Gannett(US:GCI)2019-05-02 20:45PART I. FINANCIAL INFORMATION Item 1. Financial Statements Net loss of $9.4 million reported; total assets grew to $1.52 billion and liabilities to $833.7 million from new lease accounting Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2019 ($ in thousands) | December 30, 2018 ($ in thousands) | | :--- | :--- | :--- | | Total Assets | $1,520,668 | $1,443,864 | | Cash and cash equivalents | $24,597 | $48,651 | | Goodwill | $316,208 | $310,737 | | Operating lease right-of-use assets | $102,583 | $— | | Total Liabilities | $833,672 | $725,094 | | Long-term debt | $435,426 | $428,180 | | Long-term operating lease liabilities | $96,248 | $— | | Total Stockholders' Equity | $685,698 | $717,223 | Condensed Consolidated Statements of Operations Highlights (Unaudited) | Metric | Three months ended March 31, 2019 ($ in thousands) | Three months ended April 1, 2018 ($ in thousands) | | :--- | :--- | :--- | | Total Revenues | $387,599 | $340,765 | | Advertising | $178,694 | $163,259 | | Circulation | $152,165 | $129,991 | | Operating (loss) income | $(1,435) | $7,051 | | Net Loss | $(9,355) | $(665) | | Net Loss per Share (Basic & Diluted) | $(0.15) | $(0.01) | - Net cash provided by operating activities was $31.7 million, an increase from $18.7 million in the prior-year period; net cash used in investing activities was $37.7 million, primarily for acquisitions; net cash used in financing activities was $18.1 million, mainly for dividend payments and debt repayments20 - The company adopted the new lease accounting standard (ASU 2016-02, Topic 842) effective December 31, 2018, recognizing $102.5 million in right-of-use assets and $109.2 million in operating lease liabilities on the balance sheet2653 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue grew 13.7% to $387.6 million from acquisitions, but net loss widened to $9.4 million due to rising costs and impairment - The company's strategy focuses on three key elements: organic growth (consumer and SMB strategies), strategic acquisitions of local media assets, and distributing a portion of free cash flow as dividends113 - In Q1 2019, the company acquired 10 daily newspapers, 11 weekly publications, and other assets for an aggregate purchase price of $34.5 million128 Q1 2019 vs Q1 2018 Performance Summary | Metric | Q1 2019 ($ in millions) | Q1 2018 ($ in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $387.6 | $340.6 | +13.7% | | Operating Costs | $229.5 | $196.4 | +16.9% | | SG&A | $131.5 | $118.8 | +10.7% | | Net Loss | $(9.4) | $(0.7) | -1242.9% | - The company declared a Q1 2019 cash dividend of $0.38 per share, consistent with the previous quarter153154 Results of Operations Q1 2019 revenue grew 13.7% to $387.6 million from acquisitions, but rising costs led to an operating loss of $1.4 million Revenue Breakdown (Q1 2019 vs Q1 2018) | Revenue Stream | Q1 2019 ($ in millions) | Q1 2018 ($ in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Advertising | $178.7 | $163.3 | +9.5% | | Circulation | $152.2 | $130.0 | +17.1% | | Commercial printing and other | $56.7 | $47.5 | +19.4% | | Total Revenues | $387.6 | $340.8 | +13.7% | - The increase in operating costs was mainly due to $42.0 million from acquisitions, partially offset by a $6.7 million decrease in compensation and a $2.5 million decrease in hauling and delivery costs in the remaining operations143 - Integration and reorganization costs increased to $4.1 million from $2.4 million year-over-year, primarily from severance related to acquisition synergies and operational consolidation146 - A $1.2 million impairment of long-lived assets was recorded in Q1 2019 due to the closure of a printing facility; no such charge was recorded in Q1 2018147 Liquidity and Capital Resources Liquidity from operations is expected to be adequate, with $15-17 million capital expenditures, $435.1 million term loan, and $31.5 million revolver availability - Projected capital expenditures for 2019 are expected to be between $15 million and $17 million, focusing on print operation consolidation and system upgrades150 Debt Outstanding as of March 31, 2019 | Facility | Amount Outstanding ($ in millions) | | :--- | :--- | | Term Loan Facility | $435.1 | | Revolving Credit Facility | $8.0 | | Halifax Alabama Credit Agreement | $8.0 (Repaid April 1, 2019) | - As of March 31, 2019, the company had $31.5 million of borrowing availability under its revolving credit facility and was in compliance with all debt covenants159160 Cash Flows Net cash from operations increased to $31.7 million; investing used $37.7 million for acquisitions, and financing used $18.1 million for dividends Summary of Cash Flows (Three months ended) | Cash Flow Activity | March 31, 2019 ($ in thousands) | April 1, 2018 ($ in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $31,742 | $18,663 | | Net cash used in investing activities | $(37,730) | $(22,131) | | Net cash (used in) provided by financing activities | $(18,131) | $27,438 | - Investing activities in Q1 2019 were dominated by $38.0 million used for acquisitions, net of cash acquired168 - Financing activities in Q1 2019 included $23.2 million for dividend payments and $2.2 million for term loan repayments, partially offset by $8.0 million in net borrowings under the revolver170 Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk disclosures were reported for the three-month period ended March 31, 2019 - No material changes to market risk disclosures were reported for the three-month period ended March 31, 2019197 Item 4. Controls and Procedures Disclosure controls were effective as of March 31, 2019, with internal control changes implemented for the new lease accounting standard - The CEO and interim CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter198 - Changes were made to internal controls to accommodate the new lease accounting standard (ASC 842), including implementing new software and policies199 PART II. OTHER INFORMATION Item 1. Legal Proceedings No material changes to previously disclosed legal proceedings were reported during the quarter - There have been no material changes to previously disclosed legal proceedings201 Item 1A. Risk Factors Key risks include economic dependence, substantial indebtedness, print-to-digital shift, acquisition integration, and conflicts with its external manager - The company is highly dependent on local economies and susceptible to general economic downturns, impacting advertising and circulation revenues204 - Significant indebtedness ($435.1 million term loan and $8.0 million revolver balance as of March 31, 2019) and restrictive covenants may limit financial and operating activities, including dividend payments207212 - The company's growth strategy relies heavily on acquisitions, involving risks such as integration challenges, business disruption, and failure to realize expected synergies223224 - Potential conflicts of interest exist with the Manager (FIG LLC), as the Management Agreement was not negotiated at arm's length and compensation may incentivize riskier investments266271 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company withheld 51,766 shares for tax withholdings; no shares were purchased under the $100 million repurchase program - The company withheld 51,766 shares from employees to satisfy tax withholding obligations on vested restricted stock; these were not open market repurchases294 - The company's $100 million share repurchase program is authorized through May 18, 2019, with no shares purchased under this program during the quarter295