Business context and reporting period
Gannett Co., Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2023. The filing identifies Gannett—not “USA TODAY Co., Inc.”—as the registrant; its portfolio includes the USA TODAY NETWORK, UK publisher Newsquest, digital marketing business LocaliQ, and USA TODAY NETWORK Ventures. Results are reported for Gannett Media and Digital Marketing Solutions (DMS), plus Corporate and other.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $672.4m | $748.7m | $1,341.3m | $1,496.7m |
| Operating income (loss) | $13.5m | $(21.2)m | $33.5m | $(23.2)m |
| Net loss attributable to Gannett | $(12.7)m | $(53.7)m | $(2.3)m | $(56.7)m |
| Loss per share, diluted | $(0.09) | $(0.39) | $(0.02) | $(0.41) |
| Adjusted EBITDA and margin (non-GAAP) | $71.2m; 10.6% | $50.9m; 6.8% | $134.1m; 10.0% | $115.0m; 7.7% |
Revenue fell 10% year over year in both Q2 and the first half. Advertising and marketing services declined 8% in Q2 and 9% for the first half; circulation declined 15% and 16%, respectively. Digital-only subscription revenue grew 17% in Q2 and 18% in the first half, with about 1.95 million paid digital-only subscriptions at June 30, up 4.6% year over year. DMS revenue increased 4% in Q2 and 3% for the first half.
First-half operating cash flow was $52.8m, compared with $1.7m a year earlier. Investing activities provided $15.0m, while financing activities used $54.6m; cash, cash equivalents and restricted cash increased $13.3m to $118.1m. Capital expenditures were $16.4m in the first half.
At June 30, cash and cash equivalents were $106.6m; current assets were $481.8m and current liabilities $555.7m. Debt carrying value totaled $1.121bn, comprising the term loan ($383.4m), 2026 notes ($324.9m), 2027 convertible notes ($409.0m), and 2024 notes ($3.3m). Interest expense was $28.6m in Q2 and $56.9m in the first half. The company reported compliance with debt covenants.
Material changes versus prior periods
- Lower revenues were more than offset by reduced expenses, and operating results moved from a loss to income in both the quarter and first half. Cost reductions reflected lower headcount, print and distribution activity, and other spending.
- GAAP net losses narrowed substantially. First-half results included a $17.5m net gain on asset sales, primarily a domestic production facility, versus a $2.4m gain in the prior-year period.
- Adjusted EBITDA improved, but is a company-defined non-GAAP measure and excludes items including interest, taxes, restructuring, asset-sale gains or losses, and other adjustments.
- Interest expense increased as higher rates on the floating-rate term loan outweighed the benefit of lower debt balances. The term loan’s effective interest rate was 11.1% at June 30.
Outlook, management commentary and risks
- Management expects to fund operations and debt service from operating cash flow and believes liquidity will be adequate for working capital, debt obligations, and required capital spending for at least the next 12 months. It cautions that further economic deterioration or faster revenue declines could weaken cash flow and liquidity.
- Management expects approximately $23.6m of capital expenditures in the remainder of 2023, principally for digital products, print and technology systems, and upgrades. No specific revenue or earnings guidance is provided.
- Management describes continued secular declines in print advertising and circulation, softer advertising demand and rates amid economic uncertainty, subscriber price sensitivity, inflationary operating costs, foreign-exchange exposure, and higher interest rates. It expects continued economic uncertainty; it believes inflationary pressures peaked in 2022 and newsprint prices may ease.
- The term loan requires at least $30m of unrestricted cash at each quarter-end. The company reported covenant compliance at June 30. Debt is substantial, and management warns leverage may constrain investment, flexibility, and ability to withstand lower cash flows. A 150-basis-point rate increase would have increased interest expense by an estimated $1.5m for Q2 and $2.9m for the first half.
- Gannett filed suit against Google and Alphabet in June 2023 over alleged anticompetitive conduct in advertising technology, seeking damages and injunctive relief. The company cannot predict the outcome or financial impact; any recovery would be recorded only when the contingency is resolved.
- Tax estimates are unusually sensitive to valuation allowances, foreign tax and other items; the reported first-half tax benefit and quarterly provision reflect changes in estimates. Unrecognized tax benefits were $52.1m at June 30, and possible changes over the next 12 months cannot be estimated.
- The 2027 convertible notes could create significant dilution or cash obligations upon conversion or other contractual triggers. The filing says conversion under a specified maximum adjustment scenario could result in 287.2m shares; conversion terms also include holder protections and a potential put right.
- Newly highlighted risks include banking-system volatility and AI-related risks, including reputational, cybersecurity, intellectual-property, regulatory, and digital-advertising exposure. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Key investor verification points
- Confirm the legal registrant and reporting entity: the filing is Gannett Co., Inc., despite the request metadata naming USA TODAY Co., Inc.
- Track whether digital subscription and DMS growth can offset continued print and advertising declines, and assess subscriber counts, ARPU, customer counts, and retention.
- Review recurring operating cash generation separately from working-capital movements, asset-sale proceeds, restructuring costs, and other adjustments; compare GAAP results with Adjusted EBITDA reconciliations.
- Monitor debt maturities, floating-rate borrowing costs, required term-loan amortization, covenant headroom, cash availability, and the 2027 notes’ conversion and put provisions.
- Follow the Google litigation, tax uncertainty, and management’s planned second-half 2023 capital spending and liquidity assumptions.