Strong Improvement in Digital Advertising
Revenues
Gannett Co., Inc. (NYSE: GCI) ("Gannett" or "company" or "we" or
"our") today reported first quarter 2018 financial results for the
period ended March 31, 2018. Our first quarter 2018 comprised
90 days, one less day (Sunday) than our first quarter 2017.
"We are pleased with the momentum we saw this quarter in digital
advertising revenues, which reached 43.6% of total advertising
revenues in the quarter," said Robert J. Dickey, president and
chief executive officer. "Overall, first quarter results were ahead
of our expectations driven by solid growth in digital advertising
revenues, especially within the digital marketing services
category."
"We also experienced lower than expected costs in the quarter
primarily driven by favorable savings in compensation and
benefits," said Ali Engel, senior vice president and chief
financial officer. "This quarter's strong results are a testament
to our continued focus on efficiencies to drive steady cash flow,
while also investing for our future. Finally, we were pleased to
complete a $200 million convertible debt financing in early April
that provides us continued flexibility to execute on our strategic
transformation."
First Quarter 2018 Consolidated Results
- Operating revenues were $723.0 million,
compared to $773.5 million in the first quarter of 2017.
- Favorable changes in foreign currency
exchange rates benefited revenues by $7.5 million.
- Same store, day adjusted (1) operating
revenues declined 7.2%, an improvement compared to the 8.8% decline
in the fourth quarter of 2017. The improvement was due to stronger
digital advertising revenue and our strategic subscriber pricing
initiatives.
- Total digital revenues increased 9% to
$255.5 million, or approximately 35% of total revenue.
- GAAP net losses were $0.4 million,
including $14.4 million of after-tax restructuring, asset
impairment charges and other costs.
- Adjusted EBITDA (2) totaled $55.1
million compared to $69.7 million in the first quarter of
2017.
First Quarter 2018 Publishing Segment
- Publishing segment operating revenues
were $638.7 million compared to $694.9 million in the first quarter
of 2017. On a same store, day adjusted basis, segment revenues
declined 8.6%.
- Same store, day adjusted print
advertising revenues declined 17.2% year-over-year, an improvement
from the 18.5% decline in the fourth quarter of 2017. The
improvement reflects the benefit from an earlier Easter and a
revenue lift associated with the redesign of our obituary
sections.
- Digital advertising revenues increased
7.3% to $101.5 million compared to the prior year quarter. On a
same store, day adjusted basis, digital advertising revenues
increased 5.5%, a strong improvement from the 0.7% gain in the
fourth quarter.
- Digital marketing services advertising
revenues of $17.1 million rose 44.3%, on a same store, day adjusted
basis, driven by higher client counts and higher average revenue
per client.
- Digital media advertising revenues of
$64.4 million rose 6.2%, on a same store, day adjusted basis, due
to strong growth in both on- and off-platform revenues.
- Digital classified advertising revenues
of $20.0 million fell 16.2%, on a same store, day adjusted basis,
largely reflecting expected declines in the challenged employment
category.
- Same store, day adjusted circulation
revenues fell 5.1% from the prior year quarter, an improvement from
the 6.7% decline in the fourth quarter of 2017 reflecting our full
access subscriber pricing initiatives, offset by expected declines
in single copy.
- Digital-only subscriber volumes grew
51.0% year-over-year and now total approximately 382,000.
- Publishing segment Adjusted EBITDA was
$77.8 million compared to $91.7 million in the prior year
quarter.
First Quarter 2018 ReachLocal Segment
- Operating revenues were $96.5 million,
up 24.4% year-over-year.
- The increase was attributable to the
migration of Gannett clients onto the ReachLocal platform, the
addition of SweetIQ, and organic growth in North America and Latin
America.
- Adjusted EBITDA was $6.2 million,
nearly doubling from the year ago level and representing a 6.4%
margin as compared to 4.1% in the first quarter of 2017.
- Improved profitability in the quarter
was driven by solid growth in average revenue per client due to
more successful cross-selling and the migration of Gannett clients
onto the ReachLocal platform.
First Quarter 2018 Cash Flow
- Net cash flow from operating activities
was approximately $65.2 million compared to $31.4 million in the
prior year quarter.
- Capital expenditures were approximately
$13.5 million, primarily for product development, technology
investments, and maintenance projects.
- The company paid dividends of $18.1
million; there were no share repurchases.
- As of the end of the first quarter, the
company had a cash balance of $145.9 million and $305.0 million
drawn on its revolver, or net debt of $159.1 million.
- At the beginning of May, the company's
revolver balance had been reduced to $40.0 million with proceeds
from its $201.3 million convertible note offering and cash on
hand.
Outlook
For 2018, the company reiterates the following:
- Consolidated revenues of $2.93-3.03
billion.
- Consolidated Adjusted EBITDA outlook of
$330-340 million.
- Capital expenditures of $65-75
million.
- Depreciation and amortization of
$140-150 million, excluding accelerated depreciation related to
facility consolidations.
- The non-operating cost associated with
our pension plans, recorded in other non-operating items, is
currently estimated to be a credit of $5-10 million as compared to
an expense of $21 million in 2017.
- An effective tax rate of 25-27%.
1 The company defines same store, day adjusted revenue as
same store revenue assuming 2017 first quarter results only had 90
days. 2 The company defines adjusted EBITDA as earnings
before income taxes, interest expense, equity income, other
non-operating items, restructuring costs, acquisition-related
expenses, asset impairment charges, depreciation, amortization and
other items. Because of the variability of these and other items as
well as the impact of future events on these items, management is
unable to reconcile without unreasonable effort the company's
forecasted range of adjusted EBITDA for the full year to a
comparable GAAP range.
* * * *
Conference Call Information
The company will hold a conference call at 10:00 a.m. ET today
to discuss its first quarter results. The call can be accessed via
a live webcast through the company's investor site, http://investors.gannett.com/, or listen-only
conference lines. U.S. callers should dial 855-462-1958 and
international callers should dial 503-343-6635 at least 10 minutes
prior to the scheduled start of the call. The confirmation code for
the conference call is 4367227. A conference call replay will be
available through June 5, 2018. U.S. callers should dial
855-859-2056 and international callers should dial
404-537-3406.
Forward Looking Statements
This press release contains certain forward-looking statements
regarding business strategies, market potential, future financial
performance and other matters. Forward-looking statements include
all statements that are not historical facts. The words “believe,”
“expect,” “estimate,” “could,” “should,” “intend,” “may,” “plan,”
“seek,” “anticipate,” “project” and similar expressions, among
others, generally identify forward-looking statements, which speak
only as of the date the statements were made and are not guarantees
of future performance. Where, in any forward-looking statement, an
expectation or belief as to future results or events is expressed,
such expectation or belief is based on the current plans and
expectations of our management and expressed in good faith and
believed to have a reasonable basis, but there can be no assurance
that the expectation or belief will result or be achieved or
accomplished. Whether or not any such forward-looking statements
are in fact achieved will depend on future events, some of which
are beyond our control. The matters discussed in these
forward-looking statements are subject to a number of risks,
trends, uncertainties and other factors that could cause actual
results to differ materially from those projected, anticipated or
implied in the forward-looking statements. These factors include,
among other things:
- our ability to achieve our strategic
transformation;
- an accelerated decline in general print
readership and/or advertiser patterns as a result of competitive
alternative media or other factors;
- an inability to adapt to technological
changes or grow our digital businesses;
- risks associated with the operation of
an increasingly digital business, such as rapid technological
changes, frequent new product introductions, declines in web
traffic levels, technical failures and proliferation of ad blocking
technologies;
- macroeconomic trends and
conditions;
- competitive pressures in the markets in
which we operate;
- increases in newsprint costs over the
levels anticipated or declines in newsprint supply;
- potential disruption or interruption of
our IT systems due to accidents, extraordinary weather events,
civil unrest, political events, terrorism or cyber security
attacks;
- variability in the exchange rate
relative to the U.S. dollar of currencies in foreign jurisdictions
in which we operate;
- risks and uncertainties related to
strategic acquisitions or investments, including distraction of
management attention, incurrence of additional debt, integration
challenges, and failure to realize expected benefits or synergies
or to operate businesses effectively following acquisitions;
- risks and uncertainties associated with
our ReachLocal segment, including its significant reliance on
Google for media purchases, its international operations and its
ability to develop and gain market acceptance for new products or
services;
- our ability to protect our intellectual
property or defend successfully against infringement claims;
- our ability to attract and retain
employees;
- labor relations, including, but not
limited to, labor disputes which may cause business interruptions,
revenue declines or increased labor costs;
- risks associated with our underfunded
pension plans;
- adverse outcomes in litigation or
proceedings with governmental authorities or administrative
agencies, or changes in the regulatory environment, any of which
could encumber or impede our efforts to improve operating results
or the value of assets;
- volatility in financial and credit
markets which could affect the value of retirement plan assets and
our ability to raise funds through debt or equity issuances and
otherwise affect our ability to access the credit and capital
markets at the times and in the amounts needed and on acceptable
terms;
- risks to our liquidity related to the
redemption, conversion and similar features of our convertible
notes; and
- other uncertainties relating to general
economic, political, business, industry, regulatory and market
conditions.
A further description of these and other important risks,
trends, uncertainties and other factors is provided in the
company’s filings with the U.S. Securities and Exchange Commission,
including the company’s annual report on Form 10-K for fiscal year
2017. Any forward-looking statements should be evaluated in light
of these important risk factors. The company is not responsible for
updating or revising any forward-looking statements, whether as a
result of new information, future events or otherwise, except as
required by law.
Non-GAAP Financial Measures
This press release also contains a discussion of certain
non-GAAP financial measures that the company presents to allow
investors and analysts to measure, analyze and compare its
financial condition and results of operations in a meaningful and
consistent manner. A reconciliation of these non-GAAP financial
measures to the most directly comparable GAAP measures can be found
in the tables accompanying this press release.
About Gannett
Gannett Co., Inc. (NYSE: GCI) is an innovative, digitally
focused media and marketing solutions company committed to
strengthening communities across our network. With an unmatched
local-to-national reach, Gannett touches the lives of more than 110
million people monthly with our Pulitzer-Prize winning content,
consumer experiences and benefits, and advertiser products and
services. Gannett brands include USA TODAY NETWORK with the iconic
USA TODAY and more than 100 local media brands, digital marketing
services companies ReachLocal and SweetIQ, and U.K. media company
Newsquest. To connect with us, visit www.gannett.com.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands (except per share
amounts)
Table No. 1 Three
months ended
March 31,2018
March 26,2017
Operating revenues: Advertising $ 399,525 $ 435,515
Circulation 266,586 283,286 Other 56,840 54,656
Total operating revenues 722,951 773,457
Operating expenses: Cost of sales and operating
expenses 456,984 499,718 Selling, general and administrative
expenses 212,999 209,560 Depreciation and amortization 40,252
46,817 Restructuring costs 9,299 12,551 Asset impairment charges
3,756 3,778
Total operating expenses 723,290
772,424
Operating income (loss) (339 ) 1,033
Non-operating expenses: Interest expense
(4,478 ) (4,255 ) Other non-operating items, net 4,311
(3,887 )
Total non-operating expenses (167 ) (8,142 )
Loss before income taxes (506 ) (7,109 ) Benefit for income
taxes (129 ) (5,030 )
Net loss $ (377 ) $ (2,079 )
Loss per share - basic $ (0.00 ) $ (0.02 )
Loss per share
- diluted $ (0.00 ) $ (0.02 )
Weighted average number
of common shares outstanding: Basic 112,756 113,495 Diluted
112,756 113,495
SEGMENT INFORMATION
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands
Table No. 2 Three
months ended
March 31,2018
March 26,2017
Operating revenues: Publishing $ 638,660 $ 694,924
ReachLocal 96,488 77,565 Corporate and Other 1,976 968 Intersegment
eliminations (14,173 ) — Total $ 722,951 $ 773,457
Adjusted EBITDA: Publishing $ 77,758 $ 91,664
ReachLocal 6,209 3,146 Corporate and Other (28,899 ) (25,129 )
Total $ 55,068 $ 69,681
Depreciation and
amortization: Publishing $ 26,289 $ 33,425 ReachLocal 8,513
7,875 Corporate and Other 5,450 5,517 Total $ 40,252
$ 46,817
Capital expenditures:
Publishing $ 4,109 $ 9,496 ReachLocal 3,508 3,686 Corporate and
Other 5,931 1,858 Total $ 13,548 $ 15,040
SAME STORE REVENUE DETAIL
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands
Table No. 3
Three months ended
March 31,2018
March 26,2017
% Change
Reported revenue $ 722,951 $ 773,457 (6.5 %) Acquired
revenues (11,181 ) — *** Currency impact (7,507 ) — ***
Day-adjusted impacts — (14,612 ) ***
Same store
revenue $ 704,263 $ 758,845 (7.2 %)
Reported advertising revenue $ 399,525 $ 435,515 (8.3 %)
Acquired revenues (4,794 ) — *** Currency impact (4,970 ) — ***
Day-adjusted impacts — (8,435 ) ***
Same store
advertising revenue $ 389,761 $ 427,080 (8.7 %)
Reported circulation revenue $ 266,586 $ 283,286 (5.9
%) Acquired revenues (1,343 ) — *** Currency impact (2,177 ) — ***
Day-adjusted impacts — (5,994 ) ***
Same store
circulation revenue $ 263,066 $ 277,292 (5.1 %)
PUBLISHING REVENUE DETAIL
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands
Table No. 4
Three months ended
March 31,2018
March 26,2017
% Change
Publishing revenue detail Print advertising:
Local $ 99,630 $ 119,255 (16.5 %) Classified 78,400 91,115 (14.0 %)
National 47,483 60,108 (21.0 %) Total print
advertising 225,513 270,478 (16.6 %) Digital
advertising: Digital media 64,386 59,419 8.4 % Digital classified
19,982 23,216 (13.9 %) Digital marketing services 17,109
11,972 42.9 % Total digital advertising 101,477
94,607 7.3 % Total advertising 326,990 365,085
(10.4 %) Circulation 266,586 283,286 (5.9 %) Other
45,084 46,553 (3.2 %) Total Publishing revenue
$ 638,660 $ 694,924 (8.1 %)
USE OF NON-GAAP
INFORMATION
The company uses non-GAAP financial performance and liquidity
measures to supplement the financial information presented on a
GAAP basis. These non-GAAP financial measures, which may not be
comparable to similarly titled measures reported by other
companies, should not be considered in isolation from or as a
substitute for the related GAAP measures and should be read
together with financial information presented on a GAAP basis.
The company defines its non-GAAP measures as follows:
- Adjusted EBITDA is a non-GAAP
financial performance measure that the company believes offers a
useful view of the overall operation of our business. The company
defines adjusted EBITDA as net income before (1) income taxes,
(2) interest expense, (3) equity income, (4) other
non-operating items, (5) restructuring costs, (6)
acquisition-related expenses (including certain integration
expenses), (7) asset impairment charges, (8) other items
(including certain business transformation costs, litigation
expenses, multi-employer pension withdrawals, and gains or losses
on certain investments), (9) depreciation, and
(10) amortization. The most directly comparable GAAP financial
measure is net income.
- Adjusted net income is a
non-GAAP financial performance measure that the company uses for
calculating adjusted earnings per share ("EPS"). Adjusted net
income is defined as net income before the adjustments we apply in
calculating adjusted EPS, as described below. We believe presenting
adjusted net income is useful to enable investors to understand how
we calculate adjusted EPS, which provides a useful view of the
overall operation of the company's business. The most directly
comparable GAAP financial measure is net income.
- Adjusted diluted EPS is a
non-GAAP financial performance measure that the company believes
offers a useful view of the overall operation of our business. The
company defines adjusted EPS as EPS before tax-effected
(1) restructuring costs, (2) asset impairment charges,
(3) acquisition-related expenses (including certain
integration expenses), (4) non-operating (gains) losses, and (5)
other items (including certain business transformation expenses,
litigation expenses, multi-employer pension withdrawals and gains
or losses on certain investments). The tax impact on these non-GAAP
tax deductible adjustments is based on the estimated statutory tax
rates for the United Kingdom of 19.0% and the United States of
25.5%. In addition, tax is adjusted for the impact of
non-deductible acquisition costs, a tax benefit related to a
worthless stock and debt deduction, tax expense associated with new
tax rates in the U.S. Tax Cuts and Jobs Act, and revaluation of a
deferred tax asset associated with a deferred intercompany
transaction. The most directly comparable GAAP financial measure is
diluted EPS.
- Free cash flow is a non-GAAP
liquidity measure that adjusts our reported GAAP results for items
that we believe are critical to the ongoing success of our
business. The company defines free cash flow as cash flow from
operating activities as reported on the statement of cash flows
less capital expenditures, which results in a figure representing
free cash flow available for use in operations, additional
investments, debt obligations, and returns to shareholders. The
most directly comparable GAAP financial measure is net cash from
operating activities.
The company uses non-GAAP financial measures for purposes of
evaluating its performance and liquidity. Therefore, the company
believes that each of the non-GAAP measures presented provides
useful information to investors by allowing them to view our
businesses through the eyes of our management and Board of
Directors, facilitating comparison of results across historical
periods, and providing a focus on the underlying ongoing operating
performance of our business. Many of our peer group companies
present similar non-GAAP measures to better facilitate industry
comparisons.
NON-GAAP FINANCIAL INFORMATION
ADJUSTED EBITDA
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands
Table No. 5 Three months ended March 31, 2018
Publishing ReachLocal
Corporate andOther
ConsolidatedTotal
Net loss (GAAP basis) $ (377 ) Benefit for income taxes (129
) Interest expense 4,478 Other non-operating items, net (4,311 )
Operating income (loss) (GAAP basis) $ 39,165 $ (2,926 ) $ (36,578
) $ (339 ) Depreciation and amortization 26,289 8,513 5,450 40,252
Restructuring costs 8,277 539 483 9,299 Asset impairment charges
3,756 — — 3,756 Acquisition-related items — 16 908 924 Other items
271 67 838 1,176 Adjusted EBITDA
(non-GAAP basis) $ 77,758 $ 6,209 $ (28,899 ) $
55,068 Three months ended March 26,
2017 Publishing ReachLocal
Corporate andOther
ConsolidatedTotal
Net loss (GAAP basis) $ (2,079 ) Benefit for income taxes
(5,030 ) Interest expense 4,255 Other non-operating items, net
3,887 Operating income (loss) (GAAP basis) $ 43,519 $ (4,772
) $ (37,714 ) $ 1,033 Depreciation and amortization 33,425 7,875
5,517 46,817 Restructuring costs 11,121 — 1,430 12,551 Asset
impairment charges 3,778 — — 3,778 Acquisition-related items (333 )
43 1,313 1,023 Other items 154 — 4,325 4,479
Adjusted EBITDA (non-GAAP basis) $ 91,664 $ 3,146
$ (25,129 ) $ 69,681
NON-GAAP
FINANCIAL INFORMATION
ADJUSTED DILUTED EPS
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands (except per share
amounts)
Table No. 6 Three
months ended
March 31,2018
March 26,2017
Restructuring costs (including accelerated depreciation) $
14,460 $ 22,332 Asset impairment charges 3,756 3,778
Acquisition-related items 924 1,023 Non-operating losses 134 158
Other items 714 1,504 Pretax impact 19,988 28,795
Income tax impact of above items (4,926 ) (11,038 ) Impact of items
affecting comparability on net income $ 15,062 $ 17,757
Net loss (GAAP basis) $ (377 ) $ (2,079 ) Impact of
items affecting comparability on net income (loss) 15,062
17,757 Adjusted net income (non-GAAP basis) $ 14,685
$ 15,678 Loss per share - diluted (GAAP basis) $
(0.00 ) $ (0.02 ) Impact of items affecting comparability on net
income (loss) 0.13 0.16 Adjusted earnings per share -
diluted (non-GAAP basis) $ 0.13 $ 0.14 Diluted
weighted average number of common shares outstanding (GAAP basis)
112,756 113,495 Diluted weighted average number of common shares
outstanding (non-GAAP basis) 115,851 115,273
NON-GAAP FINANCIAL INFORMATION
FREE CASH FLOW
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands
Table No. 7
Three months endedMarch 31, 2018
Net cash flow from operating activities (GAAP basis) $
65,153 Capital expenditures (13,548 ) Free cash flow (non-GAAP
basis) $ 51,605
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version on businesswire.com: https://www.businesswire.com/news/home/20180507005298/en/
Gannett Co., Inc.For investor inquiries:Stacy
Cunningham, 703-854-3168VP, Financial Planning & Investor
Relationsinvestors@gannett.comorThe Blueshirt GroupBrinlea
Johnsoninvestors@gannett.comorFor media inquiries:Amber
Allman, 703-854-5358Vice President, Corporate Events &
Communicationsaallman@gannett.com
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