted in the third quarter of our fiscal year. CPUs generally vest and pay out in cash on the third anniversary of the grant date based upon the achievement of threshold goals depending on actual performance against financial objectives over a three-year period. LTCAs generally vest and pay out in cash on the first, second and third anniversaries of the date of grant. As of March 31, 2024, there was approximately $
8.7
million of unrecognized compensation expense related to cash awards.
Preferred stock
The Company has authorized
300,000
shares of preferred stock, par value $
0.01
per share, issuable in one or more series designated by the Company's Board of Directors. There were
no
issuances of preferred stock during the three months ended March 31, 2024.
Stock repurchase program
On February 1, 2022, the Company's Board of Directors authorized the repurchase of up to $
100
million (the "Stock Repurchase Program") of the Company's Common Stock. Repurchases may be made from time to time through open market purchases or privately negotiated transactions, pursuant to one or more plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or by means of one or more tender offers, in each case, as permitted by securities laws and other legal requirements. The amount and timing of the purchases, if any, will depend on a number of factors, including, but not limited to, the price and availability of the Company's shares, trading volume, capital availability, Company performance and general economic and market conditions. The Stock Repurchase Program may be suspended or discontinued at any time. Further, future repurchases under our Stock Repurchase Program may be subject to various conditions under the terms of our various debt instruments and agreements, unless an exception is available or we obtain a waiver or similar relief.
During the three months ended March 31, 2024, the Company did
not
repurchase any shares of Common Stock under the Stock Repurchase Program. As of March 31, 2024, the remaining authorized amount under the Stock Repurchase Program was approximately $
96.9
million.
Accumulated other comprehensive loss
The following tables summarize the components of, and the changes in, Accumulated other comprehensive loss, net of tax:
| Three months ended March 31, 2024 | Three months ended March 31, 2023 | ||||||||||||||||||||||||||||||||||
| In thousands | Pension and postretirement benefit plans | Foreign currency translation |
|
Total | Pension and postretirement benefit plans | Foreign currency translation | Total | ||||||||||||||||||||||||||||
| Beginning balance | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications, net of taxes |
|
(
|
|
|
|
|
|||||||||||||||||||||||||||||
|
Amounts reclassified from accumulated other comprehensive income
(a)(b)
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Net current period other comprehensive income (loss), net of tax |
|
(
|
|
|
|
|
|||||||||||||||||||||||||||||
| Ending balance | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||||||||
(a)
Amounts reclassified from accumulated other comprehensive income are included in the computation of net periodic benefit cost. See Note 7 — Pensions and other postretirement benefit plans.
(b)
Amounts reclassified from accumulated other comprehensive income are recorded net of tax impacts of $
35
thousand and $
6
thousand for the three months ended March 31, 2024 and 2023, respectively.
19
NOTE 11 — Commitments, contingencies, and other matters
Legal proceedings
The Company is and may become involved from time to time in legal proceedings in the ordinary course of its business, including, but not limited to, matters such as libel, invasion of privacy, intellectual property infringement, wrongful termination actions, complaints alleging employment discrimination, and regulatory investigations and inquiries. In addition, the Company is involved from time to time in governmental and administrative proceedings concerning employment, labor, environmental, and other claims. Insurance coverage mitigates potential loss for certain of these matters. Historically, such claims and proceedings have not had a material adverse effect on the Company's consolidated results of operations or financial position.
We are also defendants in judicial and administrative proceedings involving matters incidental to our business. Although the Company is unable to predict with certainty the eventual outcome of any litigation, regulatory investigation or inquiry, in the opinion of management, the Company does not expect its current and any threatened legal proceedings to have a material adverse effect on the Company's business, financial position or consolidated results of operations. Given the inherent unpredictability of these types of proceedings, however, it is possible that future adverse outcomes could have a material effect on the Company's financial results.
On June 20, 2023, the Company filed a civil action against Google LLC and Alphabet Inc. (together, "Google") in the U.S. District Court in the Southern District of New York seeking injunctive relief and damages for the anticompetitive monopolization of advertising technology markets and for deceptive commercial practices. The Company's complaint details more than a dozen anticompetitive and deceptive acts that the Company believes demonstrate Google's unfair control and manipulation of all sides of each online advertising transaction. The Company intends to vigorously pursue this action. However, at this stage, the Company is unable to predict the outcome or impact on its business and financial results. The Company is accounting for this matter as a gain contingency, and will record any such gain in future periods, if and when the contingency is resolved, in accordance with ASC 450 "Contingencies." We do not expect pursuing this lawsuit to be a significant cost to us.
The Company was a defendant in a lawsuit titled Scott O. Sapulpa ("Plaintiff") v. Gannett Co., Inc. in the District Court in the State of Oklahoma. In February 2024, a jury found for the Plaintiff and awarded compensatory damages of $
5
million and $
20
million in punitive damages. While we cannot predict with certainty the ultimate outcome of this action, the Company filed an appeal of the case in March 2024. We are currently unable to estimate a range of reasonably possible loss; however, we believe that damages, if any, would be covered by the Company's insurance policies. As a result, we believe the outcome will not have a material impact on the Company's condensed consolidated financial statements.
NOTE 12 — Segment reporting
We define our reportable segments based on the way the Chief Operating Decision Maker ("CODM"), which is our Chief Executive Officer, manages the operations for purposes of allocating resources and assessing performance. Our reportable segments include the following:
•
Domestic Gannett Media is comprised of our portfolio of domestic local, regional, and national newspaper publishers. The results of this segment include Digital revenues mainly derived from digital advertising offerings such as classified advertisements and display advertisements run on our platforms as well as third-party sites, digital marketing services delivered by our DMS segment, digital distribution of our publications and digital content syndication and affiliate and partnership revenues and Print and commercial revenues mainly derived from the sale of local, national, and classified print advertising products, the sale of both home delivery and single copies of our publications, as well as commercial printing and distribution arrangements, and revenues from our events business.
•
Newsquest is comprised of our portfolio of international newspaper publishers. The results of this segment include Digital revenues mainly derived from digital advertising offerings such as classified advertisements and display advertisements run on our platforms as well as third-party sites, digital marketing services delivered by our DMS segment, digital distribution of our publications and digital syndication revenues and Print and commercial revenues mainly derived from the sale of local, classified, and national advertising as well as niche publications, the sale of both home delivery and single copies of our publications, as well as commercial printing.
•
Digital Marketing Solutions is comprised of our digital marketing services companies under the brand LocaliQ. The results of this segment include Digital revenues derived from digital marketing services generated through multiple
20
services, including search advertising, display advertising, search optimization, social media, website development, web presence products, customer relationship management, and software-as-a-service solutions.
In addition to the reportable segments above, we have a Corporate and other category that includes activities not directly attributable to a specific reportable segment. This category primarily consists of broad corporate functions, including legal, human resources, accounting, analytics, finance, marketing and technology, as well as other general business costs.
In the ordinary course of business, our reportable segments enter into transactions with one another. While intersegment transactions are treated like third-party transactions to determine segment performance, the revenues and expenses recognized by the segment that is the counterparty to the transaction are eliminated in consolidation and do not affect consolidated results.
The CODM uses Adjusted EBITDA to evaluate the performance of the segments and allocate resources. Adjusted EBITDA is a non-GAAP financial performance measure we believe offers a useful view of the overall operation of our businesses and may be different than similarly-titled measures used by other companies. We define Adjusted EBITDA as Net income (loss) attributable to Gannett before (1) Income tax expense (benefit), (2) Interest expense, (3) Gains or losses on the early extinguishment of debt, (4) Non-operating pension income, (5) Loss on convertible notes derivative, (6) Depreciation and amortization, (7) Integration and reorganization costs, (8) Third-party debt expenses and acquisition costs, (9) Asset impairments, (10) Goodwill and intangible impairments, (11) Gains or losses on the sale or disposal of assets, (12) Share-based compensation, (13) Other non-operating (income) expense, net, and (14) Non-recurring items.
Management considers Adjusted EBITDA to be an important metric to evaluate and compare the ongoing operating performance of our segments on a consistent basis across reporting periods as it eliminates the effect of items that we do not believe are indicative of each segment's core operating performance.
| Three months ended March 31, | |||||||||||
| In thousands | 2024 | 2023 | |||||||||
| Revenues: | |||||||||||
| Domestic Gannett Media | $ |
|
$ |
|
|||||||
| Newsquest |
|
|
|||||||||
| Digital Marketing Solutions |
|
|
|||||||||
| Corporate and other |
|
|
|||||||||
| Intersegment Eliminations |
(
|
(
|
|||||||||
| Total revenues |
|
|
|||||||||
| Adjusted EBITDA: | |||||||||||
| Domestic Gannett Media |
|
|
|||||||||
| Newsquest |
|
|
|||||||||
| Digital Marketing Solutions |
|
|
|||||||||
| Corporate and other |
(
|
(
|
|||||||||
| Net loss attributable to noncontrolling interests |
|
|
|||||||||
| Interest expense |
|
|
|||||||||
| Gain on early extinguishment of debt |
(
|
(
|
|||||||||
| Non-operating pension income |
(
|
(
|
|||||||||
| Depreciation and amortization |
|
|
|||||||||
| Integration and reorganization costs |
|
|
|||||||||
|
Third-party debt expenses and acquisition costs
(a)
|
|
|
|||||||||
| Asset impairments |
|
|
|||||||||
| Loss (gain) on sale or disposal of assets, net |
|
(
|
|||||||||
| Share-based compensation expense |
|
|
|||||||||
| Other non-operating expense, net |
|
|
|||||||||
| Non-recurring items |
|
|
|||||||||
| Loss before income taxes |
(
|
(
|
|||||||||
| Provision (benefit) for income taxes |
|
(
|
|||||||||
| Net (loss) income |
(
|
|
|||||||||
| Net loss attributable to noncontrolling interests |
|
(
|
|||||||||
| Net (loss) income attributable to Gannett | $ |
(
|
$ |
|
|||||||
(a)
Third-party debt expenses and acquisition costs are included in Other operating expenses on the condensed consolidated statements of operations and comprehensive income (loss)
.
21
Asset information by segment is not a key measure of performance used by the CODM function. Accordingly, we have not disclosed asset information by segment. Additionally, equity income in unconsolidated investees, net, interest expense, other non-operating items, net, and provision for income taxes, as reported in the condensed consolidated financial statements, are not part of operating income and are primarily recorded at the corporate level.
NOTE 13 — Other supplemental information
Cash and cash equivalents, including restricted cash
Cash equivalents represent highly liquid certificates of deposit which have original maturities of three months or less. Restricted cash is held as cash collateral for certain business operations. Restricted cash primarily consists of funding for letters of credit, cash held in an irrevocable grantor trust for our deferred compensation plans and cash held with banking institutions for insurance.
The following table presents a reconciliation of cash, cash equivalents and restricted cash:
| March 31, | |||||||||||
| In thousands | 2024 | 2023 | |||||||||
| Cash and cash equivalents | $ |
|
$ |
|
|||||||
| Restricted cash included in other current assets |
|
|
|||||||||
| Restricted cash included in pension and other assets |
|
|
|||||||||
| Total cash, cash equivalents and restricted cash | $ |
|
$ |
|
|||||||
Supplemental cash flow information
The following table presents supplemental cash flow information, including non-cash investing and financing activities:
| Three months ended March 31, | |||||||||||
| In thousands | 2024 | 2023 | |||||||||
| Cash paid for taxes, net of refunds | $ |
|
$ |
|
|||||||
| Cash paid for interest |
|
|
|||||||||
| Non-cash investing and financing activities: | |||||||||||
| Accrued capital expenditures | $ |
|
$ |
|
|||||||
Accounts payable and accrued liabilities
A breakout of Accounts payable and accrued liabilities is presented below:
| In thousands | March 31, 2024 | December 31, 2023 | |||||||||
| Accounts payable | $ |
|
$ |
|
|||||||
| Compensation |
|
|
|||||||||
| Taxes (primarily property, sales, and payroll taxes) |
|
|
|||||||||
| Benefits |
|
|
|||||||||
| Interest |
|
|
|||||||||
| Other |
|
|
|||||||||
| Accounts payable and accrued liabilities | $ |
|
$ |
|
|||||||
22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations and quantitative and qualitative disclosures should be read in conjunction with our unaudited condensed consolidated financial statements and related notes
and with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission. Management's Discussion and Analysis of Financial Condition and Results of Operations contains a number of forward-looking statements
that reflect our plans, estimates, and beliefs, all of which are based on our current expectations and could be affected by certain uncertainties, risks, and other factors described under Cautionary Note Regarding Forward-Looking Statements, Risk Factors, and elsewhere throughout this Quarterly Report, as well as the factors described in our Annual Report on Form 10-K for the year ended December 31, 2023, and subsequent periodic reports filed with the Securities and Exchange Commission, particularly under "Risk Factors."
Our actual results could differ materially from those discussed in the forward-looking statements.
OVERVIEW
We are a diversified media company with expansive reach at the national and local level dedicated to empowering and enriching communities. We seek to inspire, inform, and connect audiences as a sustainable, growth focused media and digital marketing solutions company. We endeavor to deliver essential content, marketing solutions, and experiences for curated audiences, advertisers, consumers, and stakeholders by leveraging our diverse teams and suite of products to enrich the local communities and businesses we serve.
Our current portfolio of trusted media brands includes the USA TODAY NETWORK, comprised of the national publication, USA TODAY, and local media organizations in the United States (the "U.S."), and Newsquest, a wholly-owned subsidiary operating in the United Kingdom (the "U.K."). Our digital marketing solutions brand, LocaliQ, uses innovation and software to enable small and medium-sized businesses ("SMBs") to grow, and USA TODAY NETWORK Ventures, our events division, creates impactful consumer engagements, promotions, and races.
Through USA TODAY, our network of local properties, and Newsquest, we deliver high-quality, trusted content with a commitment to balanced, unbiased journalism, where and when consumers want to engage. We have strong relationships with hundreds of thousands of local and national businesses in both our U.S. and U.K. markets due to our large local and national sales forces and a robust advertising and digital marketing solutions product suite. Our strategy prioritizes maximizing the monetization of our audience through the growth of increasingly diverse and highly recurring digital businesses. We expect the execution of this strategy to enable us to continue our evolution to a predominantly digital media company. We deliver value to our customers, advertisers, partners and shareholders with essential content, joyful experiences, and relevant digital solutions.
We report in three segments: Domestic Gannett Media, Newsquest and Digital Marketing Solutions ("DMS"). We also have a Corporate and other category that includes activities not directly attributable to a specific reportable segment. This category primarily consists of broad corporate functions, including legal, human resources, accounting, analytics, finance, marketing and technology, as well as other general business costs. A full description of our reportable segments is included in Note 12 — Segment reporting in the notes to the condensed consolidated financial statements.
Business Trends
We have considered several industry trends when assessing our business strategy:
•
Print advertising and Print circulation revenues have and are expected to continue to decline as our audience increasingly moves to digital platforms. We seek to optimize our print operations to efficiently manage for the declining print audience. We are focused on growing a digitally-oriented audience across multiple platforms and revenue streams.
•
Our revenues and results of operations continue to be influenced by general macroeconomic conditions, including, but not limited to, interest rates, housing demand, employment levels, and consumer confidence. We believe that these factors are contributing to uncertainty, which is resulting in lower levels of advertising performance and reduced spending.
•
Data privacy standards continue to evolve and implementation of standards may result in incremental costs. Privacy standards, such as third-party cookie deprecation, are anticipated to impact the advertising industry more significantly over the next 12 to 18 months. We utilize first-party data to assist our customer's advertising needs but an industry-wide solution to address impacts to programmatic advertising has not yet been developed.
23
Recent Developments
Corporate office relocation
On March 1, 2024, we
exited and ceased use of our leased facility in McLean, Virginia and moved our corporate headquarters to our existing office space in New York. We will continue to seek subleases for the leased facility in McLean. As a result of the headquarters relocation, we recorded an impairment charge of approximately $
46.0
million during the three months ended March 31, 2024 related to the McLean operating lease right-of-use asset and the associated leasehold improvements.
Debt Repurchase
In March 2024, we received a waiver from certain lenders of our five-year senior secured term loan facility in an original aggregate principal amount of $516.0 million (the "Senior Secured Term Loan") that reduced the scheduled quarterly amortization payments payable to those lenders by approximately $12.0 million for the three months ended March 31, 2024 (the "First Quarter 2024 Waiver"), so long as such amount was used to repurchase a portion of our $400 million aggregate principal amount of 6.00% first lien notes due November 1, 2026 (the "2026 Senior Notes"). Also, in March 2024, we entered into a privately negotiated agreement with certain holders of our 2026 Senior Notes, and repurchased $13.0 million of principal of our outstanding 2026 Senior Notes at a discount to par value. As a result of this repurchase of our 2026 Senior Notes, we recognized a gain on the early extinguishment of debt of approximately $0.6 million during the three months ended March 31, 2024, which included the write-off of unamortized original issue discount and deferred financing costs.
In addition, during the three months ended March 31, 2024, we repaid approximately $3.3 million of our Senior Secured Term Loan (net of the First Quarter 2024 Waiver), including quarterly amortization payments. As a result of the repayment related to our Senior Secured Term Loan, we recognized an immaterial loss on the early extinguishment of debt during the three months ended March 31, 2024, which included the write-off of unamortized original issue discount and deferred financing costs.
Certain Matters Affecting Comparability
The following items affect period-over-period comparisons and will continue to affect period-over-period comparisons for future results:
Asset impairments
For the three months ended March 31, 2024, we recorded an impairment charge of approximately $46.0 million related to the McLean, Virginia operating lease right-of-use asset and the associated leasehold improvements. For the three months ended March 31, 2023, we recorded an immaterial asset impairment related to our continued plan to monetize non-strategic assets.
Loss (gain) on sale or disposal of assets, net
For the three months ended March 31, 2024, we recognized a net loss on the sale of assets of $0.6 million, primarily related to a net loss of $0.9 million at the Domestic Gannett Media segment, partially offset by a net gain of $0.4 million at the Newsquest segment, as part of our continued plan to monetize non-strategic assets.
For the three months ended March 31, 2023, we recognized a net gain on the sale of assets of $17.7 million, primarily related to a net gain of $16.3 million at the Domestic Gannett Media segment primarily related to the sale of a production facility as part of our plan to monetize non-strategic assets, and a gain of $1.4 million at our Corporate and other category related to the sale of intellectual property.
Integration and reorganization costs
For the three months ended March 31, 2024, we incurred Integration and reorganization costs of $17.9 million. Of the total costs incurred, $5.3 million were related to severance activities and $12.6 million were related to other costs, including $9.7 million expensed as of the cease-use date related to certain licensed content as well as costs for consolidating operations, mainly related to systems implementation.
24
For the three months ended March 31, 2023, we incurred Integration and reorganization costs of $12.1 million. Of the total costs incurred, $10.3 million were related to severance activities and $1.9 million were related to other costs, including costs for consolidating operations, primarily related to systems implementation and the outsourcing of corporate functions, partially offset by the reversal of a withdrawal liability related to a multiemployer pension plan of $2.0 million based on the settlement of the withdrawal liability.
Foreign currency
Our U.K. media operations are conducted through our Newsquest subsidiary. In addition, we have foreign operations in regions such as Canada, Australia, New Zealand and India. Earnings from operations in foreign regions are translated into U.S. dollars at average exchange rates prevailing during the period, and assets and liabilities are translated at exchange rates in effect at the balance sheet date. Currency translation fluctuations may impact revenue, expense, and operating income results for our international operations. For example, our international revenues are favorably impacted as the U.S. dollar weakens relative to other foreign currencies, and unfavorably impacted as the U.S. dollar strengthens relative to other foreign currencies. Foreign currency exchange rate fluctuations positively impacted our revenues and profitability during the three months ended March 31, 2024.
Strategy
We are committed to inspiring, informing and connecting audiences as a sustainable, growth-focused media and digital marketing solutions company. We endeavor to deliver essential content, marketing solutions and experiences for curated audiences, advertisers, consumers, and stakeholders by leveraging our diverse teams and suite of products to enrich the local communities and businesses we serve. The execution of this strategy is expected to allow us to continue our evolution from a more traditional print media business to a sustainable, growth-focused media and digital marketing solutions company.
We intend to create stockholder value through a variety of methods, including organic growth driven by our consumer and business-to-business strategies, as well as through paying down debt to strengthen our capital structure.
Stable foundation for ongoing growth
We continue to optimize and improve our foundation – completing systems consolidations and migrations, improving process workflows, and ensuring we have synergy across the organization to deliver the stabilization required to fuel our plan into the future. We also continue to invest in our people and in the skills needed to support our future aims and to retain our talent by remaining an attractive place to work.
Expand reach with our customer segments
Key to our ongoing growth is expanding our base – whether clients in our DMS segment or audience in our Domestic Gannett Media and Newsquest segments – and optimizing our revenue streams across this growing base. For both the Domestic Gannett Media and Newsquest segments, this includes content expansion, establishing a seamless print to digital continuum to introduce clients, readers, viewers, and listeners to a broader range of products we offer. For the DMS segment, expanding our client base and core revenue is anticipated to be supplemented by the development of a complementary software model.
Diversify digital revenues
We expect to continue to expand the ways that we grow digital revenues through innovative partnerships and developing new products and services that meet the needs of consumers and businesses. Examples of this growth strategy include our intention to continue to expand partnerships that rely on our unique and large audience base and developing new DMS software solutions.
Foundational commitment to environmental, social, and governance matters that impact our customers and communities
We will continue our environmental, social and governance ("ESG") journey that is rooted in our strategic mission to empower our communities to thrive and putting our customers at the center of everything we do. We support that mission with clearly defined values that aim to influence not only what we do, but how we do it, with one of the core pillars focusing on our ongoing commitments to inclusion, diversity, and equity ("ID&E"). From our internal efforts around recruiting, development
25
and retention, to our external efforts to provide high quality products and excellent customer service, we believe our strategic focus will benefit from our continued commitment to building upon our culture and community values.
Macroeconomic Environment
We are exposed to certain risks and uncertainties caused by factors beyond our control, including economic and political instability and other geopolitical events. We believe that these uncertain economic conditions have adversely impacted and may continue to have an adverse impact on our revenues, and the occurrence of these factors has resulted in a reduction in demand for our print and digital advertising, reduced the rates for our advertising, and caused marketers to shift, reduce or stop spend.
We are exposed to potential increases in interest rates associated with our Senior Secured Term Loan, which accounted for approximately 31% of our outstanding debt as of each March 31, 2024 and December 31, 2023, as well as fluctuations in foreign currency exchange rates, primarily related to our operations in the U.K. We expect continued uncertainty and volatility in the U.S. and global economies which will continue to impact our business.
Seasonality
We experience some seasonality in our revenues. The Domestic Gannett Media segment typically witnesses the greatest impact from seasonality in the third quarter, primarily attributed to reduced population in seasonal markets and decreased holiday related spending. The DMS segment generally experiences the greatest impact from seasonality in the first half of the fiscal year, which can be attributed to the advertising needs of specific verticals, which are generally lower in the first half of the year.
Environmental, Social and Governance Initiatives
As a leading media organization, our longstanding corporate social responsibility position is driven by our deep commitment to our communities. We are dedicated to ensuring that we have mindful and ethical business practices that positively impact our world. In early 2024, we published our 2024 ESG Report detailing the progress we made on our U.N. Sustainable Development Goals ("U.N. SDGs") that include Reduced Inequalities, Climate Action, and Peace, Justice and Strong Institutions. The 2024 ESG Report included noteworthy highlights such as improving our workplace diversity, expanding our systems infrastructure to provide Scope 1 and Scope 2 emissions for our global carbon footprint, and reducing the number of manufacturing facilities.
We are committed to ensuring our coverage is widely available, actively promoted across our media sites and marketed to our millions of registered users. In January 2024, we published our network-wide 2023 Journalism Impact Report, which highlighted what we believe are the most influential articles we produced in 2023 and covers topics such as coverage on ID&E, as well as climate change. We are committed to the ongoing publishing of an annual network-wide Journalism Impact Report, which surfaces the top stories we produced that led to action.
The well-being of our employees is of paramount importance to us and we are committed to maintaining a corporate culture that conducts business in a responsible and ethical manner that includes promoting, protecting and supporting human rights across our operations and throughout our entire organization, which is why we have adopted a company-wide Human Rights Policy. This policy expands upon an existing policy enacted by our U.K. operations. Our Human Rights Policy covers areas such as our commitment to diversity and inclusion, a safe and healthy workplace, our communities and stakeholders, and freedom of association and collective bargaining, which helps ensure our employees' right to form and choose whether to join a labor union without fear of reprisal, intimidation, or harassment. The Human Rights Policy also reflects our commitment to bargaining in good faith with chosen representatives of such groups in accordance with applicable laws.
Use of Website to Distribute Material Company Information
Our website is www.gannett.com. Information contained on our website is not part of this quarterly report. We use our website as a distribution channel for material company information. Financial and other important information regarding the Company is routinely posted on and accessible on the Investor Relations and News and Events subpages of our website, which are accessible by clicking on the tab labeled "Investor Relations" and "News and Events", respectively, on the website home page. Therefore, investors should look to the Investor Relations, and News and Events subpages of the Company's website for important and time-critical information.
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RESULTS OF OPERATIONS
Consolidated Summary
A summary of our consolidated results is presented below:
| Three months ended March 31, | |||||||||||||||||||||||
| In thousands, except per share amounts | Change | ||||||||||||||||||||||
| 2024 | 2023 | $ | % | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Digital advertising | $ | 84,466 | $ | 80,210 | $ | 4,256 | 5 | % | |||||||||||||||
|
Digital marketing services
(a)
|
116,414 | 112,683 | 3,731 | 3 | % | ||||||||||||||||||
| Digital-only subscription | 43,479 | 35,831 | 7,648 | 21 | % | ||||||||||||||||||
|
Digital other
|
23,140 | 18,754 | 4,386 | 23 | % | ||||||||||||||||||
| Digital | 267,499 | 247,478 | 20,021 | 8 | % | ||||||||||||||||||
| Print advertising | 134,676 | 147,954 | (13,278) | (9) | % | ||||||||||||||||||
| Print circulation | 173,323 | 205,454 | (32,131) | (16) | % | ||||||||||||||||||
| Commercial and other | 60,263 | 68,031 | (7,768) | (11) | % | ||||||||||||||||||
| Print and commercial | 368,262 | 421,439 | (53,177) | (13) | % | ||||||||||||||||||
| Total revenues | 635,761 | 668,917 | (33,156) | (5) | % | ||||||||||||||||||
|
Total operating expenses
(a)
|
685,647 | 648,956 | 36,691 | 6 | % | ||||||||||||||||||
| Operating (loss) income | (49,886) | 19,961 | (69,847) | *** | |||||||||||||||||||
| Non-operating expenses | 24,804 | 27,030 | (2,226) | (8) | % | ||||||||||||||||||
| Loss before income taxes | (74,690) | (7,069) | (67,621) | *** | |||||||||||||||||||
| Provision (benefit) for income taxes | 10,078 | (17,329) | 27,407 | *** | |||||||||||||||||||
| Net (loss) income | (84,768) | 10,260 | (95,028) | *** | |||||||||||||||||||
| Net loss attributable to noncontrolling interests | — | (84) | 84 | (100) | % | ||||||||||||||||||
| Net (loss) income attributable to Gannett | $ | (84,768) | $ | 10,344 | $ | (95,112) | *** | ||||||||||||||||
| (Loss) income per share attributable to Gannett - basic | $ | (0.60) | $ | 0.07 | $ | (0.67) | *** | ||||||||||||||||
| (Loss) income per share attributable to Gannett - diluted | $ | (0.60) | $ | 0.07 | $ | (0.67) | *** | ||||||||||||||||
*** Indicates an absolute value percentage change greater than 100.
(a)
Amounts are net of intersegment eliminations of $38.8 million and $34.4 million for the three months ended March 31, 2024 and 2023, respectively. Intersegment eliminations represent digital marketing services revenues and expenses associated with products sold by sales teams in our Domestic Gannett Media and Newsquest segments but fulfilled by our DMS segment. When discussing segment results, these revenues and expenses are presented gross but are eliminated in consolidation.
Revenues
Digital revenues are primarily derived from digital advertising offerings such as classified advertisements and display advertisements run on our platforms as well as third-party sites, digital marketing services generated through multiple services, including search advertising, display advertising, search optimization, social media, website development, web presence products, customer relationship management, and software-as-a-service solutions, digital distribution of our publications, as well as digital syndication, affiliate, partnership, and licensing revenues.
Print and commercial revenues are generated from the sale of local, national, and classified print advertising products, the sale of both home delivery and single copies of our publications, as well as commercial printing and distribution arrangements, and revenues from our events business.
Operating expenses
Operating expenses consist primarily of the following:
•
Operating costs at the Domestic Gannett Media and Newsquest segments include labor, newsprint, delivery and digital costs and at the DMS segment include the cost of online media acquired from third parties and costs to manage and operate our marketing solutions and technology infrastructure;
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•
Selling, general and administrative expenses include labor, payroll, outside services, benefits costs and bad debt expense;
•
Depreciation and amortization;
•
Integration and reorganization costs include severance costs as well as other reorganization costs associated with individual restructuring programs, designed primarily to right-size the Company's employee base, consolidate facilities and improve operations;
•
Impairment charges, including costs incurred related to goodwill, intangible assets and property, plant and equipment;
•
Gains or losses on the sale or disposal of assets; and
•
Other operating expenses, including third-party debt expenses as well as acquisition-related costs.
Refer to Segment results below for a discussion of the results of operations by segment.
Non-operating expenses
Interest expense:
For the three months ended March 31, 2024, Interest expense was $26.6 million compared to $28.3 million for the three months ended March 31, 2023. For the three months ended March 31, 2024, interest expense decreased compared to the three months ended March 31, 2023, primarily due to a lower debt balance, mainly driven by quarterly amortization payments and required prepayments on our Senior Secured Term Loan and repurchases of our 2026 Senior Notes, partially offset by an increase in interest rates on the Senior Secured Term Loan.
Non-operating pension income:
For the three months ended March 31, 2024, Non-operating pension income was $3.1 million compared to $1.8 million for the three months ended March 31, 2023. The increase in Non-operating pension income for the three months ended March 31, 2024, compared to the same period in 2023 was primarily due to the decrease in the discount rate, partially offset by a decline in the projected benefit obligation.
Provision (benefit) for income taxes
The following table outlines our pre-tax net loss before income taxes and income tax accounts:
| Three months ended March 31, | |||||||||||
| In thousands | 2024 | 2023 | |||||||||
| Loss before income taxes | $ | (74,690) | $ | (7,069) | |||||||
| Provision (benefit) for income taxes | 10,078 | (17,329) | |||||||||
| Effective tax rate | (13.5) | % | 245.1 | % | |||||||
The provision for income taxes is calculated by applying the projected annual effective tax rate for the year to the current period income or loss before tax plus the tax effect of any significant or unusual items (discrete events), and changes in tax laws. The provision for income taxes for the three months ended March 31, 2024, was mainly driven by the pre-tax book loss, the increase in valuation allowances on non-deductible U.S. interest expense carryforwards, the global intangible low-taxed income inclusion and state tax expense. The provision was calculated using an estimated annual effective tax rate of negative 11.1%. The estimated annual effective tax rate is principally impacted by valuation allowances on non-deductible interest expense carryforwards, foreign tax expense, and the global intangible low-taxed income inclusion, partially offset by the benefit of U.S. pre-tax book loss. The estimated annual effective tax rate is based on the projected tax expense for the full year.
The benefit for income taxes for the three months ended March 31, 2023, was mainly driven by the tax benefit of the pre-tax book loss, the change in valuation allowances on non-deductible U.S. interest expense carryforwards, the global intangible low-taxed income inclusion and stock compensation. The benefit was calculated using the estimated annual effective tax rate of negative 273.3%.
Net (loss) income attributable to Gannett and diluted (loss) income per share attributable to Gannett
For the three months ended March 31, 2024, Net loss attributable to Gannett and diluted loss per share attributable to Gannett were $84.8 million and $0.60, respectively, compared to Net income attributable to Gannett and diluted income per share attributable to Gannett of $10.3 million and $0.07, respectively, for the three months ended March 31, 2023. The change for the three months ended March 31, 2024, compared to the same period in the prior year reflects the various items discussed above.
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Segment Results
Domestic Gannett Media segment
A summary of our Domestic Gannett Media segment results is presented below:
| Three months ended March 31, | |||||||||||||||||||||||
| Change | |||||||||||||||||||||||
| In thousands | 2024 | 2023 | $ | % | |||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Digital | $ | 167,735 | $ | 149,308 | $ | 18,427 | 12 | % | |||||||||||||||
| Print and commercial | 327,984 | 380,629 | (52,645) | (14) | % | ||||||||||||||||||
| Total revenues | 495,719 | 529,937 | (34,218) | (6) | % | ||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Operating costs | 320,862 | 349,328 | (28,466) | (8) | % | ||||||||||||||||||
| Selling, general and administrative expenses | 130,244 | 136,490 | (6,246) | (5) | % | ||||||||||||||||||
| Depreciation and amortization | 24,877 | 31,751 | (6,874) | (22) | % | ||||||||||||||||||
| Integration and reorganization costs | 14,889 | 4,049 | 10,840 | *** | |||||||||||||||||||
| Asset impairments | — | 5 | (5) | (100) | % | ||||||||||||||||||
| Loss (gain) on sale or disposal of assets, net | 904 | (16,271) | 17,175 | *** | |||||||||||||||||||
| Other operating income | (52) | — | (52) | *** | |||||||||||||||||||
| Total operating expenses | 491,724 | 505,352 | (13,628) | (3) | % | ||||||||||||||||||
| Operating income | $ | 3,995 | $ | 24,585 | $ | (20,590) | (84) | % | |||||||||||||||
*** Indicates an absolute value percentage change greater than 100.
Revenues
The following table provides the breakout of Revenues by category:
| Three months ended March 31, | |||||||||||||||||||||||
| Change | |||||||||||||||||||||||
| In thousands | 2024 | 2023 | $ | % | |||||||||||||||||||
| Digital advertising | $ | 70,941 | $ | 67,674 | $ | 3,267 | 5 | % | |||||||||||||||
| Digital marketing services | 36,086 | 32,065 | 4,021 | 13 | % | ||||||||||||||||||
| Digital-only subscription | 41,911 | 34,678 | 7,233 | 21 | % | ||||||||||||||||||
|
Digital other
|
18,797 | 14,891 | 3,906 | 26 | % | ||||||||||||||||||
| Digital | 167,735 | 149,308 | 18,427 | 12 | % | ||||||||||||||||||
| Print advertising | 115,619 | 128,177 | (12,558) | (10) | % | ||||||||||||||||||
| Print circulation | 156,246 | 188,503 | (32,257) | (17) | % | ||||||||||||||||||
| Commercial and other | 56,119 | 63,949 | (7,830) | (12) | % | ||||||||||||||||||
| Print and commercial | 327,984 | 380,629 | (52,645) | (14) | % | ||||||||||||||||||
| Total revenues | $ | 495,719 | $ | 529,937 | $ | (34,218) | (6) | % | |||||||||||||||
For the three months ended March 31, 2024, Digital advertising revenues increased compared to the three months ended March 31, 2023, primarily due to an increase in sponsored link and national programmatic revenue, as well as higher spend on automotive advertisements, partially offset by lower spend on obituary and employment notifications.
For the three months ended March 31, 2024, Digital marketing services revenues increased compared to the three months ended March 31, 2023, primarily due to an increase in client spend.
For the three months ended March 31, 2024, Digital-only subscription revenues increased compared to the three months ended March 31, 2023, primarily driven by an increase in Digital-only subscription average revenue per user ("Digital-only ARPU") of 24%, mainly due to product mix. Refer to "Key Performance Indicators" below for further discussion of Digital-only ARPU.
For the three months ended March 31, 2024, Digital other revenues increased compared to the three months ended March
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31, 2023, primarily due to an increase in affiliate and partnership revenues.
For the three months ended March 31, 2024, Print advertising revenues decreased compared to the three months ended March 31, 2023, primarily due to a decrease in local and national print advertisements and lower advertiser inserts, mainly due to a reduction in spend from customers driven by macroeconomic factors, and lower spend on classified advertisements, mainly associated with obituary notifications.
For the three months ended March 31, 2024, Print circulation revenues decreased compared to the three months ended March 31, 2023, due to a decline in home delivery and single copy as a result of a reduction in the volume of subscribers, partially offset by an increase in rates.
For the three months ended March 31, 2024, Commercial and other revenues decreased compared to the three months ended March 31, 2023, primarily due to a decrease in commercial print revenues, driven by the decline in production volume, as well as facility closures, and a decrease in the price of newsprint, partially offset by an increase in event revenues, driven by an increase in ticket sales related to higher attendance.
Operating expenses
For the three months ended March 31, 2024, Operating costs decreased $28.5 million compared to the three months ended March 31, 2023. The following table provides the breakout of Operating costs:
| Three months ended March 31, | |||||||||||||||||||||||
| Change | |||||||||||||||||||||||
| In thousands | 2024 | 2023 | $ | % | |||||||||||||||||||
| Newsprint and ink | $ | 18,573 | $ | 29,597 | $ | (11,024) | (37) | % | |||||||||||||||
| Distribution | 74,483 | 83,942 | (9,459) | (11) | % | ||||||||||||||||||
| Compensation and benefits | 96,501 | 100,930 | (4,429) | (4) | % | ||||||||||||||||||
| Outside services | 80,965 | 78,995 | 1,970 | 2 | % | ||||||||||||||||||
| Other | 50,340 | 55,864 | (5,524) | (10) | % | ||||||||||||||||||
| Total operating costs | $ | 320,862 | $ | 349,328 | $ | (28,466) | (8) | % | |||||||||||||||
For the three months ended March 31, 2024, Newsprint and ink costs decreased compared to the three months ended March 31, 2023, primarily due to lower volume due to the decline in revenues, as well as a decrease in the cost of newsprint of approximately $4.9 million.
For the three months ended March 31, 2024, Distribution costs decreased compared to the three months ended March 31, 2023, primarily due to a decrease of approximately $12.0 million associated with lower home delivery and single copy revenues, partially offset by an increase in postage costs of approximately $2.5 million, mainly due to conversion to mail delivery in multiple markets.
For the three months ended March 31, 2024, Compensation and benefits costs decreased compared to the three months ended March 31, 2023, primarily due to a decrease in headcount tied to ongoing cost control initiatives, including facility closures and conversion to mail delivery in multiple markets.
For the three months ended March 31, 2024, Outside services costs, which includes professional services fulfilled by third parties, media fees and other digital costs, and paid search and ad serving services, increased compared to the three months ended March 31, 2023, primarily due to higher third-party media fees of approximately $2.6 million, partially offset by a decrease of approximately $0.6 million in miscellaneous expenses.
For the three months ended March 31, 2024, Other costs decreased compared to the three months ended March 31, 2023, primarily due to lower facility related expenses of approximately $3.8 million, mainly associated with real estate sales and facility consolidations and lower miscellaneous expenses of approximately $3.8 million, mainly related to lower technology costs, partially offset by higher promotion costs of approximately $2.1 million.
For the three months ended March 31, 2024, Selling, general and administrative expenses decreased $6.2 million compared to the three months ended March 31, 2023. The following table provides the breakout of Selling, general and administrative expenses:
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| Three months ended March 31, | |||||||||||||||||||||||
| Change | |||||||||||||||||||||||
| In thousands | 2024 | 2023 | $ | % | |||||||||||||||||||
| Compensation and benefits | $ | 62,663 | $ | 62,179 | $ | 484 | 1 | % | |||||||||||||||
| Outside services and other | 67,581 | 74,311 | (6,730) | (9) | % | ||||||||||||||||||
| Total selling, general and administrative expenses | $ | 130,244 | $ | 136,490 | $ | (6,246) | (5) | % | |||||||||||||||
For the three months ended March 31, 2024, Outside services and other costs
, which include services fulfilled by third parties
, decreased compared to the three months ended March 31, 2023, primarily due to lower miscellaneous expenses of approximately $5.5 million, including promotional expenses, and lower bad debt expense of approximately $1.2 million.
For the three months ended March 31, 2024, Depreciation and amortization expense decreased compared to the three months ended March 31, 2023, reflecting the impact of fewer print facilities in 2024 compared to 2023.
For the three months ended March 31, 2024, Integration and reorganization costs increased compared to the three months ended March 31, 2023, mainly due to an increase in other costs of $12.3 million, partially offset by a decrease in severance costs of $1.4 million. The change in other costs for the three months ended March 31, 2024 was primarily due to $9.7 million expensed as of the cease-use date related to certain licensed content and the absence in the first quarter of 2024 of a reversal of a withdrawal liability related to a multiemployer pension plan in the first quarter of 2023 of $2.0 million based on the settlement of the withdrawal liability.
For the three months ended March 31, 2024, we recognized a net loss on the sale of assets of $0.9 million as part of our continued plan to monetize non-strategic assets. For the three months ended March 31, 2023, we recognized a net gain on the sale of assets of $16.3 million, primarily related to the sale of a production facility as part of our plan to monetize non-strategic assets.
Domestic Gannett Media segment Adjusted EBITDA
| Three months ended March 31, | |||||||||||||||||||||||
| Change | |||||||||||||||||||||||
| In thousands | 2024 | 2023 | $ | % | |||||||||||||||||||
| Net income attributable to Gannett | $ | 5,463 | $ | 23,009 | $ | (17,546) | (76) | % | |||||||||||||||
| Non-operating pension (income) expense | (1,306) | 303 | (1,609) | *** | |||||||||||||||||||
| Depreciation and amortization | 24,877 | 31,751 | (6,874) | (22) | % | ||||||||||||||||||
| Integration and reorganization costs | 14,889 | 4,049 | 10,840 | *** | |||||||||||||||||||
| Asset impairments | — | 5 | (5) | (100) | % | ||||||||||||||||||
| Loss (gain) on sale or disposal of assets, net | 904 | (16,271) | 17,175 | *** | |||||||||||||||||||
| Other non-operating (income) expense, net | (347) | 1,567 | (1,914) | *** | |||||||||||||||||||
| Non-recurring items | — | 4 | (4) | (100) | % | ||||||||||||||||||
|
Adjusted EBITDA (non-GAAP basis)
(a)
|
$ | 44,480 | $ | 44,417 | $ | 63 | — | % | |||||||||||||||
| Net income attributable to Gannett margin | 1.1 | % | 4.3 | % | |||||||||||||||||||
|
Adjusted EBITDA margin (non-GAAP basis)
(a)(b)
|
9.0 | % | 8.4 | % | |||||||||||||||||||
*** Indicates an absolute value percentage change greater than 100.
(a)
See "Non-GAAP Financial Measures" below for additional information about non-GAAP measures.
(b)
We define Adjusted EBITDA margin as Adjusted EBITDA divided by total Revenues.
For the three months ended March 31, 2024, the increase in Domestic Gannett Media segment Adjusted EBITDA compared to the three months ended March 31, 2023, was primarily attributable to the changes discussed above.
31
Newsquest segment
A summary of our Newsquest segment results is presented below:
| Three months ended March 31, | |||||||||||||||||||||||
| Change | |||||||||||||||||||||||
| In thousands | 2024 | 2023 | $ | % | |||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Digital | $ | 19,920 | $ | 18,348 | $ | 1,572 | 9 | % | |||||||||||||||
| Print and commercial | 40,278 | 40,810 | (532) | (1) | % | ||||||||||||||||||
| Total revenues | 60,198 | 59,158 | 1,040 | 2 | % | ||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Operating costs | 30,526 | 30,237 | 289 | 1 | % | ||||||||||||||||||
| Selling, general and administrative expenses | 15,596 | 16,158 | (562) | (3) | % | ||||||||||||||||||
| Depreciation and amortization | 2,035 | 1,758 | 277 | 16 | % | ||||||||||||||||||
| Integration and reorganization costs | 169 | 600 | (431) | (72) | % | ||||||||||||||||||
| (Gain) loss on sale or disposal of assets, net | (445) | 3 | (448) | *** | |||||||||||||||||||
| Other operating income | (87) | — | (87) | *** | |||||||||||||||||||
| Total operating expenses | 47,794 | 48,756 | (962) | (2) | % | ||||||||||||||||||
| Operating income | $ | 12,404 | $ | 10,402 | $ | 2,002 | 19 | % | |||||||||||||||
*** Indicates an absolute value percentage change greater than 100.
Revenues
The following table provides the breakout of Revenues by category:
| Three months ended March 31, | |||||||||||||||||||||||
| Change | |||||||||||||||||||||||
| In thousands | 2024 | 2023 | $ | % | |||||||||||||||||||
| Digital advertising | $ | 13,525 | $ | 12,536 | $ | 989 | 8 | % | |||||||||||||||
| Digital marketing services | 2,088 | 2,194 | (106) | (5) | % | ||||||||||||||||||
| Digital-only subscription | 1,568 | 1,153 | 415 | 36 | % | ||||||||||||||||||
|
Digital other
|
2,739 | 2,465 | 274 | 11 | % | ||||||||||||||||||
| Digital | 19,920 | 18,348 | 1,572 | 9 | % | ||||||||||||||||||
| Print advertising | 19,057 | 19,777 | (720) | (4) | % | ||||||||||||||||||
| Print circulation | 17,077 | 16,951 | 126 | 1 | % | ||||||||||||||||||
| Commercial and other | 4,144 | 4,082 | 62 | 2 | % | ||||||||||||||||||
| Print and commercial | 40,278 | 40,810 | (532) | (1) | % | ||||||||||||||||||
| Total revenues | $ | 60,198 | $ | 59,158 | $ | 1,040 | 2 | % | |||||||||||||||
For the three months ended March 31, 2024, Digital advertising revenues increased compared to the three months ended March 31, 2023, primarily due to an increase in local revenues, partially offset by lower spend on employment notifications.
For the three months ended March 31, 2024, Digital-only subscription revenues increased compared to the three months ended March 31, 2023, primarily driven by the increase in digital-only paid subscriptions. Refer to "Key Performance Indicators" below for further discussion of digital-only paid subscriptions.
For the three months ended March 31, 2024, Digital other revenues increased compared to the three months ended March 31, 2023, primarily due to higher syndication revenues.
For the three months ended March 31, 2024, Print advertising revenues decreased compared to the three months ended March 31, 2023, primarily due to a decrease in sponsorship revenues due to timing and the ongoing shift in spend to digital platforms.
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Operating expenses
For the three months ended March 31, 2024, Operating costs increased $0.3 million compared to the three months ended March 31, 2023. The following table provides the breakout of Operating costs:
| Three months ended March 31, | |||||||||||||||||||||||
| Change | |||||||||||||||||||||||
| In thousands | 2024 | 2023 | $ | % | |||||||||||||||||||
| Newsprint and ink | $ | 2,624 | $ | 3,896 | $ | (1,272) | (33) | % | |||||||||||||||
| Distribution | 3,186 | 3,430 | (244) | (7) | % | ||||||||||||||||||
| Compensation and benefits | 12,979 | 11,962 | 1,017 | 9 | % | ||||||||||||||||||
| Outside services | 3,848 | 3,899 | (51) | (1) | % | ||||||||||||||||||
| Other | 7,889 | 7,050 | 839 | 12 | % | ||||||||||||||||||
| Total operating costs | $ | 30,526 | $ | 30,237 | $ | 289 | 1 | % | |||||||||||||||
For the three months ended March 31, 2024, Newsprint and ink costs decreased compared to the three months ended March 31, 2023, primarily due to a decrease in the cost of newsprint of approximately $1.0 million.
For the three months ended March 31, 2024, Distribution costs decreased compared to the three months ended March 31, 2023, primarily due to the decline in revenues.
For the three months ended March 31, 2024, Compensation and benefits costs increased compared to the three months ended March 31, 2023, primarily due to higher headcount.
For the three months ended March 31, 2024, Other costs increased compared to the three months ended March 31, 2023, primarily due to an increase in miscellaneous expenses.
For the three months ended March 31, 2024, Selling, general and administrative expenses decreased $0.6 million compared to the three months ended March 31, 2023. The following table provides the breakout of Selling, general and administrative expenses:
| Three months ended March 31, | |||||||||||||||||||||||
| Change | |||||||||||||||||||||||
| In thousands | 2024 | 2023 | $ | % | |||||||||||||||||||
| Compensation and benefits | $ | 11,745 | $ | 11,506 | $ | 239 | 2 | % | |||||||||||||||
| Outside services and other | 3,851 | 4,652 | (801) | (17) | % | ||||||||||||||||||
| Total selling, general and administrative expenses | $ | 15,596 | $ | 16,158 | $ | (562) | (3) | % | |||||||||||||||
For the three months ended March 31, 2024, Compensation and benefits costs increased compared to the three months ended March 31, 2023, primarily due to an increase in bonuses.
For the three months ended March 31, 2024, Outside services and other costs decreased compared to the three months ended March 31, 2023, primarily due to a decrease in facility related costs as well as lower bad debt expense of approximately $0.3 million.
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Newsquest segment Adjusted EBITDA
| Three months ended March 31, | |||||||||||||||||||||||
| Change | |||||||||||||||||||||||
| In thousands | 2024 | 2023 | $ | % | |||||||||||||||||||
| Net income attributable to Gannett | $ | 14,544 | $ | 12,018 | $ | 2,526 | 21 | % | |||||||||||||||
| Non-operating pension income | (1,840) | (2,118) | 278 | (13) | % | ||||||||||||||||||
| Depreciation and amortization | 2,035 | 1,758 | 277 | 16 | % | ||||||||||||||||||
| Integration and reorganization costs | 169 | 600 | (431) | (72) | % | ||||||||||||||||||
| (Gain) loss on sale or disposal of assets, net | (445) | 3 | (448) | *** | |||||||||||||||||||
| Other non-operating (income) expense, net | (300) | 502 | (802) | *** | |||||||||||||||||||
| Non-recurring items | — | 83 | (83) | (100) | % | ||||||||||||||||||
|
Adjusted EBITDA (non-GAAP basis)
(a)
|
$ | 14,163 | $ | 12,846 | $ | 1,317 | 10 | % | |||||||||||||||
| Net income attributable to Gannett margin | 24.2 | % | 20.3 | % | |||||||||||||||||||
|
Adjusted EBITDA margin (non-GAAP basis)
(a)(b)
|
23.5 | % | 21.7 | % | |||||||||||||||||||
*** Indicates an absolute value percentage change greater than 100.
(a)
See "Non-GAAP Financial Measures" below for additional information about non-GAAP measures.
(b)
We define Adjusted EBITDA margin as Adjusted EBITDA divided by total Revenues.
For the three months ended March 31, 2024, the increase in Newsquest segment Adjusted EBITDA compared to the three months ended March 31, 2023, was primarily attributable to the changes discussed above.
Digital Marketing Solutions segment
A summary of our DMS segment results is presented below:
| Three months ended March 31, | |||||||||||||||||||||||
| Change | |||||||||||||||||||||||
| In thousands | 2024 | 2023 | $ | % | |||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
|
Digital
(a)
|
$ | 117,045 | $ | 112,817 | $ | 4,228 | 4 | % | |||||||||||||||
| Total revenues | 117,045 | 112,817 | 4,228 | 4 | % | ||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Operating costs | 84,931 | 78,990 | 5,941 | 8 | % | ||||||||||||||||||
| Selling, general and administrative expenses | 23,965 | 22,144 | 1,821 | 8 | % | ||||||||||||||||||
| Depreciation and amortization | 5,880 | 5,860 | 20 | — | % | ||||||||||||||||||
| Integration and reorganization costs | 25 | 20 | 5 | 25 | % | ||||||||||||||||||
| Loss on sale or disposal of assets, net | 89 | 35 | 54 | *** | |||||||||||||||||||
| Total operating expenses | 114,890 | 107,049 | 7,841 | 7 | % | ||||||||||||||||||
| Operating income | $ | 2,155 | $ | 5,768 | $ | (3,613) | (63) | % | |||||||||||||||
(a)
Digital revenues are solely generated by digital marketing services revenues.
Revenues
For the three months ended March 31, 2024, Digital revenues increased compared to the three months ended March 31, 2023, primarily due to growth in the core direct business, including growth in revenues associated with both local and multi-location customers, and an increase in core platform average revenue per user ("Core platform ARPU") of 6% for the three months ended March 31, 2024. Refer to "Key Performance Indicators" below for further discussion of Core platform ARPU.
Operating expenses
For the three months ended March 31, 2024, Operating costs increased $5.9 million compared to the three months ended March 31, 2023. The following table provides the breakout of Operating costs:
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| Three months ended March 31, | |||||||||||||||||||||||
| Change | |||||||||||||||||||||||
| In thousands | 2024 | 2023 | $ | % | |||||||||||||||||||
| Outside services | $ | 74,099 | $ | 69,096 | $ | 5,003 | 7 | % | |||||||||||||||
| Compensation and benefits | 9,006 | 8,440 | 566 | 7 | % | ||||||||||||||||||
| Other | 1,826 | 1,454 | 372 | 26 | % | ||||||||||||||||||
| Total operating costs | $ | 84,931 | $ | 78,990 | $ | 5,941 | 8 | % | |||||||||||||||
For the three months ended March 31, 2024, Outside services costs, which includes professional services fulfilled by third parties, media fees and other digital costs, and paid search and ad serving services, increased compared to the three months ended March 31, 2023, due to an increase in expenses associated with third-party media fees driven by a corresponding increase in revenues.
For the three months ended March 31, 2024, Compensation and benefits costs increased compared to the three months ended March 31, 2023, primarily due to higher headcount.
For the three months ended March 31, 2024, Other costs increased compared to the three months ended March 31, 2023, primarily due to an increase in miscellaneous expenses, including higher facility related expenses.
For the three months ended March 31, 2024, Selling, general and administrative expenses increased $1.8 million compared to the three months ended March 31, 2023. The following table provides the breakout of Selling, general and administrative expenses:
| Three months ended March 31, | |||||||||||||||||||||||
| Change | |||||||||||||||||||||||
| In thousands | 2024 | 2023 | $ | % | |||||||||||||||||||
| Compensation and benefits | $ | 19,645 | $ | 19,066 | $ | 579 | 3 | % | |||||||||||||||
| Outside services and other | 4,320 | 3,078 | 1,242 | 40 | % | ||||||||||||||||||
| Total selling, general and administrative expenses | $ | 23,965 | $ | 22,144 | $ | 1,821 | 8 | % | |||||||||||||||
For the three months ended March 31, 2024, Compensation and benefits costs increased compared to the three months ended March 31, 2023, primarily due to higher headcount.
For the three months ended March 31, 2024, Outside services and other costs increased compared to the three months ended March 31, 2023, due to an increase in miscellaneous expenses, including higher bad debt expense of $0.7 million.
DMS segment Adjusted EBITDA
| Three months ended March 31, | |||||||||||||||||||||||
| Change | |||||||||||||||||||||||
| In thousands | 2024 | 2023 | $ | % | |||||||||||||||||||
| Net income attributable to Gannett | $ | 609 | $ | 5,623 | $ | (5,014) | (89) | % | |||||||||||||||
| Depreciation and amortization | 5,880 | 5,860 | 20 | — | % | ||||||||||||||||||
| Integration and reorganization costs | 25 | 20 | 5 | 25 | % | ||||||||||||||||||
| Loss on sale or disposal of assets, net | 89 | 35 | 54 | *** | |||||||||||||||||||
| Other non-operating expense, net | 1,546 | 145 | 1,401 | *** | |||||||||||||||||||
| Non-recurring items | 630 | — | 630 | *** | |||||||||||||||||||
|
Adjusted EBITDA (non-GAAP basis)
(a)
|
$ | 8,779 | $ | 11,683 | $ | (2,904) | (25) | % | |||||||||||||||
| Net income attributable to Gannett margin | 0.5 | % | 5.0 | % | |||||||||||||||||||
|
Adjusted EBITDA margin (non-GAAP basis)
(a)(b)
|
7.5 | % | 10.4 | % | |||||||||||||||||||
*** Indicates an absolute value percentage change greater than 100.
(a)
See "Non-GAAP Financial Measures" below for additional information about non-GAAP measures.
(b)
We define Adjusted EBITDA margin as Adjusted EBITDA divided by total Revenues.
For the three months ended March 31, 2024, the decrease in DMS segment Adjusted EBITDA compared to the three months ended March 31, 2023, was primarily attributable to the changes discussed above. In addition, for the three months
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ended March 31, 2024, Other non-operating expense, net increased compared to the three months ended March 31, 2023, mainly due to an increase in unrealized foreign currency losses.
Corporate and other category
For the three months ended March 31, 2024, Corporate and other revenues were $1.6 million compared to $1.4 million for the three months ended March 31, 2023.
For the three months ended March 31, 2024, Corporate and other operating expenses increased $47.9 million compared to the three months ended March 31, 2023. The following table provides the breakout of Corporate and other operating expenses:
| Three months ended March 31, | |||||||||||||||||||||||
| Change | |||||||||||||||||||||||
| In thousands | 2024 | 2023 | $ | % | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Operating costs | $ | 4,885 | $ | 6,026 | $ | (1,141) | (19) | % | |||||||||||||||
| Selling, general and administrative expenses | 10,684 | 5,598 | 5,086 | 91 | % | ||||||||||||||||||
| Depreciation and amortization | 5,506 | 4,329 | 1,177 | 27 | % | ||||||||||||||||||
| Integration and reorganization costs | 2,798 | 7,458 | (4,660) | (62) | % | ||||||||||||||||||
| Asset Impairments | 45,989 | — | 45,989 | *** | |||||||||||||||||||
| Loss (gain) on sale or disposal of assets, net | 4 | (1,448) | 1,452 | *** | |||||||||||||||||||
| Other operating expenses | 178 | 229 | (51) | (22) | % | ||||||||||||||||||
| Total operating expenses | $ | 70,044 | $ | 22,192 | $ | 47,852 | *** | ||||||||||||||||
*** Indicates an absolute value percentage change greater than 100.
For the three months ended March 31, 2024, Corporate and other operating expenses increased compared to the three months ended March 31, 2023, primarily due to the impairment charge of approximately $46.0 million related to the write-off of the McLean, Virginia operating lease right-of-use asset and the associated leasehold improvements, an increase in Selling, general and administrative expenses, primarily due to a higher technology and product costs, as well as the absence in 2024 of the $1.4 million gain on the sale of intellectual property incurred in the first quarter of 2023. These increases were partially offset by a decrease in Integration and reorganization costs, primarily due to a decrease in severance costs of $3.1 million, and a decrease in other costs of $1.5 million, mainly due to a decrease in system integration costs.
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LIQUIDITY AND CAPITAL RESOURCES
Our primary cash requirements are for working capital, debt obligations, and capital expenditures.
We expect to fund our operations and debt service requirements through cash provided by our operating activities. We expect we will have adequate capital resources and liquidity to meet our ongoing working capital needs, borrowing obligations, and all required capital expenditures for at least the next twelve months. However, a further economic downturn or an increased rate of revenue declines would negatively impact our revenue, cash provided by operating activities and liquidity. We continue to implement cost reduction initiatives to reduce our ongoing level of operating expense. We believe our ability to realize benefits from our cost reduction initiatives will be necessary to offset the continued secular decline in our legacy print business revenue streams. We believe that these measures are important in response to the overall challenging macroeconomic environment that we are facing. Refer to "Overview - Macroeconomic Environment" above for further discussion.
Details of our cash flows are included in the table below:
| Three months ended March 31, | |||||||||||
| In thousands | 2024 | 2023 | |||||||||
| Cash provided by operating activities | $ | 22,451 | $ | 6,718 | |||||||
| Cash (used for) provided by investing activities | (12,426) | 20,704 | |||||||||
| Cash used for financing activities | (18,245) | (38,640) | |||||||||
| Effect of currency exchange rate change on cash | 984 | 38 | |||||||||
| Decrease in cash, cash equivalents and restricted cash | $ | (7,236) | $ | (11,180) | |||||||
Cash flows provided by operating activities:
Our largest source of cash provided by operating activities is generated by advertising and marketing services, primarily from local and national print advertising, as well as retail, classified, and online revenues. Additionally, we generate cash through circulation subscribers, commercial printing and delivery services to third parties, and events. Our primary uses of cash from our operating activities include compensation, newsprint, delivery, and outside services.
Cash flows provided by operating activities were $22.5 million for the three months ended March 31, 2024, compared to $6.7 million for the three months ended March 31, 2023. The increase in cash flows provided by operating activities was primarily due to a decrease in severance payments and higher cash receipts related to deferred revenues, partially offset by an increase in contributions to our pension and other postretirement benefit plans.
Cash flows (used for) provided by investing activities:
Cash flows used for investing activities was $12.4 million for the three months ended March 31, 2024, compared to cash provided by investing activities of $20.7 million for the three months ended March 31, 2023. The change in cash flows provided by investing activities was primarily due to a decrease in proceeds from the sale of real estate and other non-strategic assets of $28.9 million and an increase in purchases of property, plant and equipment of $4.2 million.
Cash flows used for financing activities:
Cash flows used for financing activities were $18.2 million for the three months ended March 31, 2024, compared to $38.6 million for the three months ended March 31, 2023. The decrease in cash flows used for financing activities was primarily due to $20.9 million in lower repayments of long-term debt.
Debt
As of March 31, 2024, the carrying value of our outstanding debt totaled $1.034 billion, which consisted of $341.5 million related to the Senior Secured Term Loan, $269.5 million related to the 2026 Senior Notes, $419.7 million related to the 2027 Notes (defined below), and $3.3 million related to the remaining 4.75% convertible senior notes due and repaid on April 15, 2024 (the "2024 Notes").
The Senior Secured Term Loan
bears interest at a per annum rate equal to the Adjusted Term SOFR (which shall not be less than 0.50% per annum) plus a margin equal to 5.00% or an alternate base rate (which shall not be less than 1.50% per annum) plus a margin equal to 4.00%. We are required to repay the Senior Secured Term Loan from time to time with (i) the proceeds of non-ordinary course asset sales and casualty and condemnation events, (ii) the proceeds of indebtedness not permitted under the Senior Secured Term Loan, and (iii) the aggregate amount of cash and cash equivalents on hand at the Company and its restricted subsidiaries in excess of $100 million at the end of each fiscal year of the Company. Subsequent to the amendment effective as of April 8, 2022, the Senior Secured Term Loan is amortized at a rate equal to $15.1 million per quarter (or, if the
37
ratio of debt secured on an equal basis with the Senior Secured Term Loan less unrestricted cash of the Company and its restricted subsidiaries to Consolidated EBITDA (as such terms are defined in the Senior Secured Term Loan
)
(such ratio, the "First Lien Net Leverage Ratio"), for the most recently ended period of four consecutive fiscal quarters is equal to or less than 1.20 to 1.00, $7.6 million per quarter).
For the three months ended March 31, 2024, we made $3.3 million of prepayments, including quarterly amortization payments, on the Senior Secured Term Loan.
Interest on the 2026 Senior Notes is payable semi-annually in arrears. The 2026 Senior Notes mature on November 1, 2026, unless redeemed or repurchased earlier pursuant to the 2026 Senior Notes Indenture.
Interest on the 6.0% Senior Secured Convertible Notes due 2027 (the "2027 Notes") is payable semi-annually in arrears. The 2027 Notes mature on December 1, 2027, unless earlier repurchased or converted. The 2027 Notes may be converted at any time by the holders into cash, shares of our common stock, par value $0.01 per share (the "Common Stock") or any combination of cash and Common Stock, at our election. The initial conversion rate is 200 shares of Common Stock per $1,000 principal amount of the 2027 Notes, which is equal to a conversion price of $5.00 per share of Common Stock (the "Conversion Price"). For the three months ended March 31, 2024, no shares were issued upon conversion, exercise, or satisfaction of the required conditions.
Our Senior Secured Term Loan, 2024 Notes, 2026 Senior Notes and 2027 Notes all contain usual and customary covenants and events of default. As of March 31, 2024, we were in compliance with all such covenants and obligations.
Refer to Note 6 — Debt in the notes to the condensed consolidated financial statements for additional discussion regarding our debt.
Additional information
We continue to evaluate our results of operations, liquidity and cash flows, and as part of these measures, we have taken steps to manage cash outflow by rationalizing expenses and implementing various cost management initiatives. We do not presently pay a quarterly dividend and there can be no assurance that we will pay dividends in the future. In addition, the terms of our indebtedness, including the Senior Secured Term Loan, the 2026 Senior Notes Indenture and the 2027 Notes Indenture have terms that restrict our ability to pay dividends.
On February 1, 2022, our Board of Directors authorized the repurchase of up to $100 million (the "Stock Repurchase Program") of our Common Stock. Repurchases may be made from time to time through open market purchases or privately negotiated transactions, pursuant to one or more plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or by means of one or more tender offers, in each case, as permitted by securities laws and other legal requirements. The amount and timing of the purchases, if any, will depend on a number of factors, including, but not limited to, the price and availability of our shares, trading volume, capital availability, our performance and general economic and market conditions. The Stock Repurchase Program may be suspended or discontinued at any time. Further, future repurchases under our Stock Repurchase Program may be subject to various conditions under the terms of our various debt instruments and agreements, unless an exception is available or we obtain a waiver or similar relief.
During the three months ended March 31, 2024, we did not repurchase any shares of Common Stock under the Stock Repurchase Program. As of March 31, 2024, the remaining authorized amount under the Stock Repurchase Program was approximately $96.9 million. We do not currently anticipate repurchasing any shares of Common Stock pursuant to the Stock Repurchase Program during the second quarter of 2024.
Beginning with the quarter ended December 31, 2022, and ending with the quarter ending September 30, 2024, the Gannett Retirement Plan's (the "GR Plan") appointed actuary has and will certify the GR Plan's funded status for each quarter (the "Quarterly Certification") in accordance with U.S. GAAP. If the GR Plan is less than 100% funded, we will make a $1.0 million contribution to the GR Plan no later than 60 days following the receipt of the Quarterly Certification, provided, however, that our obligation to make additional contractual contributions will terminate the earlier of (a) the day following the date that a contractual contribution would be due for the quarter ending September 30, 2024, and (b) the date we have made a total of $5 million of contractual contributions subsequent to June 30, 2022. As of March 31, 2024, the GR Plan was more than 100% funded.
We expect our capital expenditures for the remainder of 2024 to total approximately $47 million. These capital expenditures are anticipated to be primarily comprised of projects related to digital product development, costs associated with our print and technology systems, and system upgrades.
38
Our leverage may adversely affect our business and financial performance and restricts our operating flexibility. The level of our indebtedness and our ongoing cash flow requirements may expose us to a risk that a substantial decrease in operating cash flows due to, among other things, continued or additional adverse economic conditions or adverse developments in our business, could make it difficult for us to meet the financial and operating covenants contained in our Senior Secured Term Loan, the 2026 Senior Notes, and the 2027 Notes. In addition, our leverage may limit cash flow available for general corporate purposes such as capital expenditures as well as share repurchases and acquisitions and our flexibility to react to competitive, technological, and other changes in our industry and economic conditions generally. We continue to closely monitor economic factors, including, but not limited to, the current inflationary market and rising interest rates, and we expect to continue to take the steps necessary to appropriately manage liquidity.
CRITICAL ACCOUNTING ESTIMATES
See our most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2023 for a discussion of our critical accounting policies and use of estimates. There have been no material changes to our critical accounting policies and use of estimates discussed in such report.
NON-GAAP FINANCIAL MEASURES
A non-GAAP measure is generally defined as one that purports to measure historical or future financial performance, financial position, or cash flows, but excludes or includes amounts that would not be so excluded or included in the most comparable U.S. generally accepted accounting principles ("U.S. GAAP") measure.
Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial performance measures we believe offer a useful view of the overall operations of our business. These non-GAAP financial performance measures, which may not be comparable to, and may be defined differently than, similarly titled measures used or reported by other companies, should not be considered in isolation from or as a substitute for the related U.S. GAAP measures and should be read together with financial information presented on a U.S. GAAP basis.
We define Adjusted EBITDA as Net income (loss) attributable to Gannett before (1) Income tax expense (benefit), (2) Interest expense, (3) Gains or losses on the early extinguishment of debt, (4) Non-operating pension income, (5) Loss on convertible notes derivative, (6) Depreciation and amortization, (7) Integration and reorganization costs, (8) Third-party debt expenses and acquisition costs, (9) Asset impairments, (10) Goodwill and intangible impairments, (11) Gains or losses on the sale or disposal of assets, (12) Share-based compensation, (13) Other non-operating (income) expense, net, and (14) Non-recurring items. We define Adjusted EBITDA margin as Adjusted EBITDA divided by total Revenues.
Management's use of Adjusted EBITDA and Adjusted EBITDA margin
Adjusted EBITDA and Adjusted EBITDA margin are not measurements of financial performance under U.S. GAAP and should not be considered in isolation or as an alternative to net income (loss), margin, or any other measure of performance or liquidity derived in accordance with U.S. GAAP. We believe these non-GAAP financial performance measures, as we have defined them, are helpful in identifying trends in our day-to-day performance because the items excluded have little or no significance on our day-to-day operations. These measures provide an assessment of core expenses and afford management the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieve optimal financial performance.
We use Adjusted EBITDA and Adjusted EBITDA margin as measures of our day-to-day operating performance, which is evidenced by the publishing and delivery of news and other media and excludes certain expenses that may not be indicative of our day-to-day business operating results.
Limitations of Adjusted EBITDA and Adjusted EBITDA margin
Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools. They should not be viewed in isolation or as a substitute for U.S. GAAP measures of earnings. Material limitations in making the adjustments to our earnings to calculate Adjusted EBITDA and Adjusted EBITDA margin and using these non-GAAP financial measures as compared to U.S. GAAP net income (loss) include: the cash portion of interest/financing expense, income tax (benefit) provision, and charges related to asset impairments, which may significantly affect our financial results.
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Management believes these items are important in evaluating our performance, results of operations, and financial position. We use non-GAAP financial performance measures to supplement our U.S. GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.
Adjusted EBITDA and Adjusted EBITDA margin are not alternatives to net income (loss), margin, or any other measure of performance or liquidity derived in accordance with U.S. GAAP. As such, they should not be considered or relied upon as substitutes or alternatives for any such U.S. GAAP financial measures. We strongly urge you to review the reconciliation of Net income (loss) attributable to Gannett to Adjusted EBITDA and Adjusted EBITDA margin along with our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. We also strongly urge you not to rely on any single financial performance measure to evaluate our business. In addition, because Adjusted EBITDA and Adjusted EBITDA margin are not measures of financial performance under U.S. GAAP and are susceptible to varying calculations, the Adjusted EBITDA and Adjusted EBITDA margin measures as presented in this report may differ from and may not be comparable to similarly titled measures used by other companies.
The table below shows the reconciliation of Net (loss) income attributable to Gannett to Adjusted EBITDA and Net (loss) income attributable to Gannett margin to Adjusted EBITDA margin:
| Three months ended March 31, | |||||||||||
| In thousands | 2024 | 2023 | |||||||||
| Net (loss) income attributable to Gannett | $ | (84,768) | $ | 10,344 | |||||||
| Provision (benefit) for income taxes | 10,078 | (17,329) | |||||||||
| Interest expense | 26,565 | 28,330 | |||||||||
| Gain on early extinguishment of debt | (617) | (496) | |||||||||
| Non-operating pension income | (3,146) | (1,815) | |||||||||
| Depreciation and amortization | 38,298 | 43,698 | |||||||||
| Integration and reorganization costs | 17,881 | 12,127 | |||||||||
| Third-party debt expenses and acquisition costs | 178 | 229 | |||||||||
| Asset impairments | 45,989 | 5 | |||||||||
| Loss (gain) on sale or disposal of assets, net | 552 | (17,681) | |||||||||
| Share-based compensation expense | 2,826 | 3,736 | |||||||||
| Other non-operating expense, net | 1,817 | 1,221 | |||||||||
| Non-recurring items | 1,936 | 533 | |||||||||
| Adjusted EBITDA (non-GAAP basis) | $ | 57,589 | $ | 62,902 | |||||||
| Net (loss) income attributable to Gannett margin | (13.3) | % | 1.5 | % | |||||||
| Adjusted EBITDA margin (non-GAAP basis) | 9.1 | % | 9.4 | % | |||||||
KEY PERFORMANCE INDICATORS
A key performance indicator ("KPI") is generally defined as a quantifiable measurement or metric used to gauge performance, specifically to help determine strategic, financial, and operational achievements, especially compared to those of similar businesses.
We define Digital-only ARPU as digital-only subscription average monthly revenues divided by the average digital-only paid subscriptions within the respective period. We define Core platform ARPU as core platform average monthly revenues divided by average monthly customer count within the period. We define Core platform revenues as revenue derived from customers utilizing our proprietary digital marketing services platform that are sold by either our direct or local market teams.
Management believes Digital-only ARPU, Core platform ARPU, digital-only paid subscriptions, core platform revenues and core platform average customer count are KPIs that offer useful information in understanding consumer behavior, trends in our business, and our overall operating results. Management utilizes these KPIs to track and analyze trends across our segments.
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The following tables provide information regarding certain KPIs for the Domestic Gannett Media, Newsquest and DMS segments:
| Three months ended March 31, | |||||||||||||||||||||||
| In thousands, except ARPU | 2024 | 2023 | Change | % Change | |||||||||||||||||||
| Domestic Gannett Media | |||||||||||||||||||||||
|
Digital-only ARPU
|
$ | 7.28 | $ | 5.88 | $ | 1.40 | 24 | % | |||||||||||||||
| Newsquest | |||||||||||||||||||||||
|
Digital-only ARPU
|
$ | 6.03 | $ | 6.41 | $ | (0.38) | (6) | % | |||||||||||||||
| Total Gannett | |||||||||||||||||||||||
|
Digital-only ARPU
|
$ | 7.22 | $ | 5.90 | $ | 1.32 | 22 | % | |||||||||||||||
|
DMS
|
|||||||||||||||||||||||
| Core platform revenues | $ | 116,050 | $ | 111,407 | $ | 4,643 | 4 | % | |||||||||||||||
| Core platform ARPU | $ | 2,697 | $ | 2,535 | $ | 162 | 6 | % | |||||||||||||||
| Core platform average customer count | 14.3 | 14.7 | (0.4) | (3) | % | ||||||||||||||||||
|
As of March 31,
|
|||||||||||||||||
| In thousands | 2024 | 2023 | % Change | ||||||||||||||
| Digital-only paid subscriptions | |||||||||||||||||
| Domestic Gannett Media | 1,927 | 1,962 | (2) | % | |||||||||||||
| Newsquest | 90 | 61 | 48 | % | |||||||||||||
| Total Gannett | 2,017 | 2,023 | — | % | |||||||||||||
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk, including from changes in interest rates, commodity prices, and foreign currency exchange rates. Changes in these factors could cause fluctuations in earnings and cash flow. In the normal course of business, exposure to certain of these market risks is managed as described below.
Interest Rates
We generally manage our risk associated with changes in interest rates through the use of a combination of variable and fixed-rate debt. As of March 31, 2024, we had variable and fixed-rate debt totaling $347.1 million and $767.1 million, respectively. Our variable-rate debt consisted of the Senior Secured Term Loan, which bears interest at the Adjusted Term Secured Overnight Financing Rate. A hypothetical interest rate increase of 100 basis points would have increased our interest expense related to our variable-rate debt and likewise decreased our income and cash flows by approximately $0.9 million for the three months ended March 31, 2024. See Note 6 — Debt to our condensed consolidated financial statements for further discussion of our debt.
Commodity Prices
Certain operating expenses of ours are sensitive to commodity price fluctuations, as well as inflation. Our primary commodity price exposures are newsprint and, to a lesser extent, ink, which in the aggregate represented approximately 3.1% and 5.2% of operating expenses for the three months ended March 31, 2024 and 2023, respectively. A hypothetical $10 per metric ton increase in newsprint price would not have materially impacted our results of operations or cash flows based on newsprint usage for the quarter ended March 31, 2024 of approximately 25 thousand metric tons.
Foreign Currency
We are exposed to foreign exchange rate risk due to our operations in the U.K., for which the British pound sterling is the functional currency. We are also exposed to foreign exchange rate risk due to our DMS segment which has operating activities denominated in currencies other than the U.S. dollar, including the Australian dollar, Canadian dollar, Indian rupee, and New Zealand dollar.
Translation gains or losses affecting the condensed consolidated financial statements have not been significant in the past. At March 31, 2024 and 2023, cumulative foreign currency translation losses reported as part of equity were $1.9 million and $8.5 million, respectively. The fluctuation in cumulative foreign currency translation losses was driven by the impact of changing exchange rates, primarily due to the British pound sterling. A hypothetical 10% fluctuation of the price of the British pound sterling and the currencies in our DMS segment against the U.S. dollar would not have materially impacted operating income for the three months ended March 31, 2024.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of the end of the period covered by this Quarterly Report under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures were effective in recording, processing, summarizing and reporting on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and were effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information regarding legal proceedings may be found in Note 11 — Commitments, contingencies, and other matters — Legal Proceedings of the notes to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors described in Part I, Item 1A, Risk Factors of our Form 10-K for the fiscal year ended December 31, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) Issuer Purchases of Equity Securities
The following table provides information regarding shares withheld from our employees to satisfy certain tax obligations in connection with the vesting of restricted stock awards during the three months ended March 31, 2024. The shares of common stock withheld to satisfy tax withholding obligations may be deemed purchases of such shares required to be disclosed pursuant to this Item 2. We did not repurchase any of our equity securities in the open market during the three months ended March 31, 2024.
| In thousands, except per share amounts |
Total number of shares purchased
(a)
|
Average price paid per share
(a)
|
Total number of shares purchased as part of publicly announced program
(b)
|
Maximum approximate dollar value of shares that may yet be purchased under the Stock Repurchase Program
(b)
|
||||||||||||||||||||||
| Period | ||||||||||||||||||||||||||
| January 1, 2024 - January 31, 2024 | — | $ | — | — | $ | — | ||||||||||||||||||||
| February 1, 2024 - February 29, 2024 | — | $ | — | — | $ | — | ||||||||||||||||||||
| March 1, 2024 - March 31, 2024 | 275 | $ | 2.21 | — | $ | — | ||||||||||||||||||||
| Total | 275 | $ | 2.21 | — | $ | — | ||||||||||||||||||||
(a)
Represents shares of Common Stock withheld pursuant to the 2023 Stock Incentive Plan to cover employee tax-withholding obligations upon vesting of restricted stock awards in the first quarter of 2024. Amounts in the average price paid per share column reflect the weighted average price for shares withheld in satisfaction of these tax-withholding obligations.
(b)
In February 2022, the Company's Board of Directors authorized the repurchase of up to $100 million of Common Stock (the "Stock Repurchase Program"). Repurchases may be made from time to time through open market purchases or privately negotiated transactions, pursuant to one or more plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or by means of one or more tender offers, in each case, as permitted by securities laws and other legal requirements. During the three months ended March 31, 2024, the Company did not repurchase any shares of Common Stock under the Stock Repurchase Program. As of March 31, 2024, the remaining authorized amount under the Stock Repurchase Program was approximately $96.9 million. The Company does not anticipate repurchasing any shares of Common Stock pursuant to the Stock Repurchase Program during the second quarter of 2024.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
This item is not applicable.
ITEM 5. OTHER INFORMATION
Form of Indemnification Agreement
On April 29, 2024, the Company's Board of Directors approved and adopted a new form of indemnification agreement (the "Indemnification Agreement"), to be entered into by the Company with its directors. The Indemnification Agreement replaces the Company's existing form of indemnification agreement. As is the case with the Company's previous form of indemnification agreement, the Indemnification Agreement provides for the indemnification and advancement by the Company of certain expenses and costs relating to claims, suits or proceedings arising from service to the Company or, at its request, service to other entities, as officers, directors,
agents, or similar capacities, to the maximum extent permitted by law, subject to the terms and conditions of the Indemnification Agreement.
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The foregoing summary of the Indemnification Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Indemnification Agreement, the form of which is filed as Exhibit 10.2 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.
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ITEM 6. EXHIBITS
| Exhibit Number |
Description
|
Location
|
||||||||||||
| 10.1 | Gannett Co., Inc. 2023 Annual Bonus Plan.*† | |||||||||||||
| 10.2 | Form of Indemnification Agreement.* | |||||||||||||
| 31.1 |
Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
|
|||||||||||||
| 31.2 |
Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
|
|||||||||||||
| 32.1 | Section 1350 Certification of Principal Executive Officer. | |||||||||||||
| 32.2 | Section 1350 Certification of Principal Financial Officer. | |||||||||||||
| 101 |
The following financial information from Gannett Co., Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations and Comprehensive Income; (iii) Condensed Consolidated Statements of Cash Flow; (iv) Condensed Consolidated Statements of Equity; and (v) Notes to Condensed Consolidated Financial Statements
|
Attached. | ||||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and embedded within the Inline XBRL document) | Attached. | ||||||||||||
| * |
Management contract or compensatory plan or arrangement.
|
|||||||||||||
| † | Certain identified information has been redacted from the exhibit in accordance with Item 601(b)(10) of Regulation S-K. The Company agrees to furnish supplementally an unredacted copy of the exhibit to the Securities and Exchange Commission upon its request. | |||||||||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
Date: May 2, 2024
|
GANNETT CO., INC. | ||||
| /s/ Douglas E. Horne | |||||
| Douglas E. Horne | |||||
| Chief Financial Officer | |||||
| (On behalf of the Registrant and as principal financial officer) | |||||
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TABLE OF CONTENTS
Part I. Financial InformationprintItem 1. Financial StatementsprintNote 1 Description Of Business and Basis Of PresentationprintNote 2 RevenuesprintNote 3 Accounts Receivable, NetprintNote 4 Goodwill and Intangible AssetsprintNote 5 Integration and Reorganization Costs, and Asset ImpairmentsprintNote 6 DebtprintNote 7 Pensions and Other Postretirement Benefit PlansprintNote 8 Fair Value MeasurementprintNote 9 Income TaxesprintNote 10 Supplemental Equity and Other InformationprintNote 11 Commitments, Contingencies, and Other MattersprintNote 12 Segment ReportingprintNote 13 Other Supplemental InformationprintItem 2. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 3. Quantitative and Qualitative Disclosures About Market RiskprintItem 4. Controls and ProceduresprintPart II. Other InformationprintItem 1. Legal ProceedingsprintItem 1A. Risk FactorsprintItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 3. Defaults Upon Senior SecuritiesprintItem 4. Mine Safety DisclosuresprintItem 5. Other InformationprintItem 6. Exhibitsprint