Gannett(GCI) - 2022 Q3 - Quarterly Report

Part I. Financial Information ITEM 1. Financial Statements This section presents Gannett's unaudited condensed consolidated financial statements and detailed notes for the periods ended September 30, 2022, and December 31, 2021 Condensed Consolidated Balance Sheets Total assets decreased to $2.48 billion, liabilities to $2.17 billion, and equity to $313.1 million by September 30, 2022, from December 31, 2021 | Metric (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :-------------------- | :----------- | :----------- | | Total Assets | $2,481,652 | $2,828,069 | | Total Liabilities | $2,168,517 | $2,298,454 | | Total Equity | $313,135 | $529,615 | - Cash and cash equivalents decreased from $130,756 thousand at December 31, 2021, to $124,867 thousand at September 30, 2022[12] - Accounts receivable, net, decreased from $328,733 thousand to $270,440 thousand[12] Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) The company reported a net loss of $54.1 million for Q3 2022 and $110.9 million for the nine months, with total operating revenues declining due to advertising and circulation decreases | Metric (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Operating Revenues | $717,902 | $800,185 | $2,214,639 | $2,381,544 | | Operating Income (Loss) | $(25,143) | $31,102 | $(48,345) | $84,488 | | Net Income (Loss) | $(54,122) | $14,545 | $(110,924) | $(113,447) | | Diluted EPS | $(0.39) | $0.09 | $(0.81) | $(0.84) | - Advertising and marketing services revenue decreased by 12% for the three months ended September 30, 2022, and by 8% for the nine months ended September 30, 2022, compared to the prior year periods[14] - Circulation revenue decreased by 14% for the three months and 12% for the nine months ended September 30, 2022, year-over-year[14] Condensed Consolidated Statements of Cash Flows Operating cash flow decreased to $33.0 million for the nine months ended September 30, 2022, while financing cash outflow significantly reduced due to lower debt repayments | Metric (in thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | | Operating Activities | $32,982 | $133,347 | | Investing Activities | $19,081 | $39,236 | | Financing Activities | $(58,044) | $(212,284) | | Decrease in Cash | $(7,428) | $(39,312) | - The decrease in operating cash flow was primarily due to lower cash receipts related to deferred revenues ($35.3 million decrease), an increase in taxes paid ($11.8 million increase), and the absence of $16.4 million in PPP funding received in 2021[215] - Cash used for financing activities decreased due to lower net repayments under term loans ($163.5 million decrease) and a $33.0 million decrease in deferred financing costs payments[217] Condensed Consolidated Statements of Equity Total equity declined to $313.1 million by September 30, 2022, primarily due to a net loss of $110.8 million and other comprehensive loss of $107.8 million | Metric (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :-------------------- | :----------- | :----------- | | Total Equity | $313,135 | $529,615 | | Accumulated Deficit | $(1,032,168) | $(921,399) | | Accumulated Other Comprehensive (Loss) Income | $(47,803) | $59,998 | - Net loss attributable to Gannett for the nine months ended September 30, 2022, was $110,769 thousand[19] - Other comprehensive loss, net of tax, for the nine months ended September 30, 2022, was $107,801 thousand, primarily due to foreign currency translation adjustments and pension/postretirement benefit items[19][107] NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS This section provides detailed explanations of financial statements, covering business, accounting policies, revenue, assets, debt, pensions, taxes, equity, and segment reporting NOTE 1 — Description of business and basis of presentation Gannett, a subscription-led media and marketing solutions company, restructured its U.S. operations, facing ongoing negative impacts from the COVID-19 pandemic - Gannett is a subscription-led and digitally-focused media and marketing solutions company[21] - Strategic organizational restructuring in June 2022 centralized U.S. operations within Gannett Media and Digital Marketing Solutions (DMS)[22] - The COVID-19 pandemic continues to negatively impact Advertising and marketing services revenues and Circulation revenues, particularly single-copy newspapers and event attendance[25] NOTE 2 — Revenues Total operating revenues decreased by 10% for Q3 and 7% for the nine months, driven by declines in print advertising and circulation, despite growth in other revenues | Revenue Type (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Print advertising | $159,324 | $190,044 | $506,295 | $584,165 | | Digital advertising and marketing services | $202,523 | $221,976 | $614,275 | $636,322 | | Circulation | $264,732 | $306,702 | $827,958 | $942,398 | | Other | $91,323 | $81,463 | $266,111 | $218,659 | | Total revenues | $717,902 | $800,185 | $2,214,639 | $2,381,544 | - International revenues were approximately 9.6% and 9.4% of total revenues for the three and nine months ended September 30, 2022, respectively, an increase from 7.9% and 7.7% in the prior year periods[34] - Deferred revenues primarily consist of circulation subscriptions paid in advance, expected to be recognized over the next one to twelve months[35] NOTE 3 — Accounts receivable, net Allowance for doubtful accounts decreased to $12.1 million, while bad debt expense increased to $5.1 million for the nine months due to higher write-offs | Metric (in thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | | Beginning balance | $16,470 | $20,843 | | Current period provision | $5,074 | $3,478 | | Write-offs | $(13,149) | $(10,998) | | Ending balance | $12,056 | $16,411 | - Bad debt expense for the nine months ended September 30, 2022, was $5.1 million, an increase from $3.5 million in the prior year, driven by increased write-offs and reserves for circulation revenue[40] NOTE 4 — Goodwill and intangible assets Total intangible assets decreased to $638.3 million, while goodwill slightly increased; impairment assessment showed no impairment but reduced headroom for Domestic Gannett Media | Asset Type (in thousands) | Sep 30, 2022 (Net) | Dec 31, 2021 (Net) | | :------------------------ | :----------------- | :----------------- | | Finite-lived intangible assets | $471,232 | $544,955 | | Indefinite-lived intangible assets (Mastheads) | $167,105 | $168,198 | | Total Intangible Assets | $638,337 | $713,153 | | Goodwill | $537,898 | $533,709 | - The excess of fair value over carrying value for the Domestic Gannett Media reporting unit decreased from 126% in 2021 to 22% in 2022, indicating reduced headroom[43] - No impairment indicators were present as of September 30, 2022, but adverse changes in macroeconomic factors or market conditions could lead to future declines in fair value[45][46] NOTE 5 — Integration and reorganization costs and asset impairments Integration and reorganization costs significantly increased to $33.3 million for Q3 and $60.5 million for the nine months, driven by severance and facility consolidation | Cost Type (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Severance-related expenses | $15,737 | $2,660 | $32,734 | $10,886 | | Facility consolidation and other restructuring-related expenses | $17,574 | $10,959 | $27,720 | $24,581 | | Total Integration and reorganization costs | $33,311 | $13,619 | $60,454 | $35,467 | - The increase in facility consolidation costs for Gannett Media was due to a withdrawal liability from a multiemployer pension plan and expenses from exiting a lease[50] - Accelerated depreciation related to print facility closures was $0.3 million for the three months and $10.5 million for the nine months ended September 30, 2022[51] NOTE 6 — Debt Total debt decreased to $1.20 billion; the New Senior Secured Term Loan had a 6.4% effective rate, and $37.0 million of 2026 Senior Notes were repurchased | Debt Type (in millions) | Sep 30, 2022 (Carrying Value) | Dec 31, 2021 (Carrying Value) | | :---------------------- | :---------------------------- | :---------------------------- | | New Senior Secured Term Loan | $455.7 | $463.3 | | 2026 Senior Notes | $344.3 | $375.6 | | 2027 Notes | $399.2 | $390.1 | | 2024 Notes | $3.3 | $3.3 | | Total Debt | $1,202.5 | $1,232.3 | - The New Senior Secured Term Loan had an effective interest rate of 6.4% as of September 30, 2022, and $92.2 million in prepayments were made during the nine months ended September 30, 2022[59][222] - For the nine months ended September 30, 2022, $37.0 million of 2026 Senior Notes principal was repurchased, resulting in a $0.4 million loss on early extinguishment of debt[67][228] - The 2027 Notes had an effective interest rate of 10.5% as of September 30, 2022[79][241] NOTE 7 — Pensions and other postretirement benefit plans Non-operating pension income decreased due to lower asset returns; a $450 million pension liability transfer reduced net funded obligation by $99.9 million | Metric (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Non-operating pension income | $(14,990) | $(23,860) | $(51,363) | $(71,644) | | Total expense (benefit) for retirement plans | $(14,837) | $(23,785) | $(50,892) | $(71,429) | - On August 31, 2022, Gannett Media Corp. transferred approximately $450 million of GR Plan pension liabilities and related assets to insurers, resulting in a $99.9 million decrease in net funded pension obligation[85] - A noncash pension settlement gain of $0.7 million ($0.5 million after tax) was recognized for the GR Plan for the quarter ended September 30, 2022[85] NOTE 8 — Fair value measurement Fair value measurements primarily cover pension assets and debt, with most debt classified as Level 2, 2027 Notes equity as Level 3, and $0.6 million in assets held for sale - Assets and liabilities recorded at fair value on a recurring basis primarily consist of pension plan assets, for which NAV is used as a practical expedient[89] - The New Senior Secured Term Loan and 2026 Senior Notes are classified as Level 2 for fair value measurement[57][65] - The equity component of the 2027 Notes is classified as Level 3 due to significant unobservable inputs[78] - Assets held for sale (Level 3) totaled $0.6 million as of September 30, 2022[91] NOTE 9 — Income taxes Pre-tax losses of $36.0 million for Q3 and $78.3 million for nine months resulted in negative effective tax rates due to valuation allowances and GILTI inclusion | Metric (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Income (loss) before income taxes | $(36,024) | $17,529 | $(78,275) | $(101,880) | | Provision for income taxes | $18,098 | $2,984 | $32,649 | $11,567 | | Effective tax rate | (50.2)% | 17.0% | (41.7)% | (11.4)% | - The provision for income taxes in 2022 was mainly driven by valuation allowances on non-deductible interest expense carryforwards and global intangible low-taxed income inclusion[92][93] - Unrecognized tax benefits that could impact the effective tax rate were approximately $43.2 million as of September 30, 2022[94] NOTE 10 — Supplemental equity information Diluted loss per share was $0.39 for Q3 and $0.81 for nine months; $3.1 million was used to repurchase 800 thousand shares under the $100 million program | Metric (in thousands, except per share) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) attributable to Gannett | $(54,114) | $14,687 | $(110,769) | $(112,514) | | Diluted weighted average shares outstanding | 137,008 | 239,453 | 136,857 | 134,610 | | Diluted income (loss) per share | $(0.39) | $0.09 | $(0.81) | $(0.84) | - Share-based compensation expense was $4.5 million for the three months and $13.3 million for the nine months ended September 30, 2022[100] - During the nine months ended September 30, 2022, 800 thousand shares of Common Stock were repurchased for approximately $3.1 million under the Stock Repurchase Program, with $96.9 million remaining authorized[106] NOTE 11 — Commitments, contingencies and other matters Gannett is involved in various legal proceedings, but management does not expect a material adverse effect on financial position or results of operations - The Company is involved in legal proceedings such as libel, invasion of privacy, intellectual property infringement, wrongful termination, and regulatory investigations[108] - Management does not expect current and threatened legal proceedings to have a material adverse effect on the Company's business, financial position, or consolidated results of operations[109] NOTE 12 — Segment reporting Gannett operates in Gannett Media and DMS segments, using Adjusted EBITDA; consolidated Adjusted EBITDA for Q3 2022 was $51.9 million (7.2% margin) - Reportable segments are Gannett Media and Digital Marketing Solutions (DMS)[110][111] - Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures used by the CODM to evaluate segment performance and allocate resources[113] | Metric (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Consolidated Adjusted EBITDA | $51,909 | $102,067 | $166,931 | $318,301 | | Consolidated Adjusted EBITDA margin | 7.2% | 12.8% | 7.5% | 13.4% | NOTE 13 — Other supplemental information Total cash and equivalents decreased to $136.2 million; cash paid for interest was $51.0 million, and accounts payable totaled $342.8 million | Metric (in thousands) | Sep 30, 2022 | Sep 30, 2021 | | :-------------------- | :----------- | :----------- | | Cash and cash equivalents | $124,867 | $141,302 | | Restricted cash | $11,324 | $26,112 | | Total cash, cash equivalents and restricted cash | $136,191 | $167,414 | | Metric (in thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | | Cash paid for taxes, net of refunds | $2,726 | $(9,031) | | Cash paid for interest | $51,021 | $80,280 | | Accounts Payable and Accrued Liabilities (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------------------- | :----------- | :----------- | | Accounts payable | $162,646 | $157,257 | | Compensation | $86,596 | $107,585 | | Total Accounts payable and accrued liabilities | $342,815 | $357,014 | NOTE 14 — Subsequent events In October 2022, Gannett agreed to repurchase $17.8 million of 2026 Senior Notes, expecting a $3.0 million gain on early extinguishment of debt - In October 2022, the Company agreed to repurchase $17.8 million of 2026 Senior Notes at 78.0% of par value[126] - This transaction is expected to result in a gain on early extinguishment of debt of approximately $3.0 million in the fourth quarter of 2022[126] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Gannett's financial condition and operations, covering business overview, trends, strategic outlook, and segment performance amidst print-to-digital shifts and macroeconomic challenges - Gannett is a subscription-led and digitally-focused media and marketing solutions company[129] - Strategic organizational restructuring in June 2022 centralized U.S. operations within Gannett Media and Digital Marketing Solutions (DMS)[130] - Key business trends include declining print advertising and circulation, a complex digital marketing environment for SMBs, and increased costs due to inflation[133][138] OVERVIEW Gannett, a subscription-led media company, restructured its operations, facing declining print revenues and inflation, while focusing on digital growth and strategic investments Business Trends Print advertising and circulation revenues continue to decline, digital marketing faces reduced demand, and the company experiences constrained newsprint and inflationary cost pressures - Print advertising and circulation revenues continue to decline, with an accelerated rate in Q2 and Q3 2022 due to macroeconomic factors and consumer price sensitivity[133] - Digital Marketing Solutions segment experienced longer sales cycles and reduced demand for digital advertising in Q3 2022 due to a challenging macroeconomic environment[133] - Newsprint availability is constrained, and inflationary prices across labor, fuel, delivery, newsprint, ink, and printing plates are negatively impacting the cost structure[138] Recent Developments Recent developments include a $17.8 million debt repurchase, a $450 million pension liability transfer, and $3.1 million in stock repurchases under the $100 million program - Debt Repurchase: In October 2022, the Company repurchased $17.8 million of 2026 Senior Notes at 78.0% of par, expecting a $3.0 million gain on early extinguishment of debt[135] - Pension Annuity Contract: On August 31, 2022, $450 million of pension liabilities and assets were transferred to insurers, decreasing net funded pension obligation by $99.9 million and recognizing a $0.7 million noncash pension settlement gain[136] - Stock Repurchase Program: 800 thousand shares of Common Stock were repurchased for approximately $3.1 million during the nine months ended September 30, 2022, with $96.9 million remaining authorized[138] Environmental, Social and Governance Initiatives Gannett formalized its ESG strategy in 2021, aligning with U.N. SDGs, focusing on Reduced Inequalities, Climate Action, and Peace, Justice & Strong Institutions - Gannett formed an executive-led, cross-functional committee in 2021 to formalize an ESG strategy[139] - Key ESG priorities are Reduced Inequalities, Climate Action, and Peace, Justice & Strong Institutions, aligning with U.N. Sustainable Development Goals[140] Certain matters affecting comparability Increased integration and reorganization costs, accelerated depreciation, and foreign currency headwinds negatively impacted comparability and profitability in 2022 - Integration and reorganization costs were $33.3 million for Q3 2022 and $60.5 million for the nine months, including severance and facility consolidation expenses[141] - Accelerated depreciation from printing facility closures was $0.3 million for Q3 2022 and $10.5 million for the nine months[142] - Foreign currency headwinds, particularly the strengthening U.S. dollar, negatively impacted revenues and profitability from U.K. operations[143] Outlook for 2022 Gannett's 2022 outlook focuses on accelerating digital subscriber and marketing services growth, optimizing traditional businesses, and investing in new ventures to become a subscription-led platform - Strategic focus areas include accelerating digital subscriber growth, driving digital marketing services growth, optimizing traditional print and advertising, and prioritizing investments in growth businesses[145][146][147][148] - USA TODAY NETWORK Ventures hosted 65 events in Q3 2022 and 152 events for the nine months, with event revenues decreasing 9.9% in Q3 but expected to increase for the full year[148] Macroeconomic Environment Increased macroeconomic volatility, including inflation and interest rates, negatively impacted advertising revenues, consumer spending, and increased operating costs for Gannett - Increased volatility in U.S. and global economies due to inflation, interest rates, supply chain disruptions, and foreign currency fluctuations[150] - Adversely impacted advertising revenues and reduced demand for print and digital advertising in Q2 and Q3 2022[150][151] - Increased consumer price sensitivity, labor shortages, and delivery challenges negatively impacted print circulation volumes[152] - Higher costs associated with labor, newsprint, delivery, ink, printing plates, fuel, and utilities, along with exposure to rising interest rates[153] Impacts of the COVID-19 pandemic The COVID-19 pandemic accelerated declines in advertising revenues and continues to negatively impact event attendance and single-copy newspaper sales - COVID-19 pandemic initially caused a significant decline in Advertising and marketing services revenues, accelerating secular declines[155] - Ongoing negative impact on revenues and attendance associated with events and lower sales of single-copy newspapers due to changes in consumer behavior[155] Seasonality Gannett's revenues are moderately seasonal, typically peaking in Q4, but Q2 and Q3 2022 advertising revenues were adversely impacted by economic uncertainty - Revenues are subject to moderate seasonality, with advertising and marketing services revenues typically highest in the fourth quarter due to holiday fluctuations[156] - Uncertain economic conditions in Q2 and Q3 2022 adversely impacted advertising revenues, leading to reduced demand and rates[156] RESULTS OF OPERATIONS Consolidated operating revenues decreased by 10% for Q3 and 7% for nine months, resulting in net losses, with Gannett Media declining and Digital Marketing Solutions growing | Metric (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Operating Revenues | $717,902 | $800,185 | $2,214,639 | $2,381,544 | | Operating Income (Loss) | $(25,143) | $31,102 | $(48,345) | $84,488 | | Net Income (Loss) attributable to Gannett | $(54,114) | $14,687 | $(110,769) | $(112,514) | - Print advertising revenues decreased by 16% for the three months and 13% for the nine months, while digital advertising and marketing services decreased by 9% and 3% respectively[158] - Circulation revenues declined by 14% for the three months and 12% for the nine months[158] Consolidated Summary Total operating revenues decreased by 10% for Q3 and 7% for nine months, leading to operating and net losses, with non-operating expenses significantly lower due to prior year derivative loss absence | Metric (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Operating Revenues | $717,902 | $800,185 | $2,214,639 | $2,381,544 | | Operating Income (Loss) | $(25,143) | $31,102 | $(48,345) | $84,488 | | Net Income (Loss) attributable to Gannett | $(54,114) | $14,687 | $(110,769) | $(112,514) | - Non-operating expenses decreased by 84% for the nine months ended September 30, 2022, primarily due to the absence of a $126.6 million loss on convertible notes derivative in the prior year[158][166] - Interest expense decreased due to a lower debt balance and lower interest rates on fixed-rate debt[163] Segment Results Gannett Media revenues and Adjusted EBITDA declined significantly, while Digital Marketing Solutions saw revenue and Adjusted EBITDA growth driven by core direct business and local markets Gannett Media segment Gannett Media's revenues decreased by 12% for Q3 and 8% for nine months, with print and digital media declines, but digital-only circulation grew by 34% and Adjusted EBITDA fell significantly | Metric (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Operating Revenues | $633,006 | $715,807 | $1,968,269 | $2,139,937 | | Operating Income (Loss) | $(6,087) | $58,246 | $19,471 | $170,891 | | Adjusted EBITDA | $46,023 | $101,001 | $165,527 | $317,398 | - Print advertising revenues decreased by 16% for the three months and 13% for the nine months, driven by secular trends and macroeconomic factors[174] - Digital-only circulation revenues increased by 34% for the three months and 33% for the nine months, driven by a 28.5% increase in paid digital-only subscribers to approximately 1.98 million[178] Digital Marketing Solutions segment DMS segment revenues increased by 3% for Q3 and 6% for nine months, driven by client growth and ARPU, with operating income and Adjusted EBITDA also showing increases | Metric (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Operating Revenues | $120,049 | $116,771 | $347,771 | $329,089 | | Operating Income | $8,005 | $6,198 | $19,584 | $12,377 | | Adjusted EBITDA | $15,690 | $15,024 | $41,176 | $36,725 | - Advertising and marketing services revenues increased due to growth in the core direct business and local markets, partially offset by the sunset of non-core products[197] - Operating costs increased due to higher expenses associated with third-party media fees, driven by corresponding revenue growth[199] Corporate and other category Corporate and other operating revenues decreased, while operating expenses also declined due to lower professional fees, compensation, and integration costs | Metric (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Operating revenues | $1,328 | $1,649 | $4,042 | $6,428 | | Operating costs | $2,372 | $6,039 | $2,589 | $14,534 | | Selling, general and administrative expenses | $13,524 | $15,222 | $57,738 | $43,386 | - Operating expenses decreased primarily due to lower professional fees, reduced compensation and benefits, and a decrease in integration and reorganization costs[209] LIQUIDITY AND CAPITAL RESOURCES Operating cash flow significantly decreased to $33.0 million, while financing cash outflow reduced; the company plans to meet liquidity needs through operations and cost reductions, facing leverage risks | Cash Flow (in thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------------- | :-------------------------- | :-------------------------- | | Operating activities | $32,982 | $133,347 | | Investing activities | $19,081 | $39,236 | | Financing activities | $(58,044) | $(212,284) | - Decrease in operating cash flow primarily due to lower cash receipts related to deferred revenues ($35.3 million), increased taxes paid ($11.8 million), and absence of $16.4 million PPP funding from 2021[215] - Capital expenditures for the remainder of 2022 are expected to be approximately $9.5 million, focused on digital product development, print/technology systems, and system upgrades[247] - The company's leverage may adversely affect its business and financial performance, restricting operating flexibility and cash flow for corporate purposes[249] CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES No material changes to critical accounting policies and estimates have occurred since the December 31, 2021 Annual Report on Form 10-K - No material changes to critical accounting policies and use of estimates since the December 31, 2021 Annual Report on Form 10-K[251] NON-GAAP FINANCIAL MEASURES Gannett uses Adjusted EBITDA and Adjusted EBITDA margin as non-GAAP measures to evaluate operating performance, excluding non-operating and non-cash items, with limitations acknowledged - Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures used to evaluate overall business operations[253] - Adjusted EBITDA excludes items such as income tax, interest expense, gains/losses on debt extinguishment, non-operating pension income, depreciation and amortization, integration and reorganization costs, asset impairments, and share-based compensation[253] | Metric (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) attributable to Gannett | $(54,114) | $14,687 | $(110,769) | $(112,514) | | Adjusted EBITDA | $51,909 | $102,067 | $166,931 | $318,301 | | Adjusted EBITDA margin | 7.2% | 12.8% | 7.5% | 13.4% | ITEM 3. Quantitative and Qualitative Disclosures About Market Risk Gannett faces market risks from interest rate and foreign currency fluctuations, with $467.9 million in variable-rate debt and a $35.8 million cumulative foreign currency translation loss - Exposed to market risk from changes in interest rates and foreign currency exchange rates[260] - As of September 30, 2022, variable-rate debt totaled $467.9 million (New Senior Secured Term Loan) and fixed-rate debt totaled $851.6 million[261] - A hypothetical 150 basis point interest rate increase would decrease income and cash flows by approximately $5.3 million for the nine months ended September 30, 2022[261] - Cumulative foreign currency translation loss reported as part of equity was $35.8 million at September 30, 2022, primarily due to the strengthening U.S. dollar against the British pound sterling[263] Interest Rates Gannett manages interest rate risk with $467.9 million in variable-rate debt; a 150 basis point increase would decrease income and cash flows by $5.3 million for nine months - Variable-rate debt was $467.9 million and fixed-rate debt was $851.6 million as of September 30, 2022[261] - The New Senior Secured Term Loan bears interest at Adjusted Term SOFR plus a margin, with Adjusted Term SOFR at 2.46% as of September 30, 2022[261] - A hypothetical 150 basis point interest rate increase would decrease income and cash flows by approximately $1.8 million for three months and $5.3 million for nine months[261] Foreign Currency Gannett's foreign currency risk stems from U.K. and DMS operations, resulting in a $35.8 million cumulative translation loss due to a strengthening U.S. dollar - Exposure to foreign exchange rate risk primarily from U.K. operations (British pound sterling) and DMS segment operations in various currencies (e.g., Australian dollar, Canadian dollar, Indian rupee, New Zealand dollar)[262] - Cumulative foreign currency translation losses reported as part of equity were $35.8 million at September 30, 2022, mainly due to the strengthening U.S. dollar[263] - A hypothetical 10% fluctuation in foreign currency rates would not have materially impacted operating income for the three and nine months ended September 30, 2022[264] ITEM 4. Controls and Procedures Gannett's disclosure controls and procedures were effective as of September 30, 2022, with no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were effective as of September 30, 2022[265] - No material changes in internal control over financial reporting during the quarter ended September 30, 2022[266] Disclosure Controls and Procedures Gannett's CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2022, ensuring timely and accurate information reporting - The Company's Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of September 30, 2022[265] Changes in Internal Control over Financial Reporting No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2022 - No material changes in internal control over financial reporting during the quarter ended September 30, 2022[266] Part II. Other Information ITEM 1. Legal Proceedings No material developments in legal proceedings have occurred since the December 31, 2021 Annual Report on Form 10-K - No material developments in legal proceedings since the Annual Report on Form 10-K for the fiscal year ended December 31, 2021[268] ITEM 1A. Risk Factors Gannett faces significant macroeconomic risks, including inflation, interest rates, and supply chain disruptions, impacting advertising demand and the success of cost control initiatives - Volatility in U.S. and global economies, higher inflation, increased interest rates, supply chain disruptions, and geopolitical events have adversely impacted business[271] - Challenging economic conditions have reduced demand for print and digital advertising, lowered rates, and increased consumer price sensitivity[271][272] - Inability to successfully implement cost control programs and initiatives to improve profitability could materially and adversely affect future financial results[277] Risks Related to Macroeconomic Factors Economic uncertainty, including inflation, rising interest rates, and supply chain disruptions, negatively impacts advertising demand, consumer spending, and increases borrowing costs - Economic uncertainty, including higher inflation, increased interest rates, and supply chain disruptions, has negatively impacted advertising demand and revenues[271] - Increased consumer price sensitivity, labor shortages, and delivery challenges have negatively impacted print circulation volumes[272] - Higher interest rates could increase borrowing costs, and foreign currency fluctuations impact international operations[273][274] Additional Risks Related to Our Business Failure to successfully implement cost control and profitability initiatives poses a material risk to Gannett's future financial results and liquidity - Failure to successfully implement cost control programs and initiatives to improve profitability could materially and adversely affect future financial results and liquidity[277] - The actual amount and timing of cost savings from these initiatives may differ from current expectations[277] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds Gannett repurchased 800 thousand shares for $3.1 million under its $100 million Stock Repurchase Program, with $96.9 million remaining authorized - Board authorized a $100 million Stock Repurchase Program in February 2022[278] - During the nine months ended September 30, 2022, 800 thousand shares of Common Stock were repurchased for approximately $3.1 million[278] - As of September 30, 2022, $96.9 million remained authorized under the Stock Repurchase Program[278] ITEM 3. Defaults Upon Senior Securities No defaults upon senior securities occurred during the reporting period - No defaults upon senior securities[279] ITEM 4. Mine Safety Disclosures This item is not applicable to Gannett's operations - This item is not applicable[280] ITEM 5. Other Information No other information is reported under this item - No other information reported[281] ITEM 6. Exhibits This section lists exhibits filed with Form 10-Q, including a binding term sheet, officer certifications, and Inline XBRL financial information - Includes a Binding Term Sheet with Tipico USA Technology, Inc. and Tipico US Group Corp[283] - Certifications of Principal Executive Officer and Principal Financial Officer are filed[283] - Financial information is formatted in Inline XBRL[283] Signatures The report is signed by Douglas E. Horne, CFO and Chief Accounting Officer, on November 3, 2022 - Report signed by Douglas E. Horne, Chief Financial Officer and Chief Accounting Officer, on November 3, 2022[287]