Gannett(GCI) - 2021 Q1 - Quarterly Report

Financial Statements Condensed Consolidated Balance Sheets As of March 31, 2021, the company's total assets and liabilities decreased, while total stockholders' equity increased, primarily due to a reduction in current portion of long-term debt and a significant decrease in convertible debt Key Balance Sheet Data (in thousands of US dollars) | Indicator | March 31, 2021 | December 31, 2020 | | :-------------------------------- | :------------- | :------------- | | Total Assets | $3,054,451 | $3,108,914 | | Total Liabilities | $2,514,460 | $2,745,955 | | Total Stockholders' Equity | $541,652 | $364,109 | | Current Liabilities | $697,522 | $741,300 | | Current Portion of Long-Term Debt | $81,057 | $128,445 | | Convertible Debt | $394,146 | $581,405 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) For the three months ended March 31, 2021, total operating revenues decreased by 18% year-over-year, but operating income turned profitable, while net loss significantly increased by 77% due to a substantial loss on convertible note derivatives Key Operating and Comprehensive Income (Loss) Data (in thousands of US dollars) | Indicator | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Year-over-Year Change (thousands of US dollars) | Year-over-Year Change (%) | | :--------------------------------- | :-------------------- | :-------------------- | :----------------- | :------------ | | Total Operating Revenues | $777,084 | $948,682 | $(171,598) | (18.1)% | | Operating Income (Loss) | $7,941 | $(29,822) | $37,763 | >100% | | Interest Expense | $39,503 | $57,899 | $(18,396) | (31.8)% | | Loss on Early Extinguishment of Debt | $19,401 | $805 | $18,596 | >100% | | Loss on Convertible Note Derivatives | $126,600 | — | $126,600 | — | | Net Loss | $(142,701) | $(80,606) | $(62,095) | 77.0% | | Net Loss Attributable to Gannett | $(142,316) | $(80,152) | $(62,164) | 77.6% | | Net Loss Per Share Attributable to Gannett - Basic and Diluted | $(1.06) | $(0.61) | $(0.45) | 73.8% | Condensed Consolidated Statements of Cash Flows For the three months ended March 31, 2021, cash flow from operating activities slightly increased, and investing activities shifted from cash usage to inflow; however, cash used in financing activities significantly rose due to increased debt repayments and issuance costs, leading to a decrease in total cash, cash equivalents, and restricted cash at period-end Key Cash Flow Data (in thousands of US dollars) | Indicator | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Year-over-Year Change (thousands of US dollars) | | :--------------------------------- | :-------------------- | :-------------------- | :----------------- | | Net Cash Provided by Operating Activities | $61,316 | $60,489 | $827 | | Net Cash Provided by (Used in) Investing Activities | $2,516 | $(3,419) | $5,935 | | Net Cash Used in Financing Activities | $(74,699) | $(14,679) | $(60,020) | | Cash, Cash Equivalents, and Restricted Cash, End of Period | $196,173 | $232,609 | $(36,436) | Condensed Consolidated Statements of Equity As of March 31, 2021, the company's total stockholders' equity significantly increased, primarily due to the reclassification of convertible note equity features to additional paid-in capital, despite an expanded net loss during the same period Key Stockholders' Equity Data (in thousands of US dollars) | Indicator | March 31, 2021 | December 30, 2020 | | :--------------------------------- | :------------- | :------------- | | Additional Paid-in Capital | $1,421,977 | $1,103,881 | | Accumulated Deficit | $(928,753) | $(786,437) | | Accumulated Other Comprehensive Income | $53,596 | $50,173 | | Total Equity | $541,652 | $364,109 | - The equity component of convertible notes was reclassified on March 31, 2021, increasing additional paid-in capital by $316,252 thousand[16] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations of the company's business, accounting policies, financial data breakdowns, and significant transactions and events, including COVID-19 impacts, debt restructuring, convertible note accounting, pension plans, taxes, and contingencies NOTE 1 — Description of Business and Basis of Presentation - Gannett is a subscription-led, digitally focused media and marketing solutions company dedicated to fostering communities, with a strategic focus on driving audience growth and engagement, and providing products and marketing expertise to advertisers[18] - The company's operations are organized into two reportable segments: Publishing and Digital Marketing Solutions (DMS)[20] - The ongoing COVID-19 pandemic has led to decreased demand for advertising and digital marketing services, commercial printing and distribution services, and reduced in-person events and single-copy newspaper sales, which is expected to continue negatively impacting business and operating results in the short term[21] - The company has implemented and continues to pursue cost reduction and cash flow preservation measures, including applying for government relief programs, suspending quarterly dividends, debt refinancing, and reducing discretionary spending[22] - The company adopted new guidance simplifying income tax accounting, allowing for the recognition of a tax benefit in the first quarter of 2021 as the annual projected loss no longer limits quarterly losses[27] NOTE 2 — Revenues Revenues by Source (in thousands of US dollars) | Revenue Type | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Year-over-Year Change (thousands of US dollars) | Year-over-Year Change (%) | | :------------------------- | :-------------------- | :-------------------- | :----------------- | :------------ | | Advertising and Marketing Services | $388,357 | $487,010 | $(98,653) | (20.3)% | | Circulation | $325,437 | $374,723 | $(49,286) | (13.2)% | | Other | $63,290 | $86,949 | $(23,659) | (27.2)% | | Total Revenues | $777,084 | $948,682 | $(171,598) | (18.1)% | - Approximately 7.5% of revenues for the three months ended March 31, 2021, were derived from international operations[30] - Deferred revenue primarily consists of prepaid circulation subscriptions, expected to be recognized within the next 1 to 12 months[31] NOTE 3 — Leases Lease-Related Data (in thousands of US dollars) | Indicator | March 31, 2021 | March 31, 2020 | | :--------------------------------- | :------------- | :------------- | | Operating Lease Right-of-Use Assets | $286,368 | $289,504 | | Current Operating Lease Liabilities | $42,600 | — | | Long-Term Operating Lease Liabilities | $271,496 | $274,460 | | Net Lease Cost (Three Months) | $23,897 | $27,026 | - As of March 31, 2021, the weighted-average remaining lease term was 7.6 years, with a weighted-average discount rate of 12.90%[38] NOTE 4 — Accounts Receivable, Net Changes in Allowance for Doubtful Accounts (in thousands of US dollars) | Indicator | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--------------------------------- | :-------------------- | :-------------------- | | Beginning Balance | $20,843 | $19,923 | | Provision for the Period | $(2,171) | $5,143 | | Write-offs | $(2,805) | $(5,347) | | Recoveries | $1,206 | $918 | | Ending Balance | $17,124 | $20,486 | - Bad debt expense decreased by $2.2 million in the first quarter of 2021, primarily due to a seasonal decline in accounts receivable volume, increased recoveries, and fewer write-offs[41] NOTE 5 — Goodwill and Intangible Assets Goodwill and Intangible Assets, Net (in thousands of US dollars) | Indicator | March 31, 2021 | December 31, 2020 | | :--------------------------------- | :------------- | :------------- | | Finite-Lived Intangible Assets | $626,575 | $653,242 | | Indefinite-Lived Intangible Assets (Mastheads) | $171,287 | $171,408 | | Total Intangible Assets | $797,862 | $824,650 | | Goodwill | $534,211 | $534,088 | - As of March 31, 2021, the company's financial performance exceeded the 2020 annual impairment assessment projections, with no indicators of impairment identified[43] NOTE 6 — Integration and Reorganization Costs and Asset Impairments Integration and Reorganization Costs (in thousands of US dollars) | Cost Type | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------- | :-------------------- | :-------------------- | | Severance-Related Costs | $7,097 | $21,174 | | Facility Integration and Other Reorganization-Related Costs | $6,307 | $1,090 | | Total | $13,404 | $28,264 | - Asset impairment charges of $0.8 million were recorded in the first quarter of 2021, primarily related to real estate sales[48] - Accelerated depreciation expense decreased from $24.7 million in the first quarter of 2020 to $9.2 million in the first quarter of 2021, due to shortened asset useful lives[49] NOTE 7 — Debt - On February 9, 2021, the company entered into a $1.045 billion 5-Year Term Loan, a senior secured term loan, to repay the $1.043 billion Acquisition Term Loan and cover related fees[50][51] - In the first quarter of 2021, the company recognized a $19.4 million loss on early extinguishment of debt, primarily due to the early repayment of the Acquisition Term Loan[55] - As of March 31, 2021, the 5-Year Term Loan had an aggregate outstanding principal balance of $1.0364 billion and an effective interest rate of 9.4%[55] - On February 26, 2021, stockholders approved the stock settlement of the 6.0% Senior Secured Convertible Notes due 2027 (2027 Notes), resulting in a $126.6 million increase in the fair value of the derivative liability and its reclassification to equity[67][68] - As of March 31, 2021, the effective interest rate for the liability component of the 2027 Notes was 10.5%[69] NOTE 8 — Pensions and Other Postretirement Benefit Plans Retirement Plan Costs (in thousands of US dollars) | Cost Type | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------- | :-------------------- | :-------------------- | | Pension Benefit Service Cost | $511 | $681 | | Postretirement Benefit Service Cost | $31 | $3 | | Pension Non-Operating (Income) Expense | $(24,364) | $(19,069) | | Postretirement Benefit Non-Operating (Income) Expense | $486 | $58 | | Total Retirement Plan Expense (Income) | $(23,853) | $(18,388) | - In the first quarter of 2021, the company contributed $22.7 million to pension plans and $2.5 million to other postretirement benefit plans[76] - The Gannett Retirement Plan (GR Plan) has deferred certain contractual contributions and negotiated a payment schedule of $5 million per quarter from December 31, 2020, through September 30, 2022[76] NOTE 9 — Income Taxes Key Income Tax Data (in thousands of US dollars) | Indicator | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------- | :-------------------- | :-------------------- | | Loss Before Income Taxes | $(151,810) | $(71,627) | | Provision (Benefit) for Income Taxes | $(9,109) | $8,979 | | Effective Tax Rate | 6.0% | * | - The income tax benefit in the first quarter of 2021 was primarily driven by the net loss before income taxes but was below the 21% statutory federal rate due to the non-deductible impact of derivative revaluation, partially offset by valuation allowances for non-deductible interest expense carryforwards and state and foreign income tax expense[79] - As of March 31, 2021, the total unrecognized tax benefits amounted to approximately $39.7 million[81] NOTE 10 — Supplemental Equity Information Loss Per Share (in thousands of US dollars, except per share amounts) | Indicator | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------- | :-------------------- | :-------------------- | | Net Loss Attributable to Gannett | $(142,316) | $(80,152) | | Basic Weighted-Average Shares Outstanding | 134,075 | 130,561 | | Diluted Weighted-Average Shares Outstanding | 134,075 | 130,561 | | Net Loss Per Share Attributable to Gannett - Basic and Diluted | $(1.06) | $(0.61) | - In the first quarter of 2021, the company recognized $3.4 million in equity-based compensation expense, down from $11.6 million in the same period of 2020[84] - 3.9 million restricted stock units were granted in the first quarter of 2021, typically vesting in installments over three years[85] - The company adopted a Stockholder Rights Plan on April 6, 2020, to protect its net operating loss carryforwards (NOLs) and other tax assets[86] NOTE 11 — Fair Value Measurement - Fair value measurements utilize a three-level fair value hierarchy, primarily encompassing pension plan assets[92][93] - The 5-Year Term Loan is recorded at its carrying value, which approximates fair value, and is categorized as Level 2[94] - As of March 31, 2021, assets held for sale totaled $14.1 million and are classified as Level 3[95] NOTE 12 — Commitments, Contingencies and Other Matters - The company is periodically involved in legal proceedings in the ordinary course of business, including claims for defamation, invasion of privacy, intellectual property infringement, and wrongful termination, but management does not expect these to have a material adverse effect on the company's financial condition or results of operations[96][98] - The company has assumed certain environmental contingencies related to the acquisition of Legacy Gannett, including investigation and remediation of groundwater contamination in Montgomery, Alabama, with the ultimate costs yet to be determined[97] NOTE 13 — Segment Reporting - The company segments its operations into two reportable segments, Publishing and Digital Marketing Solutions, and a Corporate and Other category, based on how the Chief Operating Decision Maker (CODM) manages operations[100] - The CODM uses Adjusted EBITDA and Adjusted EBITDA Margin to assess segment performance and allocate resources[102] Key Adjusted EBITDA (Non-GAAP) Data (in thousands of US dollars) | Indicator | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Year-over-Year Change (thousands of US dollars) | Year-over-Year Change (%) | | :--------------------------------- | :-------------------- | :-------------------- | :----------------- | :------------ | | Net Loss Attributable to Gannett | $(142,316) | $(80,152) | $(62,164) | 77.6% | | Adjusted EBITDA (Non-GAAP) | $100,465 | $99,069 | $1,396 | 1.4% | | Adjusted EBITDA Margin (Non-GAAP) | 12.9% | 10.4% | 2.5 pp | — | NOTE 14 — Other Supplemental Information Reconciliation of Cash, Cash Equivalents, and Restricted Cash (in thousands of US dollars) | Indicator | March 31, 2021 | March 31, 2020 | | :--------------------------------- | :------------- | :------------- | | Cash and Cash Equivalents | $163,505 | $199,651 | | Restricted Cash in Other Current Assets | $8,999 | $11,028 | | Restricted Cash in Investments and Other Assets | $23,669 | $21,930 | | Total Cash, Cash Equivalents, and Restricted Cash | $196,173 | $232,609 | - Interest paid in the first quarter of 2021 was $13.5 million, significantly higher than $0.551 million in the same period of 2020[108] Accounts Payable and Accrued Liabilities Detail (in thousands of US dollars) | Indicator | March 31, 2021 | December 31, 2020 | | :------------------------- | :------------- | :------------- | | Accounts Payable | $137,571 | $131,797 | | Compensation | $109,173 | $115,061 | | Taxes | $28,786 | $30,834 | | Benefits | $22,120 | $22,821 | | Interest | $22,327 | $3,676 | | Other | $57,393 | $74,057 | | Total Accounts Payable and Accrued Liabilities | $377,370 | $378,246 | NOTE 15 — Subsequent Events - Subsequent to March 31, 2021, the company received approval for approximately $16.2 million in Paycheck Protection Program (PPP) funds and plans to apply for forgiveness in accordance with applicable guidelines[110] Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Gannett is a subscription-led, digitally focused media and marketing solutions company committed to driving audience growth and engagement by deepening content experiences, expanding digital marketing services, optimizing traditional print operations, and actively exploring growth businesses like online gaming - The company's strategic focus is to drive audience growth and engagement, transitioning from traditional print media to a digital content platform by offering deeper content experiences and marketing expertise for advertisers[112] - The company has identified several business trends, including the continued decline in print advertising, an increasingly complex digital marketing landscape for small and medium-sized businesses (SMBs), and consumer demand for experiential connections[115] Certain Matters Affecting Comparability This section discusses several factors impacting period-end comparability, including the reclassification of 2020 digital circulation revenue, a $126.6 million non-cash loss from the 2027 convertible notes equity classification, and significant changes in integration and reorganization costs - In the fourth quarter of 2020, circulation revenue in the Publishing segment was reclassified, resulting in a $3.9 million increase in print circulation revenue and a $3.9 million decrease in digital circulation revenue for the first quarter of 2020, with no impact on total circulation revenue[115] - On February 26, 2021, stockholders approved the stock settlement of the 2027 convertible notes, leading to the reclassification of the conversion option to equity and a $126.6 million non-cash loss due to an increase in the company's stock price[116] Integration and Reorganization Costs (in thousands of US dollars) | Cost Type | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------- | :-------------------- | :-------------------- | | Integration and Reorganization Costs | $13,404 | $28,300 | | Accelerated Depreciation | $9,200 | $24,700 | - International operations of the UK Publishing business and the ReachLocal subsidiary are subject to foreign currency fluctuations[121] Outlook for 2021 The company's 2021 strategic focus is to accelerate digital subscriber growth, targeting 10 million users within five years; drive digital marketing services growth; optimize traditional print operations; and prioritize investments in high-growth businesses like USA TODAY NETWORK Ventures and online gaming, while the COVID-19 pandemic is expected to continue having a negative short-term impact - The company plans to grow its paid digital subscriber base to 10 million within the next five years through existing product expansion and new digital subscription offerings[122] - The company will leverage its integrated sales structure and data insights to actively expand domestic and international digital marketing services and develop new dynamic advertising products[123] - The company will continue to enhance the profitability of its traditional print business through economies of scale, process improvements, and optimization[124] - The company will prioritize investments in growth businesses such as USA TODAY NETWORK Ventures and explore advertising, marketing, promotion, event, and service investments in the online gaming sector[125] - The COVID-19 pandemic is expected to continue negatively impacting the company's business and operating results in the short term, and the company will continue to implement cost reduction and cash flow preservation measures[126] - The company's revenues are subject to seasonality, primarily due to fluctuations in advertising volume, with the fourth quarter typically being the highest and the first quarter the lowest[127] Results of Operations This section provides a detailed analysis of the company's operating results for the first quarter of 2021, including changes in total revenues, operating expenses, non-operating income and expenses, income taxes, and net loss, with segment reporting for Publishing, Digital Marketing Solutions, and Corporate and Other categories Consolidated Summary Consolidated Summary of Operations (in thousands of US dollars, except per share amounts) | Indicator | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Change (thousands of US dollars) | Change (%) | | :--------------------------------- | :-------------------- | :-------------------- | :------------- | :-------- | | Total Operating Revenues | $777,084 | $948,682 | $(171,598) | (18)% | | Total Operating Expenses | $769,143 | $978,504 | $(209,361) | (21)% | | Operating Income (Loss) | $7,941 | $(29,822) | $37,763 | >100% | | Non-Operating Expenses | $159,751 | $41,805 | $117,946 | >100% | | Net Loss Attributable to Gannett | $(142,316) | $(80,152) | $(62,164) | 78% | | Net Loss Per Share Attributable to Gannett - Basic and Diluted | $(1.06) | $(0.61) | $(0.45) | 74% | - Intersegment eliminations represent revenues and expenses for digital advertising and marketing services sold by local U.S. Publishing sales teams but fulfilled by the DMS segment[130] Operating Revenues - Total operating revenues for the first quarter of 2021 were $777.1 million, a year-over-year decrease of $171.6 million[131] - Publishing segment operating revenues decreased by $158.6 million year-over-year, primarily due to declines in print and digital advertising, circulation, and other revenues[132] - DMS segment operating revenues decreased by $19.0 million year-over-year, primarily due to declines in advertising and marketing services and other revenues[133] Operating Expenses - Total operating expenses for the first quarter of 2021 were $769.1 million, a year-over-year decrease of $209.4 million[135] - Publishing segment operating expenses decreased by $173.3 million year-over-year, primarily due to reductions in operating costs, selling, general and administrative expenses, depreciation and amortization, and integration and reorganization costs[135] - DMS segment operating expenses decreased by $21.6 million year-over-year, primarily due to reductions in selling, general and administrative expenses, operating costs, and integration and reorganization costs[136] - Corporate and Other category operating expenses decreased by $20.3 million year-over-year, primarily due to reductions in selling, general and administrative expenses and integration and reorganization costs[137] - Operating expenses primarily include personnel, newsprint, distribution, third-party online media purchasing costs, selling, general and administrative expenses, depreciation and amortization, integration and reorganization costs, other operating expenses, and gains or losses on asset disposals and impairment charges[142] Non-Operating (Income) Expense - Interest expense for the first quarter of 2021 was $39.5 million, down from $57.9 million in the same period of 2020, primarily due to debt refinancing and a lower effective interest rate from reduced debt balances[139] - Loss on early extinguishment of debt for the first quarter of 2021 was $19.4 million, up from $0.8 million in the same period of 2020, primarily due to the repayment of the Acquisition Term Loan[140] - Non-operating pension income for the first quarter of 2021 was $23.9 million, up from $18.5 million in the same period of 2020, primarily due to increased expected returns on plan assets and lower interest cost on benefit obligations[141] - Loss on convertible note derivatives for the first quarter of 2021 was $126.6 million, primarily due to an increase in the fair value of the derivative liability driven by the company's stock price appreciation[142] Provision (Benefit) for Income Taxes Loss Before Income Taxes and Income Taxes (in thousands of US dollars) | Indicator | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------- | :-------------------- | :-------------------- | | Loss Before Income Taxes | $(151,810) | $(71,627) | | Provision (Benefit) for Income Taxes | $(9,109) | $8,979 | | Effective Tax Rate | 6.0% | * | - The income tax benefit in the first quarter of 2021 was primarily influenced by the net loss before income taxes, with an effective tax rate of 6.0%, lower than the 21% statutory federal rate due to the non-deductible impact of derivative revaluation, partially offset by valuation allowances[145] Net Loss Attributable to Gannett and Diluted Loss Per Share Attributable to Gannett Net Loss Attributable to Gannett and Diluted Loss Per Share Attributable to Gannett (in thousands of US dollars, except per share amounts) | Indicator | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--------------------------------- | :-------------------- | :-------------------- | | Net Loss Attributable to Gannett | $(142,316) | $(80,152) | | Diluted Loss Per Share Attributable to Gannett | $(1.06) | $(0.61) | Publishing Segment Publishing Segment Operating Revenues (in thousands of US dollars) | Revenue Type | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Change (thousands of US dollars) | Change (%) | | :------------------------- | :-------------------- | :-------------------- | :------------- | :-------- | | Advertising and Marketing Services | $314,310 | $403,636 | $(89,326) | (22)% | | Circulation | $325,436 | $374,720 | $(49,284) | (13)% | | Other | $59,839 | $79,794 | $(19,955) | (25)% | | Total Operating Revenues | $699,585 | $858,150 | $(158,565) | (18)% | - Print advertising revenue decreased by 28%, and digital advertising and marketing services revenue decreased by 11%, primarily impacted by industry trends and the COVID-19 pandemic[149][150] - Digital circulation revenue grew by 47% to $23.2 million, primarily driven by a 37% increase in digital subscribers to approximately 1.2 million[151] - Operating costs decreased by $87.1 million year-over-year, primarily due to reductions in newsprint and ink costs, distribution costs, compensation and benefits, and external service costs[153][154][155][156] - Selling, general and administrative expenses decreased by $64.6 million year-over-year, primarily due to reductions in compensation and benefits, external service costs, and other costs[158][159][160] - Publishing segment Adjusted EBITDA was $102.2 million, a year-over-year decrease of 8%[164][165] Digital Marketing Solutions Segment Digital Marketing Solutions Segment Operating Revenues (in thousands of US dollars) | Revenue Type | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Change (thousands of US dollars) | Change (%) | | :------------------------- | :-------------------- | :-------------------- | :------------- | :-------- | | Advertising and Marketing Services | $101,376 | $116,283 | $(14,907) | (13)% | | Other | $905 | $4,998 | $(4,093) | (82)% | | Total Operating Revenues | $102,281 | $121,281 | $(19,000) | (16)% | - The decline in advertising and marketing services revenue was primarily due to a $9.2 million revenue shortfall from changes in media rebate programs and a decrease in international operations[168] - Operating costs decreased by $4.0 million year-over-year, primarily due to a $5.5 million reduction in compensation and benefits, partially offset by a $3.7 million increase in third-party media costs[170][171] - Selling, general and administrative expenses decreased by $16.9 million year-over-year, primarily due to a $17.7 million reduction in compensation and benefits, benefiting from cost control measures and headcount reductions[172][173] - Digital Marketing Solutions segment Adjusted EBITDA was $9.2 million, a year-over-year increase of 16%[175][176] Corporate and Other Category - Corporate and Other category operating revenues were $3.1 million in the first quarter of 2021, remaining relatively flat compared to the same period in 2020[177] Corporate and Other Category Operating Expenses (in thousands of US dollars) | Expense Type | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Change (thousands of US dollars) | Change (%) | | :------------------------- | :-------------------- | :-------------------- | :------------- | :-------- | | Operating Costs | $3,956 | $5,749 | $(1,793) | (31)% | | Selling, General and Administrative Expenses | $14,269 | $29,949 | $(15,680) | (52)% | | Integration and Reorganization Costs | $5,912 | $13,557 | $(7,645) | (56)% | | Other Operating Expenses | $10,576 | $5,969 | $4,607 | 77% | | Total Operating Expenses | $38,665 | $59,002 | $(20,337) | (34)% | - Other operating expenses increased by $4.6 million, primarily including $10.2 million in third-party fees incurred in the first quarter of 2021 for the 5-Year Term Loan, compared to $6.0 million in acquisition costs in the same period of 2020[180] Liquidity and Capital Resources The company expects to meet operating, debt, and capital expenditure needs through cash flow from operations; despite stable operating cash flow, cash used in financing activities significantly increased due to higher debt repayments and issuance costs, leading to a decrease in total cash. The company has refinanced debt with a new 5-Year Term Loan and implemented cash flow management measures, but the COVID-19 pandemic and debt leverage still present uncertainties Summary of Cash Flows (in thousands of US dollars) | Indicator | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--------------------------------- | :-------------------- | :-------------------- | | Net Cash Provided by Operating Activities | $61,316 | $60,489 | | Net Cash Provided by (Used in) Investing Activities | $2,516 | $(3,419) | | Net Cash Used in Financing Activities | $(74,699) | $(14,679) | | (Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash | $(10,553) | $43,945 | - The increase in cash used in financing activities was primarily due to a $26.1 million increase in net term loan repayments and a $33.9 million increase in debt issuance cost payments[185] - On February 9, 2021, the company entered into a $1.045 billion 5-Year Senior Secured Term Loan to repay the Acquisition Term Loan, with an outstanding principal balance of $1.036 billion as of March 31, 2021[186][187][190] - The 2027 Convertible Notes totaled $497.1 million, are convertible into common stock, and are subject to various covenant terms[191][193] - Under the CARES Act, the company deferred $41.6 million in employer FICA taxes in 2020, with 50% due by December 31, 2021, and the remaining 50% due by December 31, 2022[206] - Remaining capital expenditures for 2021 are estimated at approximately $37.5 million, primarily for digital product development, print and technology system maintenance, and system upgrades[208] - The company's leverage may adversely affect its business and financial performance and limit its operating flexibility, with the ultimate impact of the COVID-19 pandemic remaining uncertain[209][210] Non-GAAP Financial Measures The company uses Adjusted EBITDA and Adjusted EBITDA Margin as non-GAAP financial measures to assess overall operational and day-to-day business performance, excluding non-operating or non-cash items like depreciation, amortization, taxes, and interest. These metrics aid management in identifying trends and making decisions but should not be viewed in isolation or as substitutes for GAAP measures - Adjusted EBITDA is defined as net income (loss) attributable to Gannett, excluding income taxes, interest expense, gain or loss on early extinguishment of debt, non-operating pension income or expense, loss on convertible note derivatives, other non-operating items, depreciation and amortization, integration and reorganization costs, asset impairments, goodwill and intangible asset impairments, gain or loss on sale or disposal of assets, equity-based compensation expense, other operating expenses, and gain or loss on sale of investments[212] - Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by total operating revenues[212] - Management believes these non-GAAP measures are useful for identifying day-to-day performance trends, evaluating controllable expenses, and supporting decisions to achieve financial goals and optimize financial performance[213][214][215] - Adjusted EBITDA and Adjusted EBITDA Margin are not measures of financial performance under GAAP and should not be considered in isolation or as substitutes for operating income, net income (loss), or any other GAAP measure of performance or liquidity[216][218] Quantitative and Qualitative Disclosures About Market Risk No Material Changes There have been no material changes to the quantitative and qualitative disclosures about market risk previously reported by the company in its Form 10-K for the fiscal year ended 2020 - No material changes to market risk disclosures have occurred since the Form 10-K for the fiscal year ended December 31, 2020[221] Controls and Procedures Disclosure Controls and Procedures The company's disclosure controls and procedures were deemed ineffective due to previously reported material weaknesses in internal control over financial reporting; the company is actively implementing remediation plans, including organizational and design enhancements, training, and technology integration, while the remote work environment due to COVID-19 has not materially impacted internal controls - The company's disclosure controls and procedures were ineffective due to previously reported material weaknesses in internal control over financial reporting[222] - The company is implementing remediation plans, including organizational enhancements, design enhancements, training, leveraging external resources, and integrating relevant supporting technologies[223] - The remote work environment resulting from the COVID-19 pandemic has not materially impacted internal controls[225] Legal Proceedings No Material Developments There have been no material developments regarding the potential liabilities for legal and environmental matters reported by the company in its Form 10-K for 2020, other than those disclosed in Note 12, Commitments, Contingencies and Other Matters - No material developments in legal and environmental matters beyond those disclosed in Note 12[227] Risk Factors No Material Changes There have been no material changes to the risk factors disclosed by the company in its Form 10-K for 2020 - No material changes to risk factors have occurred since the 2020 Form 10-K[228] Unregistered Sales of Equity Securities and Use of Proceeds Not Applicable This item is not applicable for the current reporting period - This item is not applicable[229] Defaults Upon Senior Securities Not Applicable This item is not applicable for the current reporting period - This item is not applicable[230] Mine Safety Disclosures Not Applicable This item is not applicable for the current reporting period - This item is not applicable[231] Other Information Not Applicable This item is not applicable for the current reporting period - This item is not applicable[232] Exhibits List of Exhibits This section lists the exhibits filed with Form 10-Q, including supplemental indentures, credit agreements, restricted stock unit award agreements, the annual bonus plan, and certifications from the Chief Executive Officer and Chief Financial Officer - Exhibits include the Second Supplemental Indenture, Credit Agreement, Amended and Restated Performance Restricted Stock Unit Award Agreement, Employee Performance Restricted Stock Unit Award Agreement, and the 2021 Annual Bonus Plan[233] - Also included are certifications under Rule 13a-14(a) and Section 1350 from the Chief Executive Officer and Chief Financial Officer[233] Signatures Report Signature This report was formally signed by Douglas E. Horne, Chief Financial Officer and Chief Accounting Officer of Gannett Co., Inc., on May 7, 2021 - The report was signed by Douglas E. Horne, Chief Financial Officer and Chief Accounting Officer, on behalf of Gannett Co., Inc[240] - The signing date was May 7, 2021[240]