Gannett Reports Third Quarter 2019 Results

11/4/19

MCLEAN, Va.--(BUSINESS WIRE)--Gannett Co., Inc. (NYSE:GCI) today reported third quarter 2019 financial results for the period ended September 30, 2019.

"In the third quarter, we delivered our best same store revenue performance of the year driven by improved print and digital trends across our Marketing Solutions business and stable trends within our Consumer operations," said Paul Bascobert, president and chief executive officer. "We were pleased to see our ReachLocal segment return to same store revenue growth led by strong gains at WordStream and our local markets. We expect continued improvement within our digital advertising and marketing services revenues as we head into the fourth quarter."

"Our same store operating expenses fell 8.4% in the quarter enabling us to deliver flat Adjusted EBITDA margins year-over-year," said Ali Engel, senior vice president and chief financial officer. "We continue to focus on finding efficiencies across our operations, while also investing in strategic areas to drive future growth."

Third Quarter 2019 Consolidated Results

  • Operating revenues were $635.6 million, compared to $711.7 million in the third quarter of 2018.
  • Unfavorable changes in foreign currency exchange rates negatively impacted revenues by $3.9 million.
  • Same store operating revenues declined 7.8% year-over-year, an improvement from the second quarter decline of 9.8%.
  • Total digital revenues reached $244.3 million, or approximately 38% of total revenue.
  • Total digital advertising and marketing services revenues were $183.6 million, or 53% of total advertising and marketing services revenues.
  • GAAP net income was $10.6 million, including $7.8 million of after-tax restructuring, asset impairment charges, and other costs, offset by $5.8 million of after-tax gains on property sales.
  • Adjusted EBITDA(1) decreased 11% year-over-year to $62.2 million, representing a margin of 9.8%, consistent with the third quarter of 2018.

Third Quarter 2019 Publishing Segment

  • Publishing segment operating revenues were $549.8 million compared to $616.4 million in the third quarter of 2018. On a same store basis, segment revenues declined 9.1%.
  • Same store print advertising revenues declined 18.0% year-over-year, an improvement from the second quarter decline of 18.5%.
  • Digital advertising and marketing services revenues of $100.3 million declined 3.7% year-over-year, on a same store basis, better than the 4.5% decline in the second quarter.
    • Digital marketing services revenues of $22.2 million increased 11.1%, on a same store basis, driven by strong gains at Newsquest and higher average revenue per client and client growth in our US local markets.
    • Digital media advertising revenues of $64.5 million declined 2.5%, on a same store basis, due to weakness in domestic local display which offset continued growth in domestic national and Newsquest.
    • Digital classified advertising revenues of $13.5 million declined 24.4%, on a same store basis, reflecting expected weakness across all categories, including the negative impact from our early exit from the Cars.com agreement.
  • Same store circulation revenues declined 5.8% from the prior year quarter, substantially unchanged from the second quarter trend.
  • Digital-only subscriber volumes grew 27% year-over-year and now total approximately 607,000.
  • Publishing segment Adjusted EBITDA was $69.0 million compared to $72.7 million in the prior year quarter.

Third Quarter 2019 ReachLocal Segment

  • ReachLocal segment revenues were $101.1 million compared to $109.6 million in the third quarter of 2018. On a same store basis, ReachLocal segment revenues increased 2.5%, a substantial improvement from the 6.9% decline in the second quarter, driven by strong growth at WordStream and the Gannett local markets, offset by softness in the remaining North American operations and Australia.
  • Adjusted EBITDA was $12.8 million, representing a margin of 12.6% compared to 15.8% in the third quarter of 2018.

Third Quarter 2019 Cash Flow

  • Net cash flow provided by operating activities was approximately $64.2 million compared to $60.9 million provided by operating activities in the prior year quarter.
  • Capital expenditures were $15.4 million, primarily for product development, technology investments, and maintenance projects.
  • The company paid dividends of $18.4 million; there were no share repurchases.
  • As of the end of the third quarter, the company had a cash balance of $101.4 million, $120.0 million drawn on its revolver, and $173.1 million in convertible notes(2), or net debt of $191.7 million.

Outlook

For 2019, the company expects the following (assuming the company remains a stand-alone entity though the end of the year)(3):

  • Consolidated revenues of $2.61-2.63 billion, as compared to $2.74-2.81 billion previously.
  • Consolidated Adjusted EBITDA of $285-295 million.
  • Capital expenditures of $45-50 million, excluding real estate projects.
  • Depreciation and amortization of $135-145 million, excluding accelerated depreciation related to facility consolidations.
  • The non-operating cost associated with our pension plans, recorded in other non-operating items, is currently estimated to be between $20-25 million as compared to a credit of $5 million in 2018.
  • A non-GAAP effective tax rate of 28-30%.(1)
1The company defines adjusted EBITDA as earnings before income taxes, interest expense, equity income, other non-operating items, restructuring costs, acquisition-related expenses, asset impairment charges, depreciation, amortization and other items. We define the non-GAAP effective tax rate as the tax rate excluding any non-recurring one-item tax adjustments. Because of the variability of these and other items as well as the impact of future events on these items, management is unable to reconcile without unreasonable effort the company's forecasted range of adjusted EBITDA and non-GAAP tax rate for the full year to a comparable GAAP range.
2The total aggregate principal related to our offering of convertible notes was $201.3 million. At issuance, this principal value was bifurcated into liability and equity components totaling $171.1 million and $30.2 million, respectively. The carrying value of the liability component as of September 30, 2019 is $173.1 million.
3The company currently expects to close its pending merger with New Media Investment Group Inc. (“New Media”) shortly following the Gannett and New Media special stockholder meetings that are scheduled for November 14, 2019. The completion of the merger remains subject to the receipt of certain approvals from Gannett and New Media stockholders and the satisfaction of other customary closing conditions.

About Gannett

Gannett Co., Inc. (NYSE: GCI) is an innovative, digitally focused media and marketing solutions company committed to strengthening communities across our network. With an unmatched local-to-national reach, Gannett touches the lives of more than 125 million people monthly with our Pulitzer-Prize winning content, consumer experiences and benefits, and advertiser products and services. Gannett brands include USA TODAY NETWORK with the iconic USA TODAY and more than 100 local media brands, digital marketing services companies ReachLocal, WordStream and SweetIQ, and U.K. media company Newsquest. To connect with us, visit www.gannett.com.

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