Business context and reporting period
Gannett Co., Inc. filed this Form 10-Q for the quarter ended March 31, 2022. USA TODAY is part of Gannett’s portfolio; the registrant is Gannett Co., Inc. Its businesses include Publishing, Digital Marketing Solutions (LOCALiQ), and corporate activities, with media operations in the U.S. and U.K.
Financial performance and position
- Revenue: $748.1 million, down 3.7% from $777.1 million a year earlier.
- Profitability: Operating loss was $2.0 million versus operating income of $7.9 million. Net loss attributable to Gannett was $3.0 million, or $0.02 per diluted share, compared with a $142.3 million loss, or $1.06 per share, in Q1 2021. The prior-year loss included a $126.6 million noncash loss on a convertible-notes derivative.
- Adjusted EBITDA (non-GAAP): $64.2 million, down from $100.5 million; margin declined to 8.6% from 12.9%.
- Cash flow: Operating cash flow was $32.4 million versus $61.3 million. Investing activities used $6.2 million; financing activities used $3.8 million. Cash, cash equivalents and restricted cash increased $21.4 million to $165.0 million; balance-sheet cash and cash equivalents were $152.2 million.
- Liquidity: Current assets were $562.3 million and current liabilities $641.8 million. Management said it expected adequate resources to meet working-capital needs, borrowing obligations and required capital expenditures for at least 12 months.
- Debt: Debt principal totaled $1.371 billion, with a carrying value of $1.242 billion, including $485.3 million principal of 2027 convertible notes. The company reported $62.9 million of current long-term debt. It was in compliance with its term-loan covenants at quarter-end.
Material changes versus Q1 2021
- Advertising and marketing services revenue fell 3% to $375.1 million: print advertising declined 10% to $173.5 million, while digital advertising and marketing services increased 3% to $201.6 million.
- Circulation revenue fell 11% to $288.6 million. Print circulation declined 14%; digital-only circulation rose 30%. Paid digital-only subscribers increased 44% to approximately 1.75 million, including customers on introductory offers.
- Other revenue rose 33% to $84.4 million, primarily reflecting commercial printing, digital content and event growth.
- Publishing revenue declined 4% and segment Adjusted EBITDA fell 33% to $68.6 million. Digital Marketing Solutions revenue rose 7% and Adjusted EBITDA rose 22% to $11.2 million.
- Operating cash flow decreased by $28.9 million. Management cited lower deferred-revenue cash receipts and lower accounts payable, partly offset by lower pension contributions, severance payments and interest paid.
- Interest expense decreased to $26.0 million from $39.5 million, mainly due to lower debt and interest rates. The prior-year period also included a $19.4 million early debt-extinguishment loss and the convertible-derivative loss noted above.
Outlook, commentary, risks and unusual items
- No specific revenue or earnings guidance was provided. Management estimated approximately $35.5 million of capital expenditures for the remainder of 2022, primarily for digital products, print and technology systems, and upgrades.
- Management’s strategy emphasizes digital subscriber growth, expansion of digital marketing services, optimization of print operations and investment in growth businesses. USA TODAY NETWORK Ventures hosted 25 events through Q1, with event revenue up 83% year over year.
- Management cited persistent print-advertising and print-circulation declines, newsprint supply constraints and inflation—particularly energy and fuel—as operating pressures. The pandemic continued to weigh modestly on events and single-copy newspaper sales; renewed restrictions could further hurt advertising and circulation.
- Leverage may constrain operating flexibility and cash available for investment. The term loan requires at least $30 million of unrestricted cash at each quarter-end and scheduled amortization begins June 30, 2022. The company also disclosed a potential put right for up to approximately $100 million of 2027 Notes after a specified period following term-loan maturity.
- The board authorized up to $100 million of share repurchases; none had occurred by March 31. The term-loan amendment permits up to $50 million of repurchases through December 31, 2022, subject to its terms. The company said it had no current intention to resume dividends.
- Other notable items included $15.4 million of acquisition spending, $20.5 million of proceeds from asset sales, $11.4 million of integration and reorganization costs, and $2.7 million of early debt-extinguishment losses. Management reported no goodwill or indefinite-lived intangible impairment indicators at quarter-end.
- Legal proceedings were described as ordinary-course matters; management did not expect current or threatened proceedings to have a material adverse effect, while noting outcomes are inherently uncertain. The filing reported no material changes to the prior annual report’s risk factors.
Important facts for investors to verify
- Whether the decline in Publishing revenue and Adjusted EBITDA continues, and whether digital subscription and LOCALiQ growth can offset print declines.
- Cash generation, working-capital movements, capital spending and liquidity against debt service and the $30 million minimum-cash covenant.
- Debt principal, interest costs, scheduled term-loan amortization, refinancing or repayment requirements, and the potential 2027 Notes put and conversion dilution.
- Whether newsprint, distribution, energy and labor costs pressure margins, and whether event revenue remains affected by pandemic conditions.
- The conditions and practical capacity for share repurchases, given debt restrictions and the company’s leverage.