Gannett Co., Inc. (GCI) — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is Gannett’s annual report, not a standalone fourth-quarter filing; the text does not provide a clear set of Q4-only financial results. USA TODAY is among the company’s media brands, but the registrant is Gannett Co., Inc.
Business context
Gannett operates Publishing and Digital Marketing Solutions (DMS), plus corporate activities. Its portfolio includes USA TODAY, local U.S. media, U.K. publisher Newsquest, LOCALiQ marketing services and USA TODAY NETWORK Ventures. The 2020 results include a full year of acquired Legacy Gannett operations, while 2019 included those operations for only about six weeks after the November 2019 acquisition; reported year-over-year growth is therefore not directly comparable.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $3.406 billion | $1.868 billion |
| Operating loss | $447.9 million | $147.0 million |
| Net loss attributable to Gannett | $670.5 million; $5.09 per diluted share | $119.8 million; $1.77 per diluted share |
| Adjusted EBITDA (non-GAAP) | $413.9 million | $223.9 million |
| Cash from operating activities | $57.8 million | $25.5 million |
| Capital expenditures | $37.0 million | $14.0 million |
Revenue increased 82%, largely reflecting the acquisition rather than comparable organic growth. Digital advertising and marketing services revenue was $808.4 million, or 24% of total revenue. Publishing revenue was $3.080 billion and DMS revenue was $428.6 million. Publishing Adjusted EBITDA was $459.2 million; DMS Adjusted EBITDA was $24.4 million, versus a $3.3 million loss in 2019. These are non-GAAP measures and should be considered alongside GAAP results.
Operating cash flow rose despite $218.1 million of cash interest paid; management attributed the improvement primarily to lower pension and postretirement payments and higher tax refunds, partly offset by increased interest and severance payments. Investing activities provided $160.1 million, principally from asset-sale proceeds, while financing activities used $201.3 million.
At year-end, cash and cash equivalents were $170.7 million ($206.7 million including restricted cash), current assets were $636.7 million and total assets were $3.109 billion. Total liabilities were $2.746 billion and equity was $364.1 million. Balance-sheet debt carrying amounts totaled about $1.600 billion, including convertible debt; the filing reports approximately $1.576 billion of debt principal obligations at year-end. These figures precede the February 2021 refinancing.
Material changes and unusual items
- Gannett recorded $393.4 million of goodwill and intangible-asset impairments, primarily reflecting COVID-19 impacts, plus $11.0 million of other asset impairments. The impairment charge materially contributed to the GAAP loss.
- Integration and reorganization costs were $145.7 million, including $86.3 million of severance and a $30.4 million fee to terminate the external management agreement. The company also recorded $49.6 million of accelerated depreciation after closing 40 printing facilities.
- Interest expense increased to $228.5 million from $63.7 million, mainly because of a full year of acquisition-related borrowing costs. The company also recorded a $43.8 million loss on early debt extinguishment and a $74.3 million non-cash loss from revaluing the 2027 convertible-note derivative.
- The company sold BridgeTower Media in October 2020, recording an $8.2 million pretax gain. USA TODAY NETWORK Ventures shifted nearly all events to virtual formats and retained 88% of its 2019 pro forma revenue performance.
- Digital-only subscribers rose 29% year over year to approximately 1.1 million. Management reported that, excluding acquisition effects, print advertising, print circulation and DMS revenues declined amid secular trends and the pandemic.
Outlook, risks and contingencies
Management expects COVID-19 and related economic uncertainty to continue weighing on results in the near term; it gave no quantified revenue or earnings guidance. Its 2021 priorities include digital subscriber growth, expansion of DMS, and cost and operational efficiencies. Planned 2021 capital expenditures were approximately $50 million. The company suspended its quarterly dividend in April 2020 and said it had no current intention to reinstate it.
On February 9, 2021, after year-end, Gannett refinanced the remaining acquisition term loan with a $1.045 billion senior-secured term loan due 2026, bearing interest at LIBOR plus 7.00% or an alternate base rate plus 6.00%. The company said post-refinancing debt outstanding would be approximately $1.545 billion, including $497.1 million of 2027 convertible notes and $3.3 million of 2024 notes. The new loan requires minimum unrestricted cash of $30 million and contains operating and financial covenants. Management expected adequate liquidity for at least twelve months, while warning that the pandemic and leverage could impair liquidity and debt-service capacity.
The 2027 notes are convertible at an initial $5.00 per share and create potentially substantial dilution; the filing describes an initial conversion scenario of approximately 99.4 million shares and a higher maximum-adjustment scenario of approximately 294.2 million shares. Stockholders approved share settlement in February 2021. Other risks include continuing print declines, dependence of DMS media purchases on Google, acquisition integration, foreign-exchange exposure, privacy and cybersecurity, pension funding and the ability to realize deferred tax assets. Contractual obligations include $548.0 million of purchase commitments; $40.9 million of unrecognized tax benefits were excluded from the obligations table. Management did not expect current legal proceedings to have a material adverse effect, but noted outcomes are uncertain.
The financial-statement audit opinion was unqualified. However, management and Ernst & Young reported a material weakness in revenue-recognition controls, and the auditor issued an adverse opinion on internal control over financial reporting. The weakness had not been remediated as of December 31, 2020; the company reported no resulting restatement or material misstatement for the periods presented.
Investor verification priorities
- Separate acquisition-driven growth from comparable or same-store revenue and Adjusted EBITDA trends.
- Assess recurring cash generation after interest, restructuring, capital spending and required pension contributions.
- Review post-refinancing debt service, covenant headroom, minimum-liquidity requirements and the terms and dilution potential of the convertible notes.
- Track remediation and independent testing of revenue-recognition controls and related accounts-receivable and deferred-revenue controls.
- Evaluate impairment assumptions and the risks that further deterioration could trigger additional charges.
- Verify progress on digital subscriber growth, DMS performance, and the sustainability of cost reductions as pandemic effects and print declines continue.