Business context and reporting period
Gannett Co., Inc. (NYSE: GCI)—the registrant named in this filing—filed this Form 10-K for the fiscal year ended December 31, 2021. It is an annual report, not a standalone fourth-quarter report. The company operates USA TODAY and local media businesses in the U.S. and U.K., alongside its LOCALiQ digital marketing business. It reports Publishing and Digital Marketing Solutions (DMS) segments.
Key financial metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $3.208 billion | $3.406 billion |
| Operating income (loss) | $109.1 million | $(447.9) million |
| Net loss attributable to Gannett | $(135.0) million; $(1.00) per share | $(670.5) million; $(5.09) per share |
| Adjusted EBITDA (non-GAAP) | $433.7 million; 13.5% margin | $413.9 million; 12.2% margin |
| Cash from operating activities | $127.5 million | $57.8 million |
| Capital expenditures | $39.6 million | $37.0 million |
Publishing revenue fell 6% to $2.887 billion; DMS revenue rose 3% to $442.3 million. Print advertising declined 12% and print circulation 13%, while digital advertising and marketing services grew 7% and digital-only circulation grew 33%. Digital-only subscribers reached approximately 1.6 million, up 49%. Total digital revenue was $1.028 billion, or 32% of company revenue.
At year-end, cash and cash equivalents were $130.8 million. Debt principal was $1.369 billion (carrying value $1.232 billion); the company reported $69.5 million of current long-term debt and $393.4 million of convertible debt on the balance sheet. Cash, cash equivalents and restricted cash totaled $143.6 million. The term loan requires at least $30 million of unrestricted cash or qualified cash at quarter-end; Gannett reported covenant compliance at December 31, 2021. The filing states management expected adequate liquidity for at least the following 12 months.
Material changes versus 2020
- Revenue declined 6%, mainly from continued print advertising and circulation declines. DMS growth and digital circulation gains partly offset those declines.
- Operating results improved substantially, principally because 2020 included $393.4 million of goodwill and intangible impairments; no such impairment was recorded in 2021. Integration and reorganization costs also fell to $49.3 million from $145.7 million.
- Operating cash flow increased by $69.7 million. Management attributed the improvement partly to lower interest paid and severance payments and $16.4 million of PPP funding, offset in part by working-capital timing effects.
- Interest expense decreased to $135.7 million from $228.5 million, but 2021 included $48.7 million of losses on early extinguishment of debt from refinancing activity.
- In October 2021, Gannett refinanced its prior term loan with a $516 million secured term loan and $400 million of 6% first-lien notes due 2026. The remaining 2027 convertible notes had $485.3 million principal at year-end; the company repurchased $11.8 million principal for $15.3 million in 2021.
Outlook, commentary, risks and unusual items
Management’s 2022 priorities are digital subscriber growth, DMS expansion, improved traditional print profitability and investment in growth businesses. It forecast approximately $45 million of 2022 capital expenditures, primarily for digital products, print and technology systems, and upgrades. The filing provides no specific revenue, earnings or Adjusted EBITDA guidance.
Management expected near-term COVID-19 effects to continue, including pressure on events and single-copy newspaper sales. It also cited secular print declines, newsprint supply constraints and inflation in newsprint and delivery costs. Other prominent risks include heavy debt-service requirements and restrictive covenants, reliance on third-party digital platforms—particularly Google—competition and changes in consumer engagement, labor costs and retention, and potential adverse tax or legal outcomes.
Unusual items include $16.4 million of PPP loans forgiven in 2021 and recorded as expense offsets; a $126.6 million non-cash loss on remeasurement of the convertible-note derivative; and $95.4 million of non-operating pension income. A 2020 material weakness in revenue-recognition controls was reported as remediated at year-end 2021; management and the auditor concluded internal control over financial reporting was effective. The Board authorized up to $100 million of share repurchases in February 2022, and a January 2022 loan amendment permitted up to $50 million of incremental term loans.
Investor facts to verify
- Reconcile the company’s cash-flow improvement to working-capital movements, PPP funding and other nonrecurring or timing effects.
- Review debt principal, interest terms, amortization, covenant headroom and refinancing needs; assess the effect of the January 2022 incremental borrowing and planned buybacks on liquidity.
- Assess the 2027 Notes’ conversion and dilution exposure: the filing says the remaining notes were convertible into 97.1 million shares at the initial conversion rate, with potentially greater issuance under specified adjustments.
- Monitor whether growth in digital subscriptions and DMS can offset ongoing print revenue declines, including the effects of paywalls on audience and advertising.
- Track resolution of the IRS audit of tax deductions and the realization of deferred tax assets and NOLs, as well as pension contributions and any material legal contingencies.