Gannett(US:GCI)2024-05-02 14:12Part I. Financial Information Financial Statements Q1 2024 unaudited financials show total assets decreased to $2.09 billion, total liabilities slightly decreased, and a net loss of $84.8 million, driven by a $46.0 million asset impairment and print revenue declines, partially offset by digital growth Condensed Consolidated Balance Sheet Highlights (Unaudited) | In thousands | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total current assets | $425,768 | $444,237 | | Total assets | $2,089,166 | $2,181,247 | | Total current liabilities | $537,001 | $533,513 | | Total liabilities | $1,856,185 | $1,863,934 | | Total equity | $232,981 | $317,313 | Condensed Consolidated Statements of Operations Highlights (Unaudited) | In thousands, except per share amounts | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Total revenues | $635,761 | $668,917 | | Operating (loss) income | $(49,886) | $19,961 | | Net (loss) income attributable to Gannett | $(84,768) | $10,344 | | (Loss) income per share - diluted | $(0.60) | $0.07 | Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | In thousands | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Cash provided by operating activities | $22,451 | $6,718 | | Cash (used for) provided by investing activities | $(12,426) | $20,704 | | Cash used for financing activities | $(18,245) | $(38,640) | | Decrease in cash, cash equivalents and restricted cash | $(7,236) | $(11,180) | Note 2: Revenues Q1 2024 total revenues decreased to $635.8 million, driven by a decline in Print and commercial revenues to $368.3 million, partially offset by Digital revenue growth to $267.5 million, with updated disaggregation in presentation Revenues by Type (Q1 2024 vs Q1 2023) | Revenue Type | Q1 2024 (in thousands) | Q1 2023 (in thousands) | | :--- | :--- | :--- | | Digital | $267,499 | $247,478 | | Print and commercial | $368,262 | $421,439 | | Total revenues | $635,761 | $668,917 | Digital Revenue Breakdown (Q1 2024) | Digital Revenue Category | Amount (in thousands) | | :--- | :--- | | Digital advertising | $84,466 | | Digital marketing services | $116,414 | | Digital-only subscription | $43,479 | | Digital other | $23,140 | | Total Digital | $267,499 | Note 5: Integration, Reorganization Costs, and Asset Impairments Q1 2024 saw integration and reorganization costs rise to $17.9 million, including $5.3 million in severance and $12.6 million in other restructuring expenses, alongside a significant $46.0 million asset impairment from corporate headquarters relocation - A $46.0 million impairment charge was recorded in Q1 2024 related to the exit of the leased facility in McLean, Virginia, and the relocation of the corporate headquarters42 Integration and Reorganization Costs (Q1 2024 vs Q1 2023) | Cost Category | Q1 2024 (in thousands) | Q1 2023 (in thousands) | | :--- | :--- | :--- | | Severance-related expenses | $5,254 | $10,253 | | Other restructuring-related expenses | $12,627 | $1,874 | | Total | $17,881 | $12,127 | Note 6: Debt As of March 31, 2024, total debt carrying value was $1.034 billion, slightly down from year-end 2023, with the company repurchasing $13.0 million of 2026 Senior Notes and remaining compliant with all debt covenants Debt Composition as of March 31, 2024 | Debt Instrument | Principal Balance (in millions) | Carrying Value (in millions) | | :--- | :--- | :--- | | Senior Secured Term Loan | $347.1 | $341.5 | | 2026 Senior Notes | $278.5 | $269.5 | | 2027 Convertible Notes | $485.3 | $419.7 | | 2024 Notes | $3.3 | $3.3 | | Total Debt | $1,114.2 | $1,034.0 | - In March 2024, the company repurchased $13.0 million of its 2026 Senior Notes at a discount, recognizing a gain of approximately $0.6 million58 - The 2027 Convertible Notes have an initial conversion price of $5.00 per share of common stock62 Note 12: Segment Reporting The company operates in Domestic Gannett Media, Newsquest, and Digital Marketing Solutions (DMS) segments, reporting Q1 2024 revenues of $495.7 million, $60.2 million, and $117.0 million respectively, with corresponding Adjusted EBITDA figures Segment Revenues and Adjusted EBITDA (Q1 2024) | Segment | Revenues (in thousands) | Adjusted EBITDA (in thousands) | | :--- | :--- | :--- | | Domestic Gannett Media | $495,719 | $44,480 | | Newsquest | $60,198 | $14,163 | | Digital Marketing Solutions | $117,045 | $8,779 | | Corporate and other | $1,604 | $(9,833) | - The Chief Operating Decision Maker (CODM) uses Adjusted EBITDA to evaluate segment performance and allocate resources107 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes the 5% YoY revenue decline to print trends, offset by 8% digital growth, with a $84.8 million net loss impacted by a $46.0 million asset impairment, while the company pursues a digital-first strategy and maintains adequate liquidity - The company's strategy prioritizes maximizing audience monetization through the growth of diverse and recurring digital businesses, aiming for an evolution to a predominantly digital media company118130 - Key business trends include the continued decline of print revenues, the influence of macroeconomic conditions on advertising spend, and the evolving landscape of data privacy standards like third-party cookie deprecation120 - Cash flow from operations increased to $22.5 million in Q1 2024 from $6.7 million in Q1 2023, primarily due to lower severance payments and higher cash receipts from deferred revenues203204 Results of Operations Q1 2024 consolidated revenue decreased 5% to $635.8 million, with digital growth offset by print declines, resulting in an operating loss of $49.9 million and a net loss of $84.8 million, largely due to a $46.0 million asset impairment Consolidated Revenue Performance (Q1 2024 vs Q1 2023) | Revenue Category | Q1 2024 (in thousands) | Q1 2023 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Digital | $267,499 | $247,478 | 8% | | Print and commercial | $368,262 | $421,439 | (13)% | | Total revenues | $635,761 | $668,917 | (5)% | - The shift from operating income of $20.0 million in Q1 2023 to an operating loss of $49.9 million in Q1 2024 was primarily driven by a $46.0 million asset impairment charge and a $17.7 million swing from a gain on asset sales to a loss124126144 Liquidity and Capital Resources Q1 2024 operating activities provided $22.5 million in cash, with total debt at $1.034 billion, and the company expects adequate liquidity for the next twelve months, projecting $47 million in capital expenditures for the remainder of 2024 - The company expects capital expenditures for the remainder of 2024 to be approximately $47 million, focused on digital product development and system upgrades218 - As of March 31, 2024, the remaining authorized amount under the company's Stock Repurchase Program was approximately $96.9 million, though no repurchases were made in Q1 2024216 - The company's leverage is a key risk, potentially limiting cash flow for general corporate purposes and flexibility to react to market changes219 Key Performance Indicators (KPIs) As of March 31, 2024, total digital-only paid subscriptions remained flat at 2.0 million, while Total Gannett Digital-only ARPU increased 22% to $7.22, and DMS Core platform ARPU grew 6% to $2,697, despite a 3% decrease in average customer count Key Performance Indicators (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Total Digital-only paid subscriptions (thousands) | 2,017 | 2,023 | 0% | | Total Gannett Digital-only ARPU | $7.22 | $5.90 | 22% | | DMS Core platform ARPU | $2,697 | $2,535 | 6% | | DMS Core platform average customer count (thousands) | 14.3 | 14.7 | (3)% | Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rates, commodity prices, and foreign currency, with $347.1 million in variable-rate debt, newsprint costs at 3.1% of operating expenses, and no material impact expected from 10% foreign currency fluctuations - The company has $347.1 million in variable-rate debt; a hypothetical 100 basis point interest rate increase would have increased interest expense by approximately $0.9 million for Q1 2024235 - Newsprint and ink costs represented 3.1% of operating expenses for Q1 2024, down from 5.2% in Q1 2023236 - Foreign exchange risk is primarily from UK operations (British pound sterling); a hypothetical 10% fluctuation in relevant foreign currencies would not materially impact operating income237238 Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report239 - No changes occurred during the quarter ended March 31, 2024, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting240 Part II. Other Information Legal Proceedings The company is involved in various legal proceedings, including a civil action against Google for anticompetitive practices and an appeal of a $25 million jury verdict in Oklahoma, which is expected to be covered by insurance - The company filed a lawsuit against Google LLC and Alphabet Inc. for alleged anticompetitive monopolization of advertising technology markets101 - In February 2024, a jury awarded a plaintiff $25 million in damages against the company in an Oklahoma lawsuit; the company has appealed the verdict and believes any damages would be covered by insurance policies102 Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023 - No material changes to risk factors were reported since the last Annual Report on Form 10-K243 Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2024, the company made no open market equity repurchases, but withheld 275,000 shares from employees at an average price of $2.21 per share to satisfy tax obligations from restricted stock award vesting - The company did not repurchase any shares of Common Stock under its Stock Repurchase Program during the three months ended March 31, 2024244245 - 275,000 shares were withheld from employees to cover tax-withholding obligations upon the vesting of restricted stock awards245 Other Information On April 29, 2024, the Board of Directors adopted a new indemnification agreement for its directors, replacing the previous version and providing for indemnification and expense advancement to the maximum extent permitted by law - On April 29, 2024, the Board of Directors adopted a new form of indemnification agreement for its directors248