Business context and reporting period
The supplied filing is Gannett Co., Inc.’s Form 10-K for the fiscal year ended December 31, 2022; it is not a separate filing by “USA TODAY Co., Inc.” USA TODAY is part of Gannett’s USA TODAY NETWORK. The filing reports full-year results, not standalone fourth-quarter financial results.
Gannett operates Gannett Media, including U.S. local and national publications and U.K. subsidiary Newsquest, and Digital Marketing Solutions (DMS), principally the LocaliQ platform serving small and medium-sized businesses. Its strategy prioritizes digital subscriptions and recurring digital marketing revenue while managing its declining print business.
Financial and operating performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Operating revenue | $2.945 billion | $3.208 billion |
| Operating income (loss) | $(33.6) million | $109.1 million |
| Net loss attributable to Gannett | $(78.0) million; $(0.57) per share | $(135.0) million; $(1.00) per share |
| Adjusted EBITDA (non-GAAP) | $257.3 million; 8.7% margin | $433.7 million; 13.5% margin |
| Cash from operating activities | $40.8 million | $127.5 million |
| Cash and cash equivalents at year-end | $94.3 million | $130.8 million |
Advertising and marketing revenue fell 9% to $1.496 billion; circulation revenue fell 13% to $1.085 billion; other revenue increased 19% to $364.5 million. Operating loss equaled approximately 1.1% of revenue and net loss approximately 2.7% of revenue.
- Gannett Media: Revenue declined 9% to $2.614 billion and operating income fell 78% to $50.7 million. Advertising and marketing revenue decreased 12%; circulation decreased 13%. Print advertising fell 15% and print circulation fell 17%.
- DMS: Revenue increased 6% to $468.9 million and operating income rose 51% to $29.9 million. Growth reflected the core direct business and local markets, partly offset by sunset non-core products.
- Digital progress: Digital revenue was $1.039 billion, or 35% of total revenue. Paid digital-only subscriptions increased 24% to approximately 2.0 million. Digital-only circulation revenue rose 32%, although lower average revenue per subscriber partly offset subscriber growth.
Liquidity, debt and cash flow
Operating cash flow declined by $86.7 million year over year to $40.8 million. Cash used in investing and financing activities was $102.9 million, partly offset by $22.1 million provided by investing activities, including $83.5 million of proceeds from real estate and other asset sales. Capital expenditures were $45.4 million in 2022; management expected approximately $40 million in 2023.
At year-end, debt principal totaled $1.272 billion (carrying value $1.162 billion), compared with $1.369 billion of principal a year earlier. Principal included $438.4 million under the variable-rate senior secured term loan, $345.2 million of 2026 notes, $485.3 million of 2027 convertible notes, and $3.3 million of 2024 notes. The term loan’s effective interest rate was 6.3%; the 2026 notes’ effective rate was 7.3%; and the 2027 notes’ liability component carried a 10.5% effective rate. Interest expense was $108.4 million, down from $135.7 million.
Debt principal payments are scheduled at $60.5 million in 2023, $63.8 million in 2024, $60.5 million in 2025, $602.1 million in 2026, and $485.3 million in 2027. Debt agreements require at least $30 million of qualifying or unrestricted cash at each quarter-end; Gannett reported covenant compliance at December 31, 2022. Current assets of $507.8 million were below current liabilities of $617.0 million.
Material changes, outlook and risks
- Revenue declined 8% overall. Economic uncertainty from the second quarter onward weakened advertising demand and rates; inflation, consumer price sensitivity, delivery challenges and foreign-exchange movements also weighed on results. Higher costs included labor, newsprint, delivery, ink, fuel and utilities.
- Adjusted EBITDA fell 41% and its margin declined from 13.5% to 8.7%. Gannett Media’s Adjusted EBITDA was $247.7 million, down 43%; DMS’s was $57.6 million, up 13%.
- Integration and reorganization costs increased to $88.0 million from $49.3 million, including $57.6 million of severance and $30.4 million of other costs. No goodwill or indefinite-lived intangible impairment was recorded in 2022, but Domestic Gannett Media’s fair-value cushion over carrying value narrowed to 18% in the fourth-quarter test, from 126% in the 2021 annual test.
- Management said it expected adequate capital and liquidity for ongoing needs and debt service for at least the next 12 months, while warning that a downturn or faster revenue declines could reduce cash flow and liquidity. The filing provides no formal revenue or earnings guidance.
- Key risks include secular print declines, competition for digital audiences and advertising, reliance on third-party online platforms for DMS, inflation and newsprint supply constraints, variable interest rates, foreign-exchange exposure, privacy and cybersecurity obligations, and execution of the digital growth strategy.
- The $485.3 million 2027 convertible notes can convert at an initial $5.00 per share. The filing states they could convert into approximately 97.1 million shares at the initial rate, with a larger potential share count under specified conversion-rate adjustments. This creates substantial potential dilution.
- The company reported a $78.6 million net funded pension asset at year-end, but pension assets and obligations are sensitive to investment returns and actuarial assumptions. An IRS audit could challenge tax deductions; Gannett had an $11.3 million reserve for the disputed tax benefit. Management did not expect current or threatened legal proceedings to have a material adverse effect, while acknowledging uncertain outcomes.
Important facts for investors to verify
- Whether digital subscription growth and DMS expansion can offset continued print revenue declines and restore operating profitability.
- Cash generation, minimum-liquidity covenant headroom, and the company’s ability to meet the large 2026 and 2027 debt maturities and associated interest costs.
- The assumptions behind the Domestic Gannett Media goodwill valuation and whether further operating weakness could trigger impairment.
- The potential dilution, conversion terms and control implications of the 2027 notes.
- Actual 2023 capital spending, restructuring costs, pension contributions and any changes to management’s liquidity outlook.
Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded internal controls were effective as of December 31, 2022.