Business context and reporting period
This is Gannett Co., Inc.’s Form 10-K for the fiscal year ended December 31, 2019—not a filing by an entity named USA TODAY Co. USA TODAY is part of Gannett’s media portfolio. On November 19, 2019, former New Media Investment Group acquired Legacy Gannett, adopted the Gannett name and ticker (GCI), and consolidated Legacy Gannett’s results for approximately six weeks of 2019. Accordingly, 2019 comparisons with 2018 are not like-for-like; 2018 and prior results reflect legacy New Media.
Gannett operates Publishing—including USA TODAY, U.S. local media, and U.K. subsidiary Newsquest—and Marketing Solutions, including ReachLocal, UpCurve, and WordStream. It also operates GateHouse Live, an events business.
Financial performance and position
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $1.868 billion | $1.526 billion |
| Advertising and marketing services revenue | $952.6 million | $786.6 million |
| Circulation revenue | $704.8 million | $575.0 million |
| Operating income (loss) | $(147.0) million | $58.1 million |
| Net income (loss) attributable to Gannett | $(119.8) million | $18.2 million |
| Diluted earnings (loss) per share | $(1.77) | $0.31 |
| Adjusted EBITDA (non-GAAP) | $223.9 million | $180.3 million |
| Net cash from operating activities | $25.5 million | $109.6 million |
Revenue rose 22%, principally reflecting acquired businesses, including Legacy Gannett. The company reported a 7.9% operating loss margin for 2019 (calculated from reported operating loss and revenue); Adjusted EBITDA margin was approximately 12.0%. Publishing generated $1.793 billion revenue and $268.9 million Adjusted EBITDA; Marketing Solutions generated $149.2 million revenue and had a $3.3 million Adjusted EBITDA loss. Consolidated digital advertising and marketing services revenue was $263.0 million, or 14% of total revenue.
Operating cash flow fell by $84.0 million year over year, primarily due to additional pension and postretirement payments, including an $87.8 million SERP payout associated with the acquisition. Investing activities used $785.1 million, mainly for acquisitions; financing activities provided $898.9 million. Cash and cash equivalents were $156.0 million at year-end ($188.7 million including restricted cash).
At December 31, 2019, total assets were $4.020 billion, total liabilities $3.037 billion, and equity $981.4 million. Long-term debt was $1.636 billion and current debt $3.3 million on the balance sheet; the Apollo term loan had approximately $1.8 billion principal outstanding. It generally bears 11.5% interest, with a disclosed effective rate of 13.2%, and matures November 19, 2024. The company reported a $20 million minimum-liquidity covenant. Current assets were $779.1 million and current liabilities $718.5 million.
Gannett declared $1.52 per share in dividends for 2019 and paid $91.9 million in dividends during the year. Future cash dividends are constrained by the credit agreement and require board approval; the filing states that cash dividends are prohibited until after April 30, 2020, subject to further conditions.
Material changes versus prior period
- Acquisition-driven scale increased reported revenue, assets, debt, and expenses; 2019 includes only about six weeks of Legacy Gannett operations.
- Operating results shifted from $58.1 million operating income in 2018 to a $147.0 million operating loss in 2019. The 2019 result included $100.7 million of goodwill and masthead impairments, $60.6 million of acquisition costs, and $47.4 million of integration and reorganization costs.
- Net cash from operations declined to $25.5 million from $109.6 million, with pension and postretirement payments a principal factor.
- Year-end debt rose substantially with acquisition financing. The company entered into the $1.8 billion Apollo term loan and repaid or terminated prior credit facilities; it also redeemed $198.0 million of Legacy Gannett convertible notes.
- Print advertising and print circulation volumes continued to face secular declines. Reported revenue increases do not establish organic growth: acquired revenue and pricing partially offset underlying pressure.
Outlook, risks, contingencies, and unusual items
For 2020, management identified integration and synergy delivery, debt reduction through operating cash flow and real estate monetization, and improvement in revenue trends through complementary growth businesses as priorities. It expects capital expenditures of $50–$60 million in 2020. Management aims to return the company to revenue growth over the next three to five years; this is an objective, not quantified earnings guidance. Management also stated it expected sufficient liquidity for working capital, borrowing obligations, and required capital expenditures for at least the next twelve months.
- Debt and liquidity: High-cost secured debt consumes cash and restricts dividends, additional borrowing, investments, asset sales, and other actions. Mandatory cash-flow and asset-sale repayments, as well as refinancing uncertainty, are material considerations.
- Integration and execution: Expected synergies are not assured. Integration costs, operational disruption, employee retention, systems integration, and management capacity could affect results.
- Industry and market risks: Print advertising and circulation declines, digital competition, economic conditions, newsprint price and availability, and reliance by Marketing Solutions on Google media purchases and rebates could pressure revenue and margins.
- Internal controls: Management reported a material weakness in revenue-recognition controls, with related deficiencies affecting accounts receivable and deferred revenue. The auditor issued an adverse opinion on internal control over financial reporting. The weakness had not caused a reported restatement, and remediation was underway. Controls at acquired businesses representing 67% of year-end assets and 16% of 2019 revenue were excluded from management’s assessment.
- Impairment sensitivity: The filing reports $100.7 million of goodwill and masthead impairments. Fair value headroom was less than 10% for Domestic Publishing and Marketing Solutions, and Newsquest had no headroom, increasing sensitivity to forecast or market changes.
- Pensions and other commitments: Defined-benefit plans were underfunded by $116.9 million. The filing estimates pension contributions of $61.2 million in 2020 and identifies $496.3 million of purchase obligations; estimates and timing may change.
- Tax and legal matters: The filing discusses uncertain tax positions of $34.1 million, including acquired tax positions, and an IRS challenge risk relating to prior deductions. Management did not expect current litigation to have a material adverse effect, while noting outcomes are uncertain.
Most important facts for investors to verify
- Confirm the correct issuer and period: this is Gannett Co., Inc.’s full-year 2019 10-K, with only six weeks of acquired Legacy Gannett results—not a standalone Q4 report.
- Review acquisition-adjusted or pro forma performance alongside reported results; determine how much revenue and EBITDA growth was organic and whether print declines are moderating.
- Assess debt-service capacity using cash from operations, the 11.5% stated loan rate, required repayments, minimum-liquidity covenant, and refinancing or real-estate-sale assumptions.
- Track integration costs and realized synergies against management’s plans, and evaluate whether the 2020 capital-spending and three-to-five-year growth objectives are being met.
- Monitor remediation and independent testing of the revenue-recognition material weakness, including controls at acquired businesses not assessed in 2019.
- Evaluate impairment headroom, pension funding needs, tax exposures, and the restrictions and conditions governing any future dividends.