Business context and reporting period
Entity: The supplied filing is Gannett Co., Inc.’s Form 10-Q, not a filing under the name USA TODAY Co., Inc. It covers the three months ended March 31, 2024, compared with the same period in 2023. Gannett operates the USA TODAY NETWORK and Newsquest, and its LocaliQ digital marketing business. Its reportable segments are Domestic Gannett Media, Newsquest, and Digital Marketing Solutions (DMS).
Financial performance and liquidity
Unless noted, amounts are in U.S. dollars. Revenue and cash flow figures are for the quarter; balance sheet figures are as of March 31, 2024.
| Metric | Q1 2024 | Q1 2023 / prior period |
|---|---|---|
| Total revenue | $635.8 million | $668.9 million, down 5% |
| Digital revenue | $267.5 million, up 8% year over year | $247.5 million |
| Print and commercial revenue | $368.3 million, down 13% year over year | $421.4 million |
| Operating income (loss) | $(49.9) million | $20.0 million |
| Net income (loss) attributable to Gannett | $(84.8) million; $(0.60) per diluted share | $10.3 million; $0.07 per diluted share |
| Adjusted EBITDA (non-GAAP) | $57.6 million; 9.1% margin | $62.9 million; 9.4% margin |
| Cash from operating activities | $22.5 million | $6.7 million |
| Cash and cash equivalents | $93.3 million | $100.2 million at Dec. 31, 2023 |
| Debt carrying value | $1.034 billion | $1.045 billion at Dec. 31, 2023 |
Q1 operating cash flow less purchases of property, plant and equipment was approximately $9.5 million; this is a simple calculation, not a company-reported non-GAAP measure. Cash, cash equivalents and restricted cash totaled $103.4 million. Current assets were $425.8 million versus current liabilities of $537.0 million.
Debt carrying value comprised $341.5 million of senior secured term loans, $269.5 million of 2026 Senior Notes, $419.7 million of 2027 convertible notes, and $3.3 million of 2024 Notes. The filing reports covenant compliance at quarter-end. The remaining $3.3 million of 2024 Notes was repaid on April 15, 2024.
Material changes versus the prior comparable period
- Digital growth did not offset continuing declines in print and commercial revenue. Digital-only subscription revenue rose 21% to $43.5 million; print circulation revenue fell 16% to $173.3 million.
- The company recorded a $46.0 million impairment charge after vacating its leased McLean, Virginia, headquarters and relocating to existing New York office space. This was a principal driver of the operating loss.
- Q1 2023 included a $17.7 million net gain on asset sales; Q1 2024 had a $0.6 million net loss on asset sales. Integration and reorganization costs increased to $17.9 million from $12.1 million.
- Interest expense declined to $26.6 million from $28.3 million, primarily due to lower debt balances, partly offset by higher term-loan interest rates. Cash from operations improved, primarily reflecting lower severance payments and higher receipts related to deferred revenue.
- By segment, revenue was $495.7 million for Domestic Gannett Media (down 6%), $60.2 million for Newsquest (up 2%), and $117.0 million for DMS (up 4%). Adjusted EBITDA was $44.5 million, $14.2 million, and $8.8 million, respectively; DMS Adjusted EBITDA declined 25%.
Outlook, management commentary, risks and unusual items
- Management expects adequate capital resources and liquidity for at least the next 12 months, while cautioning that a further downturn or faster revenue declines could weaken operating cash flow and liquidity. The company expects about $47 million of capital expenditures for the remainder of 2024, mainly for digital development, print and technology systems, and system upgrades.
- No specific revenue or earnings guidance is provided in the supplied filing. Management’s strategy emphasizes digital revenue growth, audience and customer expansion, cost reductions, and debt repayment. It expects legacy print revenue to continue declining.
- Management cites macroeconomic uncertainty, reduced advertising demand and spending, evolving privacy standards and possible effects from third-party cookie deprecation, variable interest rates, foreign exchange movements, and leverage as risks. A 100-basis-point increase in rates would have reduced quarterly income and cash flow by approximately $0.9 million, based on quarter-end variable-rate debt.
- In March, the company repurchased $13.0 million principal of 2026 Senior Notes at a discount, funded using a lender waiver that reduced scheduled term-loan amortization by about $12.0 million for the quarter. It recognized a $0.6 million gain on extinguishment. The company made no repurchases under its common-stock repurchase program and said it did not anticipate repurchases in Q2 2024.
- A jury awarded $5 million in compensatory and $20 million in punitive damages in a lawsuit against Gannett. Gannett appealed; it said it could not estimate a reasonably possible loss range and believed any damages would be covered by insurance. Gannett is also pursuing an advertising-technology lawsuit against Google, accounted for as a gain contingency; any recovery was not recognized.
- The Q1 2024 tax provision was $10.1 million despite a pretax loss, reflecting, among other factors, valuation allowances on U.S. interest carryforwards, foreign tax, and state tax. The reported effective tax rate was negative 13.5%.
- The 2027 convertible notes are convertible at the holder’s option, with cash, shares, or a combination at the company’s election. The filing describes substantial potential share issuance under specified conversion assumptions; no shares were issued on conversion in Q1.
Important facts for investors to verify
- Confirm the filing entity: this is Gannett Co., Inc. (ticker GCI), notwithstanding the request’s USA TODAY Co., Inc. label.
- Track whether digital revenue growth and cost reductions can offset print declines, and whether DMS can improve its falling Adjusted EBITDA.
- Review cash generation, required debt amortization, interest-rate exposure, maturities, covenant headroom, and the April 2024 repayment of the 2024 Notes.
- Assess potential outcomes and insurance coverage for the $25 million jury award, and monitor the Google litigation without assuming a recovery.
- Evaluate the potential dilution or cash obligations associated with the 2027 convertible notes and the company’s liquidity outlook against its planned capital expenditures.