Gannett Co., Inc. — Q1 2021 Form 10-Q
Entity note: The filing is for Gannett Co., Inc., which owns USA TODAY; it is not filed by an entity named USA TODAY Co., Inc. The reporting period ended March 31, 2021, compared with Q1 2020.
Business context
Gannett operates Publishing businesses in the U.S. and U.K., including USA TODAY and Newsquest, and Digital Marketing Solutions (DMS), marketed under LOCALiQ. Management’s strategy emphasizes digital subscriptions and marketing services while reducing costs in traditional print operations.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Operating revenue | $777.1 million | $948.7 million; down 18% |
| Operating income (loss) | $7.9 million | $(29.8) million |
| Net loss attributable to Gannett | $(142.3) million; $(1.06) per share | $(80.2) million; $(0.61) per share |
| Adjusted EBITDA (non-GAAP) | $100.5 million; 12.9% margin | $99.1 million; 10.4% margin |
| Cash from operating activities | $61.3 million | $60.5 million |
| Capital expenditures | $7.6 million | $13.8 million |
| Cash and cash equivalents at period-end | $163.5 million | $170.7 million at Dec. 31, 2020 |
Including restricted cash, cash, cash equivalents and restricted cash totaled $196.2 million at quarter-end. Current assets were $590.0 million versus current liabilities of $697.5 million. Balance-sheet debt was $1.363 billion, comprising $969.1 million of long-term debt including its current portion and $394.1 million of convertible debt. The new term loan had $1.036 billion principal outstanding and a 9.4% effective interest rate.
Material changes versus Q1 2020
- Publishing revenue fell 18% to $699.6 million; DMS revenue fell 16% to $102.3 million. Print advertising declined 28%, print circulation declined 16%, and digital-only circulation revenue rose 47%.
- Digital-only subscribers increased 37% year over year to approximately 1.2 million at March 31, 2021.
- Cost reductions and lower expenses helped consolidated operating income turn positive. Publishing Adjusted EBITDA fell 8% to $102.2 million; DMS Adjusted EBITDA rose 16% to $9.2 million.
- Interest expense declined to $39.5 million from $57.9 million, but the company recorded a $126.6 million non-cash loss from revaluing the 2027 Notes conversion feature and a $19.4 million loss on early debt extinguishment.
- Cash from operations was broadly stable. Investing provided $2.5 million, while financing used $74.7 million, including $33.9 million of debt issuance costs.
Outlook, risks and unusual items
- Management expects COVID-19 to continue weighing on advertising, digital marketing services, commercial printing, distribution, in-person events and single-copy newspaper sales in the near term. It cited improving trends since the most affected quarter, Q2 2020.
- Management targets 10 million paid digital-only subscribers over five years. It expects approximately $37.5 million of capital expenditures for the remainder of 2021; no revenue or earnings guidance is provided.
- Gannett refinanced its prior 11.5% Acquisition Term Loan with a five-year, $1.045 billion senior-secured term loan due February 2026. The new loan requires minimum unrestricted cash of $30 million quarterly and specified principal repayments; the company reported covenant compliance at March 31.
- The 2027 Notes are convertible at the holder’s option, with an initial $5.00 conversion price. Stockholder approval allowed share settlement of the conversion feature; potential dilution is substantial. The filing states conversion of all notes under a specified make-whole scenario could issue 294.2 million shares.
- The quarterly dividend remains suspended, and management said it presently has no intention to reinstate it. Debt terms also restrict dividends.
- After quarter-end, Gannett received approval for approximately $16.2 million of PPP funding and intends to seek loan forgiveness. It also deferred $41.6 million of employer payroll taxes, payable in 2021 and 2022.
- Disclosure controls were not effective due to a previously reported material weakness in internal control over financial reporting; remediation is ongoing. Management said it cannot yet estimate the final cost of an environmental matter in Montgomery, Alabama.
Important facts for investors to verify
- Confirm the reporting registrant: this 10-Q is Gannett Co., Inc.; USA TODAY is one of its media properties.
- Track whether revenue declines in print and DMS stabilize, and whether digital-only subscriber growth translates into sustainable revenue and cash generation.
- Review debt service, required amortization, liquidity and covenant headroom, including the implications of the term loan’s effective interest rate.
- Assess dilution and potential cash obligations under the 2027 Notes, alongside the non-cash derivative loss reported this quarter.
- Monitor COVID-19 effects, PPP loan forgiveness, pension contributions, deferred payroll taxes and progress in remediating the material weakness.