UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-Q
_______________________
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20232024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 001-36097
___________________________
GANNETT CO., INC.
(Exact name of registrant as specified in its charter)
___________________________
| | | | | | | | | | | | | | |
Delaware | | 38-3910250 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
| | | | |
175 Sully's Trail, Suite 203, | 7950 Jones Branch Drive,Pittsford, | McLean,New York | | Virginia | 22107-091014534-4560 |
(Address of principal executive offices) | | (Zip Code) |
Registrant's telephone number, including area code: (703) 854-6000(585) 598-0030
7950 Jones Branch Drive, McLean, Virginia 22107-0910
(Former name, former address and former fiscal year if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of Each Class | | Trading Symbol | | Name of Each Exchange on Which Registered |
Common Stock, par value $0.01 per share | | GCI | | New York Stock Exchange |
| Preferred Stock Purchase Rights | | N/A | | New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large Accelerated Filer | ☐ | Accelerated Filer | ☒ |
| | | |
Non-Accelerated Filer | ☐ | Smaller Reporting Company | ☐ |
| | | |
| Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒
As of May 1, 2023, 149,006,837April 29, 2024, 147,547,609 shares of the registrant's Common Stock were outstanding.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including "Part I, Item 2 — Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Part II, Item 1A — Risk Factors"Factors" contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect our current views regarding, among other things, our future growth, results of operations, performance, business prospects and opportunities, stock repurchases, and our environmental, social and governance goals, and are not statements of historical fact. Words such as "anticipate(s)," "expect(s)," "intend(s)," "plan(s)," "target(s)," "focus," "goal," "project(s),"project," "believe(s)," "see," "will," "aim," "would," "could," "can," "may," "seek(s)," "estimate(s)" and similar expressions are intended to identify such forward-looking statements.
Forward-looking statements are based on management's current expectations and beliefs and are subject to a number of known and unknown risks, uncertainties, and other factors that could lead to actual results materially different from those described in the forward-looking statements. We can give no assurance our expectations will be attained. Our actual results, liquidity, and financial condition may differ from the anticipated results, liquidity, and financial condition indicated in the forward-looking statements. Forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause our actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including, among others, the risks identified by us under the heading "Risk Factors" in this Quarterly Report on Form 10-Q, and under the heading "Risk Factors" in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022,2023, filed with the Securities and Exchange Commission on February 23, 2023,22, 2024, as well as other risks and factors identified from time to time in our subsequent filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. Except to the extent required by law, we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or change in events, conditions, or circumstances on which any statement is based.
INDEX TO GANNETT CO., INC.
Q1 20232024 FORM 10-Q
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1A | 1A | | | 1A | | |
2 | 2 | | | 2 | | |
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5 | 5 | | | 5 | | |
6 | 6 | | | 6 | | |
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GANNETT CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS | In thousands, except share data | In thousands, except share data | March 31, 2023 | | December 31, 2022 | In thousands, except share data | March 31, 2024 | | December 31, 2023 |
Assets | Assets | (Unaudited) | |
Current assets: | Current assets: | |
Current assets: | |
Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 83,074 | | | $ | 94,255 | |
Accounts receivable, net of allowance of $14,499 and $16,697 as of March 31, 2023 and December 31, 2022, respectively | 256,465 | | | 289,415 | |
Cash and cash equivalents | |
Cash and cash equivalents | |
Accounts receivable, net of allowance of $15,543 and $16,338 as of March 31, 2024 and December 31, 2023, respectively | |
Inventories | Inventories | 41,882 | | | 45,223 | |
Prepaid expenses | Prepaid expenses | 48,038 | | | 46,205 | |
Other current assets | Other current assets | 21,399 | | | 32,679 | |
Total current assets | Total current assets | 450,858 | | | 507,777 | |
Property, plant and equipment, net of accumulated depreciation of $379,524 and $360,522 as of March 31, 2023 and December 31, 2022, respectively | 291,785 | | | 305,994 | |
Property, plant and equipment, net of accumulated depreciation of $330,747 and $336,408 as of March 31, 2024 and December 31, 2023, respectively | |
Operating lease assets | Operating lease assets | 231,957 | | | 233,322 | |
Goodwill | Goodwill | 533,469 | | | 533,166 | |
Intangible assets, net | Intangible assets, net | 591,688 | | | 613,358 | |
Deferred tax assets | Deferred tax assets | 73,122 | | | 56,618 | |
Pension and other assets | Pension and other assets | 155,555 | | | 143,320 | |
Total assets | Total assets | $ | 2,328,434 | | | $ | 2,393,555 | |
| Liabilities and equity | Liabilities and equity | |
Liabilities and equity | |
Liabilities and equity | |
Current liabilities: | Current liabilities: | |
Current liabilities: | |
Current liabilities: | |
Accounts payable and accrued liabilities | |
Accounts payable and accrued liabilities | |
Accounts payable and accrued liabilities | Accounts payable and accrued liabilities | $ | 304,912 | | | $ | 351,848 | |
Deferred revenue | Deferred revenue | 141,716 | | | 153,648 | |
Current portion of long-term debt | Current portion of long-term debt | 60,452 | | | 60,452 | |
Operating lease liabilities | Operating lease liabilities | 46,248 | | | 44,872 | |
Other current liabilities | Other current liabilities | 6,229 | | | 6,218 | |
Total current liabilities | Total current liabilities | 559,557 | | | 617,038 | |
Long-term debt | Long-term debt | 660,974 | | | 695,642 | |
Convertible debt | Convertible debt | 408,943 | | | 405,681 | |
Deferred tax liabilities | Deferred tax liabilities | — | | | 1,439 | |
Pension and other postretirement benefit obligations | Pension and other postretirement benefit obligations | 49,161 | | | 50,710 | |
Long-term operating lease liabilities | Long-term operating lease liabilities | 215,499 | | | 219,109 | |
Other long-term liabilities | Other long-term liabilities | 113,657 | | | 108,563 | |
Total noncurrent liabilities | Total noncurrent liabilities | 1,448,234 | | | 1,481,144 | |
Total liabilities | Total liabilities | 2,007,791 | | | 2,098,182 | |
Commitments and contingent liabilities (See Note 11) | Commitments and contingent liabilities (See Note 11) | | Commitments and contingent liabilities (See Note 11) | | | |
Equity | Equity | |
Preferred stock, $0.01 par value per share, 300,000 shares authorized, of which 150,000 shares are designated as Series A Junior Participating Preferred Stock, none of which were issued and outstanding at March 31, 2023 and December 31, 2022 | — | | | — | |
Common stock, $0.01 par value per share, 2,000,000,000 shares authorized, 157,980,877 shares issued and 149,221,069 shares outstanding at March 31, 2023; 153,286,104 shares issued and 146,223,179 shares outstanding at December 31, 2022 | 1,580 | | | 1,533 | |
Treasury stock, at cost, 8,759,808 shares and 7,062,925 shares at March 31, 2023 and December 31, 2022, respectively | (16,883) | | | (14,737) | |
Preferred stock, $0.01 par value per share, 300,000 shares authorized, none of which were issued and outstanding at March 31, 2024 and December 31, 2023 | |
Preferred stock, $0.01 par value per share, 300,000 shares authorized, none of which were issued and outstanding at March 31, 2024 and December 31, 2023 | |
Preferred stock, $0.01 par value per share, 300,000 shares authorized, none of which were issued and outstanding at March 31, 2024 and December 31, 2023 | |
Common stock, $0.01 par value per share, 2,000,000,000 shares authorized, 158,564,950 shares issued and 147,585,710 shares outstanding at March 31, 2024; 158,554,705 shares issued and 148,939,463 shares outstanding at December 31, 2023 | |
Treasury stock, at cost, 10,979,240 shares and 9,615,242 shares at March 31, 2024 and December 31, 2023, respectively | |
Additional paid-in capital | Additional paid-in capital | 1,413,397 | | | 1,409,578 | |
Accumulated deficit | Accumulated deficit | (989,057) | | | (999,401) | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (87,941) | | | (101,231) | |
Total Gannett stockholders' equity | Total Gannett stockholders' equity | 321,096 | | | 295,742 | |
Noncontrolling interests | Noncontrolling interests | (453) | | | (369) | |
Total equity | Total equity | 320,643 | | | 295,373 | |
Total liabilities and equity | Total liabilities and equity | $ | 2,328,434 | | | $ | 2,393,555 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
GANNETT CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
| | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
In thousands, except per share amounts | | | | | 2023 | | 2022 |
Advertising and marketing services | | | | | $ | 340,847 | | | $ | 375,114 | |
Circulation | | | | | 241,285 | | | 288,602 | |
Other | | | | | 86,785 | | | 84,361 | |
Total operating revenues | | | | | 668,917 | | | 748,077 | |
Operating costs | | | | | 430,188 | | | 469,885 | |
Selling, general and administrative expenses | | | | | 180,390 | | | 221,837 | |
Depreciation and amortization | | | | | 43,698 | | | 47,783 | |
Integration and reorganization costs | | | | | 12,127 | | | 11,398 | |
Asset impairments | | | | | 5 | | | 854 | |
| | | | | | | |
Gain on sale or disposal of assets, net | | | | | (17,681) | | | (2,804) | |
Other operating expenses | | | | | 229 | | | 1,102 | |
Total operating expenses | | | | | 648,956 | | | 750,055 | |
Operating income (loss) | | | | | 19,961 | | | (1,978) | |
Interest expense | | | | | 28,330 | | | 26,006 | |
(Gain) loss on early extinguishment of debt | | | | | (496) | | | 2,743 | |
Non-operating pension income | | | | | (1,815) | | | (18,213) | |
| | | | | | | |
Other non-operating expense (income), net | | | | | 1,011 | | | (1,805) | |
Non-operating expenses | | | | | 27,030 | | | 8,731 | |
Loss before income taxes | | | | | (7,069) | | | (10,709) | |
Benefit for income taxes | | | | | (17,329) | | | (7,607) | |
Net income (loss) | | | | | 10,260 | | | (3,102) | |
Net loss attributable to noncontrolling interests | | | | | (84) | | | (135) | |
Net income (loss) attributable to Gannett | | | | | $ | 10,344 | | | $ | (2,967) | |
| | | | | | | |
Income (loss) per share attributable to Gannett - basic | | | | | $ | 0.07 | | | $ | (0.02) | |
Income (loss) per share attributable to Gannett - diluted | | | | | $ | 0.07 | | | $ | (0.02) | |
| | | | | | | |
Other comprehensive loss: | | | | | | | |
Foreign currency translation adjustments | | | | | $ | 6,337 | | | $ | (7,556) | |
Pension and other postretirement benefit items: | | | | | | | |
Net actuarial gain (loss) | | | | | 11,596 | | | (1,796) | |
Amortization of net actuarial gain (loss) | | | | | 4 | | | (32) | |
| | | | | | | |
Amortization of prior service cost | | | | | 16 | | | — | |
Equity method investments | | | | | 610 | | | — | |
Other | | | | | (2,911) | | | 536 | |
Total pension and other postretirement benefit items | | | | | 9,315 | | | (1,292) | |
Other comprehensive income (loss) before tax | | | | | 15,652 | | | (8,848) | |
Income tax provision (benefit) related to components of other comprehensive income (loss) | | | | | 2,362 | | | (457) | |
Other comprehensive income (loss), net of tax | | | | | 13,290 | | | (8,391) | |
Comprehensive income (loss) | | | | | 23,550 | | | (11,493) | |
Comprehensive loss attributable to noncontrolling interests | | | | | (84) | | | (135) | |
Comprehensive income (loss) attributable to Gannett | | | | | $ | 23,634 | | | $ | (11,358) | |
| | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
In thousands, except per share amounts | | | | | 2024 | | 2023 |
Digital | | | | | $ | 267,499 | | | $ | 247,478 | |
Print and commercial | | | | | 368,262 | | | 421,439 | |
Total revenues | | | | | 635,761 | | | 668,917 | |
Operating costs | | | | | 402,399 | | | 430,188 | |
Selling, general and administrative expenses | | | | | 180,489 | | | 180,390 | |
Depreciation and amortization | | | | | 38,298 | | | 43,698 | |
Integration and reorganization costs | | | | | 17,881 | | | 12,127 | |
Asset impairments | | | | | 45,989 | | | 5 | |
| | | | | | | |
Loss (gain) on sale or disposal of assets, net | | | | | 552 | | | (17,681) | |
Other operating expenses | | | | | 39 | | | 229 | |
Total operating expenses | | | | | 685,647 | | | 648,956 | |
Operating (loss) income | | | | | (49,886) | | | 19,961 | |
Interest expense | | | | | 26,565 | | | 28,330 | |
Gain on early extinguishment of debt | | | | | (617) | | | (496) | |
Non-operating pension income | | | | | (3,146) | | | (1,815) | |
Equity loss (income) in unconsolidated investees, net | | | | | 185 | | | (210) | |
Other non-operating expense, net | | | | | 1,817 | | | 1,221 | |
Non-operating expenses | | | | | 24,804 | | | 27,030 | |
Loss before income taxes | | | | | (74,690) | | | (7,069) | |
Provision (benefit) for income taxes | | | | | 10,078 | | | (17,329) | |
Net (loss) income | | | | | (84,768) | | | 10,260 | |
Net loss attributable to noncontrolling interests | | | | | — | | | (84) | |
Net (loss) income attributable to Gannett | | | | | $ | (84,768) | | | $ | 10,344 | |
| | | | | | | |
(Loss) income per share attributable to Gannett - basic | | | | | $ | (0.60) | | | $ | 0.07 | |
(Loss) income per share attributable to Gannett - diluted | | | | | $ | (0.60) | | | $ | 0.07 | |
| | | | | | | |
Other comprehensive income (loss): | | | | | | | |
Foreign currency translation adjustments | | | | | $ | (689) | | | $ | 6,337 | |
Pension and other postretirement benefit items: | | | | | | | |
Net actuarial (loss) gain | | | | | (538) | | | 11,596 | |
Amortization of net actuarial gain | | | | | 237 | | | 4 | |
| | | | | | | |
Amortization of prior service cost | | | | | (125) | | | 16 | |
Equity method investments | | | | | 116 | | | 610 | |
Other | | | | | 1,327 | | | (2,911) | |
Total pension and other postretirement benefit items | | | | | 1,017 | | | 9,315 | |
Other comprehensive income before tax | | | | | 328 | | | 15,652 | |
Income tax provision related to components of other comprehensive income (loss) | | | | | 170 | | | 2,362 | |
Other comprehensive income, net of tax | | | | | 158 | | | 13,290 | |
Comprehensive (loss) income | | | | | (84,610) | | | 23,550 | |
Comprehensive loss attributable to noncontrolling interests | | | | | — | | | (84) | |
Comprehensive (loss) income attributable to Gannett | | | | | $ | (84,610) | | | $ | 23,634 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
GANNETT CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | Three months ended March 31, |
| Three months ended March 31, | | | Three months ended March 31, |
In thousands | In thousands | 2023 | | 2022 | In thousands | 2024 | | 2023 |
Operating activities | Operating activities | |
Net income (loss) | $ | 10,260 | | | $ | (3,102) | |
Adjustments to reconcile net income (loss) to operating cash flows: | |
Net (loss) income | |
Net (loss) income | |
Net (loss) income | |
Adjustments to reconcile net (loss) income to operating cash flows: | |
Depreciation and amortization | |
Depreciation and amortization | |
Depreciation and amortization | Depreciation and amortization | 43,698 | | | 47,783 | |
Share-based compensation expense | Share-based compensation expense | 3,736 | | | 3,393 | |
Non-cash interest expense | Non-cash interest expense | 5,267 | | | 5,316 | |
Gain on sale or disposal of assets, net | (17,681) | | | (2,804) | |
Loss (gain) on sale or disposal of assets, net | |
| (Gain) loss on early extinguishment of debt | (496) | | | 2,743 | |
Gain on early extinguishment of debt | |
Gain on early extinguishment of debt | |
Gain on early extinguishment of debt | |
| Asset impairments | |
Asset impairments | |
Asset impairments | Asset impairments | 5 | | | 854 | |
| Pension and other postretirement benefit obligations | Pension and other postretirement benefit obligations | (3,725) | | | (27,291) | |
Pension and other postretirement benefit obligations | |
Pension and other postretirement benefit obligations | |
Equity loss (income) in unconsolidated investees, net | |
Change in other assets and liabilities, net | Change in other assets and liabilities, net | (34,346) | | | 5,537 | |
| Cash provided by operating activities | Cash provided by operating activities | 6,718 | | | 32,429 | |
| Cash provided by operating activities | |
| Cash provided by operating activities | |
Investing activities | Investing activities | |
Acquisitions, net of cash acquired | — | | | (15,427) | |
| Purchase of property, plant and equipment | |
| Purchase of property, plant and equipment | |
| Purchase of property, plant and equipment | Purchase of property, plant and equipment | (8,798) | | | (10,764) | |
Proceeds from sale of real estate and other assets | Proceeds from sale of real estate and other assets | 29,502 | | | 20,471 | |
Change in other investing activities | Change in other investing activities | — | | | (500) | |
Cash provided by (used for) investing activities | 20,704 | | | (6,220) | |
Cash (used for) provided by investing activities | |
Financing activities | Financing activities | |
Payments of deferred financing costs | — | | | (423) | |
| Borrowings of long-term debt | — | | | 72,500 | |
| Repayments of long-term debt | Repayments of long-term debt | (36,178) | | | (70,476) | |
Acquisition of noncontrolling interests | — | | | (2,050) | |
| Repayments of long-term debt | |
| Repayments of long-term debt | |
| Treasury stock | |
| Treasury stock | |
| Treasury stock | Treasury stock | (2,138) | | | (3,138) | |
| Changes in other financing activities | Changes in other financing activities | (324) | | | (231) | |
| Changes in other financing activities | |
| Changes in other financing activities | |
Cash used for financing activities | Cash used for financing activities | (38,640) | | | (3,818) | |
Effect of currency exchange rate change on cash | Effect of currency exchange rate change on cash | 38 | | | (992) | |
Increase (decrease) in cash, cash equivalents and restricted cash | (11,180) | | | 21,399 | |
Decrease in cash, cash equivalents and restricted cash | |
Cash, cash equivalents and restricted cash at beginning of period | Cash, cash equivalents and restricted cash at beginning of period | 104,804 | | | 143,619 | |
Cash, cash equivalents and restricted cash at end of period | Cash, cash equivalents and restricted cash at end of period | $ | 93,624 | | | $ | 165,018 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
GANNETT CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
| | Three months ended March 31, 2024 | | | Three months ended March 31, 2024 |
| Common stock | |
In thousands | |
In thousands | |
In thousands | | Shares | | Amount | Shares | | Amount | | | Total |
Balance at December 31, 2023 | |
Net loss attributable to Gannett | |
| | | Three months ended March 31, 2023 |
| | Common stock | | Additional paid-in capital | | Accumulated other comprehensive income (loss) | | Accumulated deficit | | Treasury stock | | Non-controlling interest | |
In thousands | Shares | | Amount | Shares | | Amount | | Total |
Balance at December 31, 2022 | 153,286 | | | $ | 1,533 | | | $ | 1,409,578 | | | $ | (101,231) | | | $ | (999,401) | | | 7,063 | | | $ | (14,737) | | | $ | (369) | | | $ | 295,373 | |
Net income attributable to Gannett | — | | | — | | | — | | | — | | | 10,344 | | | — | | | — | | | (84) | | | 10,260 | |
| Other comprehensive income, net(a) | |
| Restricted share grants | 4,682 | | | 47 | | | (47) | | | — | | | — | | | — | | | — | | | — | | | — | |
| Other comprehensive income, net(a) | |
| | Other comprehensive income, net(a) | Other comprehensive income, net(a) | — | | | — | | | — | | | 13,290 | | | — | | | — | | | — | | | — | | | 13,290 | |
Share-based compensation expense | Share-based compensation expense | — | | | — | | | 3,736 | | | — | | | — | | | — | | | — | | | — | | | 3,736 | |
Issuance of common stock | Issuance of common stock | 13 | | | — | | | 25 | | | — | | | — | | | — | | | — | | | — | | | 25 | |
| Treasury stock | Treasury stock | — | | | — | | | — | | | — | | | — | | | 957 | | | (2,139) | | | — | | | (2,139) | |
Treasury stock | |
Treasury stock | |
Restricted share forfeiture | Restricted share forfeiture | — | | | — | | | — | | | — | | | — | | | 740 | | | (7) | | | — | | | (7) | |
Other activity | Other activity | — | | | — | | | 105 | | | — | | | — | | | — | | | — | | | — | | | 105 | |
Balance at March 31, 2023 | 157,981 | | | $ | 1,580 | | | $ | 1,413,397 | | | $ | (87,941) | | | $ | (989,057) | | | 8,760 | | | $ | (16,883) | | | $ | (453) | | | $ | 320,643 | |
Balance at March 31, 2024 | |
| | Three months ended March 31, 2023 | | | Three months ended March 31, 2023 |
| Common stock | |
In thousands | |
In thousands | |
In thousands | | Shares | | Amount | Shares | | Amount | | | Total |
Balance at December 31, 2022 | |
Net income (loss) attributable to Gannett | |
| | | Three months ended March 31, 2022 |
| Common stock | | Additional paid-in capital | | Accumulated other comprehensive income (loss) | | Accumulated deficit | | Treasury stock | | Non-controlling interest | |
In thousands | Shares | | Amount | Shares | | Amount | | Total |
Balance at December 31, 2021 | 144,667 | | | $ | 1,446 | | | $ | 1,400,206 | | | $ | 59,998 | | | $ | (921,399) | | | 2,368 | | | $ | (8,151) | | | $ | (2,485) | | | $ | 529,615 | |
Net loss attributable to Gannett | — | | | — | | | — | | | — | | | (2,967) | | | — | | | — | | | (135) | | | (3,102) | |
Acquisition of noncontrolling interests | — | | | — | | | (4,419) | | | — | | | — | | | — | | | — | | | 2,369 | | | (2,050) | |
Restricted stock awards settled, net of withholdings | 615 | | | 7 | | | (1,541) | | | — | | | — | | | — | | | — | | | — | | | (1,534) | |
Restricted share grants | Restricted share grants | 5,728 | | | 57 | | | (57) | | | — | | | — | | | — | | | — | | | — | | | — | |
| Other comprehensive loss, net(a) | — | | | — | | | — | | | (8,391) | | | — | | | — | | | — | | | — | | | (8,391) | |
Restricted share grants | |
| Restricted share grants | |
| Other comprehensive income, net(a) | |
Other comprehensive income, net(a) | |
Other comprehensive income, net(a) | |
Share-based compensation expense | Share-based compensation expense | — | | | — | | | 3,393 | | | — | | | — | | | — | | | — | | | — | | | 3,393 | |
Issuance of common stock | Issuance of common stock | 7 | | | — | | | 62 | | | — | | | — | | | — | | | — | | | — | | | 62 | |
| Treasury stock | Treasury stock | — | | | — | | | — | | | — | | | — | | | 692 | | | (3,138) | | | — | | | (3,138) | |
Treasury stock | |
Treasury stock | |
Restricted share forfeiture | Restricted share forfeiture | — | | | — | | | — | | | — | | | — | | | 128 | | | (1) | | | — | | | (1) | |
Other activity | Other activity | — | | | — | | | (128) | | | — | | | — | | | — | | | — | | | — | | | (128) | |
Balance at March 31, 2022 | 151,017 | | | $ | 1,510 | | | $ | 1,397,516 | | | $ | 51,607 | | | $ | (924,366) | | | 3,188 | | | $ | (11,290) | | | $ | (251) | | | $ | 514,726 | |
Balance at March 31, 2023 | |
(a) For the three months ended March 31, 20232024 and 2022,2023, Other comprehensive income (loss) is net of an income tax provision of $2.4$0.2 million and income tax benefit of $0.5$2.4 million, respectively.
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — Description of business and basis of presentation
Description of business
Gannett Co., Inc. ("Gannett", "we", "us", "our", or the "Company") is a subscription-leddiversified media company with expansive reach at the national and digitally-focused media and marketing solutions company committedlocal level dedicated to empowering communitiesand enriching communities. We seek to thrive. Gannett operatesinspire, inform, and connect audiences as a scalable, data-drivensustainable, growth focused media platform that aligns with consumer and digital marketing trends.solutions company. We aimendeavor to be the premier source for clarity, connections and solutions within our communities. Our mission is to provide unbiased, unique local and nationaldeliver essential content, and unrivaled marketing solutions, and experiences for curated audiences, advertisers, consumers, and stakeholders by leveraging our diverse teams and suite of products to enrich the local communities and businesses we serve. We seek to drive audience growth and engagement by delivering valuable content experiences to our consumers, while offering the unique products and marketing expertise our advertisers desire. Our strategy prioritizes the growth of highly recurring digital businesses, while maximizing the lifetime value of our legacy print business, and we expect the execution of this strategy to enable us to continue our evolution to a digitally-focused content platform.
Our current portfolio of trusted media assetsbrands includes the USA TODAY NETWORK, which includescomprised of the national publication, USA TODAY, and local media organizations in 43 states in the United States (the "U.S."), and Newsquest, a wholly-owned subsidiary operating in the United Kingdom (the "U.K."). We also ownOur digital marketing services companies under thesolutions brand, LocaliQ, which provide a cloud-based platform of productsuses innovation and software to enable small and medium-sized businesses ("SMBs") to accomplish their marketing goals. In addition, our portfolio includes what we believe is the largest media-owned events business in the U.S.,grow, and USA TODAY NETWORK Ventures.Ventures, our events division, creates impactful consumer engagements, promotions, and races.
Through USA TODAY, our network of local properties, and Newsquest, we deliver high-quality, trusted content with a commitment to balanced, unbiased journalism, where and when consumers want to engage with it on virtually any device or platform. Additionally, the Company hasengage. We have strong relationships with hundreds of thousands of local and national businesses in both our U.S. and U.K. markets due to our large local and national sales forces and a robust advertising and digital marketing solutions product suite. Our strategy prioritizes maximizing the monetization of our audience through the growth of increasingly diverse and highly recurring digital businesses. We deliver value to our customers, advertisers, partners and shareholders with essential content, joyful experiences, and relevant digital solutions.
The Company reports in two segments,three segments: Domestic Gannett Media, Newsquest and Digital Marketing Solutions ("DMS"). We also have a Corporate and other category that includes activities not directly attributable to a specific reportable segment and includes broad corporate functions, such as legal, human resources, accounting, analytics, finance, marketing and marketing,technology, as well as other general business costs. A full description of our reportable segments is included in Note 12 — Segment reporting in the notes to the condensed consolidated financial statements.reporting.
Basis of presentation
The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. As permitted under those rules, certain notes or other financial information that are normally required by U.S. GAAP have been condensed or omitted from these interim financial statements. The unaudited condensed consolidated financial statements should therefore be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022.2023.
In the opinion of management, the unaudited condensed consolidated financial statements as of March 31, 20232024 include all the assets, liabilities, revenues, expenses, and cash flows of entities which Gannett controls due to ownership of a majority voting interest ("subsidiaries"). In addition, in the opinion of management, the unaudited condensed consolidated financial statements as of March 31, 2024 reflect all necessary adjustments for a fair statement of the results for the interim period. All significant intercompany accounts and transactions have been eliminated in consolidation, and the Company consolidates its subsidiaries.
Use of estimates
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and footnotes thereto. Actual results could differ materially from those estimates.
Significant estimates inherent in the preparation of the unaudited condensed consolidated financial statements include pension and postretirement benefit obligation assumptions, income taxes, and goodwill and intangible asset impairment analysis.
analysis,
valuation of property, plant, and equipment and the mark to market of the conversion feature associated with the convertible debt.
Reclassifications
Certain reclassifications have been made to the prior year unaudited condensed consolidated financial statements to conform to classifications used in the current year. Beginning in the first quarter of 2024, the Company updated the presentation of its revenues to reflect the disaggregation between Digital revenues and Print and commercial revenues. These reclassifications had no impact on net income (loss), stockholders' equity or cash flows as previously reported.
Recent accounting pronouncements not yet adopted
Disclosure improvements
In November 2023, the FASB issued guidance, ASU 2023-07, which will improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 applies to all public entities that are required to report segment information in accordance with ASC 280, "Segment Reporting." The Company will be required to report these enhanced segment disclosures starting in annual periods beginning after December 15, 2023 and requires retrospective application to all prior periods presented in the financial statements. The Company does not expect the adoption of this guidance will have a material impact on the condensed consolidated financial statements and disclosures.
In November 2023, the FASB issued guidance, ASU 2023-09, which enhances annual income tax disclosures. ASU 2023-09 requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 will be effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the provisions of the updated guidance and assessing the impact on the condensed consolidated financial statements and disclosures.
NOTE 2 — Revenues
Revenues are recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
The Company's condensed consolidated statements of operations and comprehensive income (loss) present revenues disaggregated by revenue type. Sales taxes and other usage-based taxes are excluded from revenues. The following table presentstables present our revenues disaggregated by source:segment and revenue type:
| | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
In thousands | | | | | 2023 | | 2022 |
Print advertising | | | | | $ | 147,954 | | | $ | 173,518 | |
Digital advertising and marketing services | | | | | 192,893 | | | 201,596 | |
Total advertising and marketing services | | | | | 340,847 | | | 375,114 | |
Circulation | | | | | 241,285 | | | 288,602 | |
Other | | | | | 86,785 | | | 84,361 | |
Total revenues | | | | | $ | 668,917 | | | $ | 748,077 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2024 |
In thousands | Domestic Gannett Media | | Newsquest | | Digital Marketing Solutions | | Corporate and other | | Intersegment eliminations | | Consolidated |
Digital advertising | $ | 70,941 | | | $ | 13,525 | | | $ | — | | | $ | — | | | $ | — | | | $ | 84,466 | |
Digital marketing services | 36,086 | | | 2,088 | | | 117,045 | | | — | | | (38,805) | | | 116,414 | |
Digital-only subscription | 41,911 | | | 1,568 | | | — | | | — | | | — | | | 43,479 | |
Digital other | 18,797 | | | 2,739 | | | — | | | 1,604 | | | — | | | 23,140 | |
Digital | 167,735 | | | 19,920 | | | 117,045 | | | 1,604 | | | (38,805) | | | 267,499 | |
| | | | | | | | | | | |
Print advertising | 115,619 | | | 19,057 | | | — | | | — | | | — | | | 134,676 | |
Print circulation | 156,246 | | | 17,077 | | | — | | | — | | | — | | | 173,323 | |
Commercial and other | 56,119 | | | 4,144 | | | — | | | — | | | — | | | 60,263 | |
Print and commercial | 327,984 | | | 40,278 | | | — | | | — | | | — | | | 368,262 | |
| | | | | | | | | | | |
Total revenues | $ | 495,719 | | | $ | 60,198 | | | $ | 117,045 | | | $ | 1,604 | | | $ | (38,805) | | | $ | 635,761 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2023 |
In thousands | Domestic Gannett Media | | Newsquest | | Digital Marketing Solutions | | Corporate and other | | Intersegment eliminations | | Consolidated |
Digital advertising | $ | 67,674 | | | $ | 12,536 | | | $ | — | | | $ | — | | | $ | — | | | $ | 80,210 | |
Digital marketing services | 32,065 | | | 2,194 | | | 112,817 | | | — | | | (34,393) | | | 112,683 | |
Digital-only subscription | 34,678 | | | 1,153 | | | — | | | — | | | — | | | 35,831 | |
Digital other | 14,891 | | | 2,465 | | | — | | | 1,398 | | | — | | | 18,754 | |
Digital | 149,308 | | | 18,348 | | | 112,817 | | | 1,398 | | | (34,393) | | | 247,478 | |
| | | | | | | | | | | |
Print advertising | 128,177 | | | 19,777 | | | — | | | — | | | — | | | 147,954 | |
Print circulation | 188,503 | | | 16,951 | | | — | | | — | | | — | | | 205,454 | |
Commercial and other | 63,949 | | | 4,082 | | | — | | | — | | | — | | | 68,031 | |
Print and commercial | 380,629 | | | 40,810 | | | — | | | — | | | — | | | 421,439 | |
| | | | | | | | | | | |
Total revenues | $ | 529,937 | | | $ | 59,158 | | | $ | 112,817 | | | $ | 1,398 | | | $ | (34,393) | | | $ | 668,917 | |
Revenues generated from international operations comprised 11.0% and 10.2% of total revenues for the three months ended March 31, 20232024 and 2022, revenues generated from international locations were approximately 10.2% and 8.9% of total revenues,2023, respectively.
Deferred revenues
The Company records deferred revenues when cash payments are received in advance of the Company's performance obligation. The Company's primary source of deferred revenues is from circulation subscriptions paid in advance of the service provided, which represents future delivery of publications (the performance obligation) to subscription customers. The Company expects to recognize the revenue related to unsatisfied performance obligations over the next one to twelve months in accordance with the terms of the subscriptions.
The Company's payment terms vary by the type and location of the customer and the products or services offered. The period between invoicing and when payment is due is not significant. For certain products or services and customer types, the Company requires payment before the products or services are delivered to the customer. The majority of our subscription customers are billed and pay on monthly terms.
The following table presents the change in the deferred revenues balance by type of revenues:balance:
| | Three months ended March 31, 2023 | | Three months ended March 31, 2022 | |
| Three months ended March 31, | |
| Three months ended March 31, | |
| Three months ended March 31, | |
In thousands | |
In thousands | |
In thousands | In thousands | Advertising, marketing services, and other | | Circulation | | Total | | Advertising, marketing services, and other | | Circulation | | Total | |
Beginning balance | Beginning balance | $ | 46,327 | | | $ | 107,321 | | | $ | 153,648 | | | $ | 60,665 | | | $ | 124,173 | | | $ | 184,838 | | |
Acquisition | — | | | — | | | — | | | — | | | 2,388 | | | 2,388 | | |
Cash receipts, net of refunds | 65,632 | | | 207,486 | | | 273,118 | | | 76,125 | | | 237,860 | | | 313,985 | | |
Beginning balance | |
Beginning balance | |
| Receipts, net of refunds | |
| Receipts, net of refunds | |
| Receipts, net of refunds | |
Revenue recognized | |
Revenue recognized | |
Revenue recognized | Revenue recognized | (72,663) | | | (212,387) | | | (285,050) | | | (75,463) | | | (240,169) | | | (315,632) | | |
Ending balance | Ending balance | $ | 39,296 | | | $ | 102,420 | | | $ | 141,716 | | | $ | 61,327 | | | $ | 124,252 | | | $ | 185,579 | | |
Ending balance | |
Ending balance | |
NOTE 3 — Accounts receivable, net
Receivables are presented net of allowances, which reflect the Company's expected credit losses based on historical experience as well as current and expected economic conditions. The following table presents changes in the allowance for doubtful accounts:
| | Three months ended March 31, |
| Three months ended March 31, | | | Three months ended March 31, |
In thousands | In thousands | 2023 | | 2022 | In thousands | 2024 | | 2023 |
Beginning balance | Beginning balance | $ | 16,697 | | | $ | 16,470 | |
Current period provision | Current period provision | 1,383 | | | (2,403) | |
Write-offs charged against the allowance | Write-offs charged against the allowance | (4,839) | | | (3,868) | |
Recoveries of amounts previously written-off | Recoveries of amounts previously written-off | 1,199 | | | 942 | |
Other | Other | 59 | | | 425 | |
| Ending balance | Ending balance | $ | 14,499 | | | $ | 11,566 | |
Ending balance | |
Ending balance | |
For the three months ended March 31, 20232024 and 2022,2023, the Company recorded an expense of $1.4$0.6 million and a benefit of $2.4$1.4 million in bad debt expense, respectively. Bad debt expense is included in Selling, general and administrative expenses on the condensed consolidated statements of operations and comprehensive income (loss).
NOTE 4 — Goodwill and intangible assets
Goodwill and intangible assets consisted of the following:
| | March 31, 2023 | | December 31, 2022 |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
In thousands | In thousands | Gross carrying amount | | Accumulated amortization | | Net carrying amount | | Gross carrying amount | | Accumulated amortization | | Net carrying amount | In thousands | Gross carrying amount | | Accumulated amortization | | Net carrying amount | | Gross carrying amount | | Accumulated amortization | | Net carrying amount |
Finite-lived intangible assets: | Finite-lived intangible assets: | |
Advertiser relationships | |
Advertiser relationships | |
Advertiser relationships | Advertiser relationships | $ | 446,162 | | | $ | 202,973 | | | $ | 243,189 | | | $ | 445,775 | | | $ | 192,032 | | | $ | 253,743 | |
Other customer relationships | Other customer relationships | 102,259 | | | 48,535 | | | 53,724 | | | 102,224 | | | 45,811 | | | 56,413 | |
Subscriber relationships | Subscriber relationships | 251,090 | | | 133,959 | | | 117,131 | | | 251,083 | | | 126,899 | | | 124,184 | |
Other intangible assets | Other intangible assets | 68,780 | | | 57,614 | | | 11,166 | | | 68,780 | | | 55,932 | | | 12,848 | |
Sub-total | Sub-total | $ | 868,291 | | | $ | 443,081 | | | $ | 425,210 | | | $ | 867,862 | | | $ | 420,674 | | | $ | 447,188 | |
Indefinite-lived intangible assets: | Indefinite-lived intangible assets: | |
Mastheads | Mastheads | | 166,478 | | | 166,170 | |
Mastheads | |
Mastheads | |
Total intangible assets | Total intangible assets | | $ | 591,688 | | | $ | 613,358 | |
| Goodwill | Goodwill | | $ | 533,469 | | | $ | 533,166 | |
Goodwill | |
Goodwill | |
The Company performs its annual goodwill and indefinite-lived intangible impairment assessments as of November 30. In addition to the annual impairment test, the Company is required to regularly assess whether a triggering event has occurred under both ASC 350 "Intangibles - Goodwill and Other" ("ASC 350"), and ASC 360 "Property, Plant and Equipment" ("ASC 360"), which would require interim impairment testing.
As of March 31, 2023,2024, the Company performed a review of potential impairment indicators under both ASC 350 and ASC 360, and it was determined that no indicators of impairment were present.
NOTE 5 — Integration and reorganization costs, and asset impairments
Over the past several years, the Company has engaged in a series ofIntegration and reorganization costs
Integration and reorganization costs include severance costs as well as other reorganization costs associated with individual restructuring programs, designed primarily to right-size the Company's employee base, consolidate facilities and improve operations, including those of acquired entities.operations. These initiatives impact all the Company's operations and can be influenced by the terms of union contracts. Costs related to these programs, which primarily include severance facility consolidation and other restructuring-related expenses, are accrued when probable and reasonably estimable or at the time of program announcement.
Severance-related expenses
The Company recorded severance-related expenses by segment as follows:
| | | Three months ended March 31, |
| | | Three months ended March 31, | |
| | | Three months ended March 31, | |
| | | Three months ended March 31, | |
In thousands | In thousands | | 2023 | | 2022 | In thousands | | | | | 2024 | | 2023 |
Gannett Media | | $ | 6,112 | | | $ | 5,177 | |
Domestic Gannett Media | |
Newsquest | |
Digital Marketing Solutions | Digital Marketing Solutions | | 20 | | | 9 | |
Corporate and other | Corporate and other | | 4,121 | | | 174 | |
Total | Total | | $ | 10,253 | | | $ | 5,360 | |
A roll-forward of the accrued severance and related expenses included in Accounts payable and accrued liabilities on the condensed consolidated balance sheets for the three months ended March 31, 20232024 is as follows:
| | | | | |
In thousands | Severance and related costsexpenses |
Beginning balance | $ | 29,7736,928 | |
Restructuring provision included in integration and reorganization costs | 10,2535,254 | |
Cash payments | (18,178)(2,646) | |
Ending balance | $ | 21,8489,536 | |
Other restructuring-related expenses
Other restructuring-related expenses represent costs for consolidating operations, systems implementation, outsourcing of corporate functions and facility consolidations. The Company recorded otherOther restructuring-related costs by segment as follows:
| | | | Three months ended March 31, | |
| | | Three months ended March 31, | |
| | | Three months ended March 31, | |
In thousands | | In thousands | | | | | 2024 | | 2023 |
Domestic Gannett Media(a) | |
| | | | Three months ended March 31, |
In thousands | | 2023 | | 2022 |
Gannett Media (a) | | $ | (1,463) | | | $ | 544 | |
Digital Marketing Solutions | | — | | | 142 | |
Corporate and other | |
| Corporate and other | |
| Corporate and other | Corporate and other | | 3,337 | | | 5,352 | |
Total | Total | | $ | 1,874 | | | $ | 6,038 | |
(a) For the three months ended March 31, 2023, other2024, Other restructuring-related costs decreased comparedat the Domestic Gannett Media segment primarily reflected $9.7 million expensed as of the cease-use date related to certain licensed content. For the three months ended March 31, 2022,2023, Other restructuring-related costs at the Domestic Gannett Media segment primarily due toreflected the reversal of a withdrawal liability related to a multiemployer pension plan.plan of $2.0 million based on the settlement of the withdrawal liability.
Asset impairments
Corporate office relocation
On March 1, 2024, we exited and ceased use of our leased facility in McLean, Virginia and moved our corporate headquarters to our existing office space in New York. We will continue to seek subleases for the leased facility in McLean. As a result of the headquarters relocation, we recorded an impairment charge of approximately $46.0 million during the three months ended March 31, 2024 related to the McLean operating lease right-of-use asset and the associated leasehold improvements. The fair value was measured using a discounted cash flow model based on market rents projected over the remaining lease term.
NOTE 6 — Debt
The Company's debt consisted of the following:
| | March 31, 2023 | December 31, 2022 |
(In millions) | Principal balance | Unamortized original issue discount | Unamortized deferred financing costs | Carrying value | Principal balance | Unamortized original issue discount | Unamortized deferred financing costs | Carrying value |
| March 31, 2024 | | | March 31, 2024 | December 31, 2023 |
In millions | | In millions | Principal balance | Unamortized original issue discount | Unamortized deferred financing costs | Carrying value | Principal balance | Unamortized original issue discount | Unamortized deferred financing costs | Carrying value |
Senior Secured Term Loan | Senior Secured Term Loan | $ | 407.1 | | $ | (7.8) | | $ | (1.7) | | $ | 397.6 | | $ | 438.4 | | $ | (8.9) | | $ | (1.9) | | $ | 427.6 | |
2026 Senior Notes | 2026 Senior Notes | 339.1 | | (8.6) | | (6.7) | | 323.8 | | 345.2 | | (9.4) | | (7.3) | | 328.5 | |
2027 Notes | 2027 Notes | 485.3 | | (78.0) | | (1.7) | | 405.6 | | 485.3 | | (81.2) | | (1.7) | | 402.4 | |
2024 Notes | 2024 Notes | 3.3 | | — | | — | | 3.3 | | 3.3 | | — | | — | | 3.3 | |
Total debt | Total debt | $ | 1,234.8 | | $ | (94.4) | | $ | (10.1) | | $ | 1,130.3 | | $ | 1,272.2 | | $ | (99.5) | | $ | (10.9) | | $ | 1,161.8 | |
Less: Current portion of long-term debt | Less: Current portion of long-term debt | $ | (60.5) | | $ | — | | $ | — | | $ | (60.5) | | $ | (60.5) | | $ | — | | $ | — | | $ | (60.5) | |
Non-current portion of long-term debt | Non-current portion of long-term debt | $ | 1,174.3 | | $ | (94.4) | | $ | (10.1) | | $ | 1,069.8 | | $ | 1,211.7 | | $ | (99.5) | | $ | (10.9) | | $ | 1,101.3 | |
Senior Secured Term Loan
On October 15, 2021, Gannett Holdings LLC ("Gannett Holdings"), a wholly-owned subsidiary of the Company, entered into the five-year senior secured term loan facility in an original aggregate principal amount of $516.0 million (the "Senior Secured Term Loan," formerly referred to as the New Senior Secured Term Loan)Loan") with Citibank N.A., as collateral agent and administrative agent for the lenders. On January 31, 2022, Gannett Holdings entered into an amendment (the "Term Loan Amendment") to the Senior Secured Term Loan to provide for new incremental senior secured term loans (the "Incremental Term Loans") in an aggregate principal amount of $50 million. The Incremental Term Loans have substantially identical terms as the Senior Secured Term Loan and are treated as a single tranche with the Senior Secured Term Loan. The Term Loan Amendment also amended the Senior Secured Term Loan to transition the interest rate base from the London Inter-bank Offered Rate ("LIBOR") to the Adjusted Term Secured Overnight Financing Rate ("Adjusted Term SOFR"). Effective as of March 21, 2022 and April 8,During 2022, Gannett Holdings entered into two separate amendments to the Senior Secured Term Loan to provide for incremental senior secured term loans totaling an aggregate principal amount of $30.0 million (collectively, the "Exchanged Term Loans"). The Exchanged Term Loans have substantially identical terms as the Senior Secured Term Loan and Incremental Term Loans and are treated as a single tranche with the Senior Secured Term Loan and the Incremental Term Loans.
The Senior Secured Term Loan bears interest at a per annum rate equal to the Adjusted Term SOFR (which shall not be less than 0.50% per annum) plus a margin equal to 5.00% or an alternate base rate (which shall not be less than 1.50% per annum) plus a margin equal to 4.00%. Loans under the Senior Secured Term Loan may be prepaid, at the option of Gannett Holdings, at any time without premium. In addition, we are required to repay the Senior Secured Term Loan from time to time with (i) the proceeds of non-ordinary course asset sales and casualty and condemnation events, (ii) the proceeds of indebtedness not permitted under the Senior Secured Term Loan, and (iii) the aggregate amount of cash and cash equivalents on hand at the Company and its restricted subsidiaries in excess of $100 million at the end of each fiscal year of the Company. Subsequent to the amendment effective as of April 8, 2022, the Senior Secured Term Loan is amortized at $15.1 million per quarter (or, if the ratio of debt secured on an equal basis with the Senior Secured Term Loan less unrestricted cash of the Company and its restricted subsidiaries to Consolidated EBITDA (as such terms are defined in the Senior Secured Term Loan) (such ratio, the "First Lien Net Leverage Ratio"), for the most recently ended period of four consecutive fiscal quarters is equal to or less than 1.20 to 1.00, $7.6 million per quarter). All obligations under the Senior Secured Term Loan are secured by all or substantially all of the assets of the Company and the wholly-owned domestic subsidiaries of the Company (the "Senior Secured Term Loan Guarantors"). The obligations of Gannett Holdings under the Senior Secured Term Loan are guaranteed on a senior secured basis by the Company and the Senior Secured Term Loan Guarantors.
The Senior Secured Term Loan contains usual and customary covenants for credit facilities of this type, including a requirement to have minimum unrestricted cash of $30 million as of the last day of each fiscal quarter, and restricts, among other things, our ability to incur debt, grant liens, sell assets, make investments and pay dividends, in each case with customary exceptions, including an exception that permits dividends and repurchases of outstanding junior debt or equity in (i) an amount of up to $25 million per fiscal quarter if the First Lien Net Leverage Ratio for such fiscal quarter is equal to or less than 2.00 to 1.00, (ii) an amount of up to $50 million per fiscal quarter if the First Lien Net Leverage Ratio for such fiscal quarter is equal to or less than 1.50 to 1.00, and (iii) an unlimited amount if First Lien Net Leverage Ratio for such fiscal quarter is equal to or less than 1.00 to 1.00. As of March 31, 2023,2024, the Company was in compliance with all of the covenants and obligations under the Senior Secured Term Loan.
As of March 31, 20232024 and December 31, 2022,2023, the Senior Secured Term Loan was recorded at carrying value, which approximated fair value, in the condensed consolidated balance sheets and was classified as Level 2.
During the three months ended March 31, 2024, the Company received a waiver from certain lenders of the Senior Secured Term Loan that reduced the scheduled quarterly amortization payments payable to those lenders by approximately $12.0 million for the three months ended March 31, 2024 (the "First Quarter 2024 Waiver"), and which was the amount used by the Company to repurchase a portion of its 2026 Senior Notes (defined below). For the three months ended March 31, 2024, the Company made payments of $3.3 million of our Senior Secured Term Loan (net of the First Quarter 2024 Waiver), including quarterly amortization payments, which were classified as financing activities in the condensed consolidated statements of cash flows.
For the three months ended March 31, 2024, the Company recognized interest expense of $9.3 million and paid cash interest of $9.3 million. For the three months ended March 31, 2023, the Company recognized interest expense of $10.3 million and paid cash interest of $10.4 million. For the three months ended March 31, 2022,2024, the Company recognized interest expenseamortization of $6.9original issue discount of $0.6 million and paid cash interestamortization of $6.9deferred financing costs of $0.1 million. For the three months ended March 31, 2023, the Company recognized amortization of original issue discount of $0.8 million and amortization of deferred financing costs of $0.1 million. For the three months ended March 31, 2022, the Company recognized amortization of original issue discount of $0.9 million, and amortization of deferred financing costs of $0.2 million. Additionally, during the three months ended March 31, 2023, the Company recognized losses on early extinguishment of debt of $0.4 million, and for the three months ended March 31, 2022,2024 and 2023, the Company recognized losses on the early extinguishment of debt, of $1.4which were immaterial and $0.4 million, respectively, related to the write-off of original issue discount and deferred financing costs as a result of early prepayments on the Senior Secured Term Loan.
For the three months ended March 31, 2023, the Company made $31.3 million of prepayments, including quarterly amortization payments, which were classified as financing activities in the condensed consolidated statements of cash flows. As of March 31, 2023,2024, the effective interest rate for the Senior Secured Term Loan was 10.6%11.2%.
Senior Secured Notes due 2026
On October 15, 2021, Gannett Holdings completed a private offering of $400 million aggregate principal amount of 6.00% first lien notes due November 1, 2026 (the "2026 Senior Notes"). The 2026 Senior Notes were issued pursuant to an indenture, dated October 15, 2021 (the "2026 Senior Notes Indenture") among Gannett Holdings, the Company, the guarantors from time to time party thereto (the "2026 Senior Notes Guarantors"), U.S. Bank National Association, as trustee, and U.S. Bank National Association, as collateral agent, registrar, paying agent and authenticating agent.
For the year ended December 31, During 2022, the Company repurchased $54.8 million in aggregate principal amount of outstanding 2026 Senior Notes pursuant to privately negotiated agreements with certain holders of the 2026 Senior Notes. As part of these repurchases, we exchanged an aggregate principal amount equal to $30.0 million of the 2026 Senior Notes for $30.0 million of new term loans under the Senior SecuredExchanged Term Loan. The repurchases were treated as an extinguishment of a portion of the 2026 Senior Notes, and as a result, for the year ended December 31, 2022, the Company recognized a net gain on the early extinguishment of debt of approximately $2.6 million, which included write-offs of unamortized original issue discount and deferred financing costs.
For the three months ended March 31, 2023, the Company repurchased $6.1 million in aggregate principal amount of outstanding 2026 Senior Notes at a discount to par value pursuant to a privately negotiated agreement with a holder of the 2026 Senior Notes. As a result of this transaction, for the three months ended March 31, 2023, the Company recognized a net gain on the early extinguishment of debt of approximately $0.9 million, which included the write-off of unamortized original issue discount and deferred financing costs.Loans.
Interest on the 2026 Senior Notes is payable semi-annually in arrears, beginning on May 1, 2022. The 2026 Senior Notes mature on November 1, 2026, unless redeemed or repurchased earlier pursuant to the 2026 Senior Notes Indenture. The 2026 Senior Notes may be redeemed at the option of Gannett Holdings, in whole or in part, at any time and from time to time after November 1, 2023, at the redemption prices set forth in the 2026 Senior Notes Indenture. At any time prior to such date, Gannett Holdings will be entitled at its option to redeem all, but not less than all, of the 2026 Senior Notes at the "make-whole" redemption price set forth in the 2026 Senior Notes Indenture. Additionally, at any time prior to November 1, 2023, Gannett Holdings may, on one or more occasions, redeem up to 40% of the aggregate principal amount of the 2026 Senior Notes at the redemption price set forth in the 2026 Senior Notes Indenture with the net cash proceeds of certain equity offerings. If certain changes of control with respect to Gannett Holdings or the Company occur, Gannett Holdings must offer to purchase the 2026 Senior Notes at a purchase price in cash equal to 101% of the principal amount thereof on the date of purchase, plus accrued and unpaid interest to, but excluding, the date of purchase. In addition, during any twelve-month period commencing on or after October 15, 2021 and ending prior to November 1, 2023, up to 10% of the aggregate principal amount of the 2026 Senior Notes issued under the 2026 Senior Notes Indenture may be redeemed at a purchase price equal to 103% of the aggregate principal amount of the 2026 Senior Notes to be redeemed, plus accrued and unpaid interest, if any, to but excluding, the redemption date.
The 2026 Senior Notes are unconditionally guaranteed, jointly and severally, on a senior secured basis by the 2026 Senior Notes Guarantors. The 2026 Senior Notes and such guarantees are secured on a first-priority basis by the collateral, consisting of substantially all of the assets of Gannett Holdings and the 2026 Senior Notes Guarantors, subject to certain intercreditor arrangements.
The 2026 Senior Notes Indenture limits the Company and its restricted subsidiaries' ability to, among other things, make investments, loans, advances, guarantees and acquisitions; incur or guarantee additional debt and issue certain disqualified equity interests and preferred stock; make certain restricted payments, including a limit on dividends on equity securities or payments to redeem, repurchase or retire equity securities or other indebtedness; dispose of assets; create liens on assets to secure debt; engage in transactions with affiliates; enter into certain restrictive agreements; and consolidate, merge, sell or
otherwise dispose of all or substantially all of their or the 2026 Senior Notes Guarantor's assets. These covenants are subject to a number of limitations and exceptions. The 2026 Senior Notes Indenture also contains customary events of default.
As of March 31, 20232024 and December 31, 2022,2023, the 2026 Senior Notes were recorded at carrying value in the condensed consolidated balance sheets, which did not approximate fair value. The 2026 Senior Notes were classified as Level 2, and based on unadjusted quoted prices in the active market obtained from third-party pricing services, the Company determined that the
estimated fair value of the 2026 Senior Notes was $284.4$254.5 million and $281.7$256.6 million as of March 31, 20232024 and December 31, 2022,2023, respectively, and was primarily affected by fluctuations in market interest rates.
In March 2024, the Company entered into a privately negotiated agreement with certain holders of our 2026 Senior Notes, and for the three months ended March 31, 2024, repurchased $13.0 million of principal of our outstanding 2026 Senior Notes at a discount to par value. In connection with repurchase of our 2026 Senior Notes in March 2024, the Company received the First Quarter 2024 Waiver from certain lenders of the Senior Secured Term Loan, which was used to reduce the scheduled quarterly amortization payments payable to those lenders by approximately $12.0 million. As a result of this repurchase of our 2026 Senior Notes, the Company recognized a gain on the early extinguishment of debt of approximately $0.6 million during the three months ended March 31, 2024, which included the write-off of unamortized original issue discount and deferred financing costs. Additionally, for the three months ended March 31, 2023, the Company recognized a gain on the early extinguishment of debt of approximately $0.9 million, which included the write-off of unamortized original issue discount and deferred financing costs.
The unamortized original issue discount and deferred financing costs will be amortized over the remaining contractual life of the 2026 Senior Notes using the effective interest method. For the three months ended March 31, 2024, the Company recognized interest expense of $4.4 million and paid cash interest of $0.3 million. For the three months ended March 31, 2023, the Company recognized interest expense of $5.0 million and paid cash interest of $0.1 million. For the three months ended March 31, 2022,2024, the Company recognized interest expenseamortization of $6.0original issue discount of $0.5 million and paid cash interestamortization of $0.6deferred financing costs of $0.4 million. For the three months ended March 31, 2023, the Company recognized amortization of original issue discount of $0.6 million and amortization of deferred financing costs of $0.5 million. For the three months ended March 31, 2022, the Company recognized amortization of original discount of $0.7 million and amortization of deferred financing costs of $0.6 million. As of March 31, 2023,2024, the effective interest rate on the 2026 Senior Notes was 7.3%.
Senior Secured Convertible Notes due 2027
The $497.1 million in aggregate principal amount of 6.0% Senior Secured Convertible Notes due 2027 (the "2027 Notes") were issued pursuant to an Indenture dated as of November 17, 2020, as amended by the First Supplemental Indenture dated as of December 21, 2020 and the Second Supplemental Indenture dated as of February 9, 2021 (collectively, the "2027 Notes Indenture"), between the Company and U.S. Bank National Association, as trustee.
In connection with the issuance of the 2027 Notes, the Company entered into an Investor Agreement (the "Investor Agreement") with the holders of the 2027 Notes (the "Holders") establishing certain terms and conditions concerning the rights and restrictions on the Holders with respect to the Holders' ownership of the 2027 Notes. The Company also entered into an amendment to the Registration Rights Agreement dated November 19, 2019, between the Company and FIG LLC.
Interest on the 2027 Notes is payable semi-annually in arrears. The 2027 Notes mature on December 1, 2027, unless earlier repurchased or converted. The 2027 Notes may be converted at any time by the holders into cash, shares of the Company's common stock, par value $0.01 per share (the "Common Stock") or any combination of cash and Common Stock, at the Company's election. The initial conversion rate is 200 shares of Common Stock per $1,000 principal amount of the 2027 Notes, which is equal to a conversion price of $5.00 per share of Common Stock (the "Conversion Price").
The conversion rate is subject to customary adjustment provisions as provided in the 2027 Notes Indenture. In addition, the conversion rate will be subject to adjustment in the event of any issuance or sale of Common Stock (or securities convertible into Common Stock) at a price equal to or less than the Conversion Price in order to ensure that following such issuance or sale, the 2027 Notes would be convertible into approximately 42% (adjusted for repurchases and certain other events that reduce the outstanding amount of the 2027 Notes) of the Common Stock after giving effect to such issuance or sale (assuming the initial principal amount of the 2027 Notes remains outstanding). After giving effect to the repurchase of $11.8 million in aggregate principal amount of outstanding 2027 Notes during the year ended December 31, 2021, such percentage iswas approximately 41%.
Upon the occurrence of a "Make-Whole Fundamental Change" (as defined in the 2027 Notes Indenture), the Company will in certain circumstances increase the conversion rate for a specified period of time. If a "Fundamental Change" (as defined in
the 2027 Notes Indenture) occurs, the Company will be required to offer to repurchase the 2027 Notes at a repurchase price of 110% of the principal amount thereof.
Holders of the 2027 Notes will have the right to put up to approximately $100 million of the 2027 Notes at par on or after the date that is 91 days after the maturity date of the Senior Secured Term Loan.
Under the 2027 Notes Indenture, the Company can only pay cash dividends up to an agreed-upon amount, provided the ratio of consolidated debt to EBITDA (as such terms are defined in the 2027 Notes Indenture) does not exceed a specified ratio. In addition, the 2027 Notes Indenture provides that, at any time that the Company's Total Gross Leverage Ratio (as defined in the 2027 Notes Indenture) exceeds 1.5 and the Company approves the declaration of a dividend, the Company must offer to purchase a principal amount of 2027 Notes equal to the proposed amount of the dividend.
Until the four-year anniversary of the issuance date, the Company will have the right to redeem for cash up to approximately $99.4 million of the 2027 Notes at a redemption price of 130% of the principal amount thereof, with such amount reduced ratably by any principal amount of 2027 Notes that has been converted by the holders or redeemed or purchased by the Company.
The 2027 Notes are guaranteed by Gannett Holdings and any subsidiaries of the Company that guarantee the Senior Secured Term Loan. The 2027 Notes are secured by the same collateral that secures the Senior Secured Term Loan. The 2027 Notes rank as senior secured debt of the Company and are secured by a second priority lien on the same collateral package that secured the indebtedness incurred in connection with the Senior Secured Term Loan.
The 2027 Notes Indenture includes affirmative and negative covenants, including limitations on liens, indebtedness, dispositions, loan,loans, advances and investors, sale and leaseback transactions, restricted payments, transactions with affiliates, restrictions on dividends and other payment restrictions affecting restricted subsidiaries, negative pledges, and modifications to certain agreements. The 2027 Notes Indenture also requires that the Company maintain, as of the last day of each fiscal quarter, at least $30.0 million of Qualified Cash (as defined in the 2027 Notes Indenture). The 2027 Notes Indenture includes customary events of default.
The 2027 Notes have two components: (i) a debt component, and (ii) an equity component. As of March 31, 20232024 and December 31, 2022,2023, the debt component of the 2027 Notes was recorded at carrying value in the condensed consolidated balance sheets. The carrying value of the 2027 Notes reflected the balance of the unamortized discount related to the value of the conversion feature assessed at inception and did not approximate fair value asinception. As of March 31, 2023 and December 31, 2022.2024, the carrying value of the 2027 Notes approximated fair value. The 2027 Notes were classified as Level 2, and based on unadjusted quoted prices in the active market obtained from third-party pricing services, the Company determined that the estimated fair value of the 2027 Notes was $354.3$434.0 million and $353.7$395.6 million as of March 31, 20232024 and December 31, 2022,2023, respectively, and was primarily affected by fluctuations in market interest rates and the price of the Company's Common Stock. The fair value of the equity component was classified as Level 3 because it was measured at fair value using a binomial lattice model using assumptions based on market information and historical data, and significant unobservable inputs. As of March 31, 20232024 and December 31, 2022,2023, the amount of the conversion feature recorded in Additional paid-in capital was $279.6 million.
For the three months ended March 31, 2023 and 2022,2024, the Company recognized interest expense of $7.2 million and $7.2 million, respectively. In addition, duringpaid no cash interest. For the three months ended March 31, 2023, the Company recognized interest expense of $7.2 million and paid no cash interest. In addition, during the three months ended March 31, 2024, the Company recognized amortization of the original issue discount of $3.2$3.6 million and an immaterial amount of amortization of deferred financing costs. For the three months ended March 31, 2022,2023, the Company recognized amortization of original issue discount of $2.9$3.2 million and an immaterial amount of amortization of deferred financing costs of $0.1 million.costs. As of March 31, 2023,2024, the effective interest rate on the liability component of the 2027 Notes was 10.5%.
For the three months ended March 31, 2023,2024, no shares were issued upon conversion, exercise, or satisfaction of the required conditions. Refer to Note 10 — Supplemental equity and other information for details on the impact of the 2027 Notes to diluted earnings per share under the if-converted method.
Senior Convertible Notes due 2024
The $3.3 million principal value of the remaining 4.75% convertible senior notes were due and repaid on April 15, 2024 (the "2024 Notes") outstanding is. As of March 31, 2024 and December 31, 2023, the 2024 Notes were reported as convertiblewithin the Current portion of long-term debt in the condensed consolidated balance sheets. As of March 31, 2023,2024, the effective interest rate on the 2024
Notes was 6.05%6.0%. As of March 31, 20232024 and December 31, 2022,2023, the 2024 Notes were recorded at carrying value, which approximated fair value, in the condensed consolidated balance sheets and were classified as Level 2.
NOTE 7 — Pensions and other postretirement benefit plans
We, along with our subsidiaries, sponsor various defined benefit retirement plans, including plans established under collective bargaining agreements. Our retirement plans include the Gannett Retirement Plan (the "GR Plan"), the Newsquest and Romanes Pension Schemes in the U.K., and other defined benefit and defined contribution plans. We also provide health care and life insurance benefits to certain retired employees who meet age and service requirements.
Retirement plan costs include the following components:
| | Pension benefits | | Postretirement benefits |
| Three months ended March 31, | | Three months ended March 31, |
| Pension benefits | | | Pension benefits | | Postretirement benefits |
| Three months ended March 31, | | | Three months ended March 31, |
In thousands | In thousands | 2023 | | 2022 | | 2023 | | 2022 | In thousands | 2024 | | 2023 | | 2024 | | 2023 |
Operating expenses: | Operating expenses: | |
Service cost - benefits earned during the period | Service cost - benefits earned during the period | $ | 324 | | | $ | 475 | | | $ | 10 | | | $ | 15 | |
Service cost - benefits earned during the period | |
Service cost - benefits earned during the period | |
Non-operating expenses: | Non-operating expenses: | |
Interest cost on benefit obligations | Interest cost on benefit obligations | 21,201 | | | 18,649 | | | 632 | | | 451 | |
Interest cost on benefit obligations | |
Interest cost on benefit obligations | |
Expected return on plan assets | Expected return on plan assets | (23,668) | | | (37,281) | | | — | | | — | |
Amortization of prior service benefit | 16 | | | — | | | — | | | — | |
Amortization of actuarial loss (gain) | 540 | | | 20 | | | (536) | | | (52) | |
Amortization of prior service cost (benefit) | |
Amortization of actuarial cost (benefit) | |
| Total non-operating (benefit) expense | Total non-operating (benefit) expense | $ | (1,911) | | | $ | (18,612) | | | $ | 96 | | | $ | 399 | |
Total non-operating (benefit) expense | |
Total non-operating (benefit) expense | |
Total (benefit) expense for retirement plans | Total (benefit) expense for retirement plans | $ | (1,587) | | | $ | (18,137) | | | $ | 106 | | | $ | 414 | |
Contributions
We are contractually obligated to contribute to our pension and postretirement benefit plans. During the three months ended March 31, 2023,2024, we contributed $0.3$6.6 million and $1.9$1.8 million to our pension and other postretirement plans, respectively. Beginning with the quarter ended December 31, 2022, and ending with the quarter ending September 30, 2024, the GR Plan's appointed actuary has and will certify the GR Plan's funded status for each quarter (the "Quarterly Certification") in accordance with U.S. GAAP. If the GR Plan is less than 100% funded, the Company will make a $1.0 million contribution to the GR Plan no later than 60 days following the receipt of the Quarterly Certification, provided, however, that the Company's obligation to make additional contractual contributions will terminate the earlier of (a) the day following the date that a contractual contribution would be due for the quarter ending September 30, 2024, and (b) the date the Company has made a total of $5.0 million of contractual contributions subsequent to June 30, 2022. As of March 31, 2023,2024, the GR Plan was more than 100% funded.
NOTE 8 — Fair value measurement
In accordance with ASC 820, "Fair Value Measurement," fair value measurements are required to be disclosed using a three-tiered fair value hierarchy which distinguishes between assumptions based on market data (observable inputs) and the Company's own assumptions (unobservable inputs). Level 1 refers to fair values determined based on quoted prices in active markets for identical assets or liabilities, Level 2 refers to fair values estimated using significant other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs.
As of March 31, 20232024 and December 31, 2022,2023, assets and liabilities recorded at fair value and measured on a recurring basis primarily consist of pension plan assets. As permitted by U.S. GAAP, we use net asset values ("NAV") as a practical expedient to determine the fair value of certain investments. These investments measured at NAV have not been classified in the fair value hierarchy.
The Company's debt is recorded on the condensed consolidated balance sheets at carrying value. Refer to Note 6 — Debt for additional discussion regarding fair value of the Company's debt instruments.
Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). Assets held for sale (Level 3), which are recorded in Other current assets on the condensed consolidated balance
sheets, are measured on a nonrecurring basis and are evaluated using executed purchase agreements, letters of intent or third-party valuation analyses when certain circumstances arise. The Company had assets held for sale totaling $2.3 million and $8.4 million as of March 31, 2023 and December 31, 2022, respectively.
The Company performs its annual goodwill and indefinite-lived intangible impairment assessment during the fourth quarter of the year. Any resulting asset impairment would require that the asset be recorded at its fair value. The resulting fair value measurements of the assets are considered to be Level 3 measurements. Refer to Note 4 — Goodwill and intangible assets for additional discussion regarding the annual impairment assessment.
NOTE 9 — Income taxes
The following table outlines our pre-tax net loss and income tax amounts:
| | | Three months ended March 31, |
| | | Three months ended March 31, | |
| | | Three months ended March 31, | |
| | | Three months ended March 31, | |
In thousands | In thousands | | 2023 | | 2022 | In thousands | | | | | 2024 | | 2023 |
Loss before income taxes | Loss before income taxes | | $ | (7,069) | | | $ | (10,709) | |
Benefit for income taxes | | (17,329) | | | (7,607) | |
Provision (benefit) for income taxes | |
Effective tax rate | Effective tax rate | | 245.1 | % | | 71.0 | % | Effective tax rate | | | | | (13.5) | % | | 245.1 | % |
The provision for income taxes is calculated by applying the projected annual effective tax rate for the year to the current period income or loss before tax plus the tax effect of any significant or unusual items (discrete events), and changes in tax laws. The provision for income taxes for the three months ended March 31, 2024, was mainly driven by the pre-tax book loss, the increase in valuation allowances on non-deductible U.S. interest expense carryforwards, the global intangible low-taxed income inclusion and state tax expense. The provision was calculated using an estimated annual effective tax rate of negative 11.1%. The estimated annual effective tax rate is principally impacted by valuation allowances on non-deductible interest expense carryforwards, foreign tax expense, and the global intangible low-taxed income inclusion, partially offset by the benefit of U.S. pre-tax book loss. The estimated annual effective tax rate is based on the projected tax expense for the full year.
The total amount of unrecognized tax benefits that, if recognized, may impact the effective tax rate was approximately $52.9 million and $52.6 million as of March 31, 2024 and December 31, 2023, respectively. It is reasonably possible that the total amount of unrecognized tax benefits related to certain of the Company's uncertain tax positions could decrease by as much as $10 million to $16 million within the next twelve months as a result of ongoing audits, foreign judicial proceedings, lapses of statutes of limitations, or regulatory developments. The Company recognizes interest and penalties related to unrecognized tax benefit as a component of income tax expense. The amount of accrued interest and penalties payable related to unrecognized tax benefits was $4.8 million and $4.6 million as of March 31, 2024 and December 31, 2023, respectively.
The benefit for income taxes for the three months ended March 31, 2023, was mainly driven by the tax benefit of the pre-tax book loss, the change in valuation allowances on non-deductible U.S. interest expense carryforwards, the global intangible low-taxed income inclusion and stock compensation. The benefit was calculated using an estimated annual effective tax rate of 273.3%. The estimated annual effective tax rate is principally impacted by valuation allowances on non-deductible interest expense carryforwards, the global intangible low-taxed income inclusion and foreign tax expense, partially offset by the benefit of U.S. pre-tax book loss. The estimated annual effective tax rate is based on the projected tax expense for the full year.
The total amount of unrecognized tax benefits that, if recognized, may impact the effective tax rate was approximately $50.7 million and $43.3 million as of March 31, 2023 and December 31, 2022, respectively. The amount of accrued interest and penalties payable related to unrecognized tax benefits was $4.2 million and $3.9 million as of March 31, 2023 and December 31, 2022, respectively.
It is reasonably possible that further adjustments to our unrecognized tax benefits may be made within the next twelve months due to audit settlements and regulatory interpretations of existing tax laws. At this time, an estimate of potential change to the amount of unrecognized tax benefits cannot be made.
The benefit for income taxes for the three months ended March 31, 2022, was mainly driven by pre-tax loss and the then current year tax benefit from the release of tax reserves, partially offset by the creation of valuation allowances on non-deductible interest expense carryforwards. The provision was calculated using the estimated annual effective tax rate of 41.3%negative 273.3%.
U.S. and international tax legislation
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the "Inflation Reduction Act"), which includes, among other provisions, changes to the U.S. corporate income tax system, including a 15% minimum tax based on "average adjusted financial statement income" exceeding $1 billion for any three consecutive years preceding the tax year and a 1% excise tax on net repurchases of stock in excess of $1 million after December 31, 2022. WeDuring the three months ended March 31, 2024, we did not experience a material financial impact from the Inflation Reduction Act. Additionally, we do not anticipate a material financial impact from the Inflation Reduction Act during 2023.for the remainder of 2024.
We are subject to income taxes and various other taxes in the U.S. and in many foreign jurisdictions; therefore, changes in both domestic and international tax laws or regulations have affected and may affect our effective tax rate, results of operations, and cash flows. The Organization for Economic Co-operation and Development (the "OECD")/G20 Inclusive Framework on Base Erosion and Profit Shifting has agreed on a two-pillar approach to address tax challenges arising from the digitalization of the global economy by (i) allocating profits to market jurisdictions ("Pillar One") and (ii) ensuring multinational enterprises pay a minimum level of tax regardless of where the headquarters are located or the jurisdictions in which the company operates ("Pillar Two"). Pillar One targets multinational groups with global revenue exceeding €20 billion and a profit-to-revenue ratio of more than 10%. Companies subject to Pillar One will be required to allocate profits and pay taxes to market jurisdictions.
Based on the current proposed revenue and profit thresholds, we do not expect to be subject to tax changes associated with Pillar One. Pillar Two focuses on global profit allocation and a global minimum tax rate. In December 2022, the European Union ("EU") Member States formally adopted the EU's Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the OECD Pillar Two Framework that was supported by over 130 countries worldwide. The EU Pillar Two Directive became effective on January 1, 2024. Pillar Two did not have a material impact on the condensed consolidated financial statements.
NOTE 10 — Supplemental equity and other information
Income (loss)(Loss) income per share
The following table sets forth the information to compute basic and diluted (loss) income (loss) per share:
| | | | Three months ended March 31, | |
| | | Three months ended March 31, | |
| | | Three months ended March 31, | |
In thousands, except per share data | | In thousands, except per share data | | | | | 2024 | | 2023 |
Net (loss) income attributable to Gannett | |
| | | | Three months ended March 31, |
In thousands, except per share data | | 2023 | | 2022 |
Net income (loss) attributable to Gannett | | $ | 10,344 | | | $ | (2,967) | |
| Basic weighted average shares outstanding | |
| Basic weighted average shares outstanding | |
| | Basic weighted average shares outstanding | Basic weighted average shares outstanding | | 137,931 | | | 136,425 | |
Effect of dilutive securities: | Effect of dilutive securities: | | |
Restricted stock grants | Restricted stock grants | | 244 | | | — | |
Restricted stock grants | |
Restricted stock grants | |
| Diluted weighted average shares outstanding | Diluted weighted average shares outstanding | | 138,175 | | | 136,425 | |
Diluted weighted average shares outstanding | |
Diluted weighted average shares outstanding | |
| Income (loss) per share attributable to Gannett - basic | | $ | 0.07 | | | $ | (0.02) | |
Income (loss) per share attributable to Gannett - diluted | | $ | 0.07 | | | $ | (0.02) | |
(Loss) income per share attributable to Gannett - basic | |
(Loss) income per share attributable to Gannett - basic | |
(Loss) income per share attributable to Gannett - basic | |
(Loss) income per share attributable to Gannett - diluted | |
The Company excluded the following securities from the computation of diluted (loss) income (loss) per share because their effect would have been antidilutive:
| | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
In thousands | | | | | 2023 | | 2022 |
Warrants | | | | | 845 | | | 845 | |
Stock options | | | | | 6,068 | | | 6,068 | |
Restricted stock grants (a) | | | | | 4,840 | | | 12,403 | |
2027 Notes (b) | | | | | 97,057 | | | 97,057 | |
| | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
In thousands | | | | | 2024 | | 2023 |
Warrants(a) | | | | | — | | | 845 | |
Stock options | | | | | 6,068 | | | 6,068 | |
Restricted stock grants(b) | | | | | 4,855 | | | 4,840 | |
2027 Notes(c) | | | | | 97,057 | | | 97,057 | |
(a)The warrants expired on November 26, 2023.
(b)Includes Restrictedrestricted stock awards ("RSAs"), Restrictedrestricted stock units ("RSUs") and Performanceperformance stock units ("PSUs").
(b)(c)Represents the total number of shares that would be convertible at March 31, 20232024 and 20222023 as stipulated in the 2027 Notes Indenture.
The 2027 Notes may be converted at any time by the holders into cash, shares of the Company's Common Stock or any combination of cash and Common Stock, at the Company's election. Conversion of all of the 2027 Notes into Common Stock (assuming the maximum increase in the conversion rate as a result of a Make-Whole Fundamental Change but no other adjustments to the conversion rate), would result in the issuance of an aggregate of 287.2 million shares of Common Stock. The Company has excluded approximately 287.2190.1 million shares from the income (loss)loss per share calculation, representing the difference between the total number of shares that would be convertible at March 31, 2024 and the total number of shares issuable assuming the maximum increase in the conversion rate. As of March 31, 2023, 97.1 million shares representing the total number of shares that would be convertible were excluded from the income (loss) per share calculation because their effect would be antidilutive.
Share-based compensation
Share-based compensation expense was $3.7$2.8 million and $3.4$3.7 million for the three months ended March 31, 2024 and 2023, respectively, and 2022, respectively. is included in Selling, general and administrative expenses on the condensed consolidated statements of operations and comprehensive income (loss).
The total compensation cost not yet recognized related to non-vested awards as of March 31, 20232024 was $30.0$12.8 million, whichand is expected to be recognized over a weighted-average period of 2.21.4 years through MayAugust 2025.
Equity awards
During the three months ended March 31, 2023, a total of 4.7 million RSAsThere were granted. RSAs generally vest one-third on each of the first three anniversaries of the date of grant, subject to the participants' continued employment with the Company and the terms of the applicable award agreement. The weighted average grant date fair value ofno RSAs granted during the three months ended March 31, 2024.
Cash awards
The Company grants certain employees either long-term cash awards ("LTCAs") or cash performance units ("CPUs"). During 2023, our LTCAs and CPUs were granted during the first quarter, and in the future we anticipate the majority of our LTCAs and CPUs to be granted in the third quarter of our fiscal year. CPUs generally vest and pay out in cash on the third anniversary of the grant date based upon the achievement of threshold goals depending on actual performance against financial objectives over a three-year period. LTCAs generally vest and pay out in cash on the first, second and third anniversaries of the date of grant. As of March 31, 2024, there was $1.83.approximately $8.7 million of unrecognized compensation expense related to cash awards.
Preferred stock
The Company has authorized 300,000 shares of preferred stock, par value $0.01 per share, issuable in one or more series designated by the Company's Board of Directors, of which 150,000 shares have been designated as Series A Junior Participating Preferred Stock, none of which are outstanding.Directors. There were no issuances of preferred stock during the three months ended March 31, 2023.2024.
Stock Repurchase Programrepurchase program
On February 1, 2022, the Company's Board of Directors authorized the repurchase of up to $100 million (the "Stock Repurchase Program") of the Company's Common Stock. Repurchases may be made from time to time through open market purchases or privately negotiated transactions, pursuant to one or more plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or by means of one or more tender offers, in each case, as permitted by securities laws and other legal requirements. The amount and timing of the purchases, if any, will depend on a number of factors, including, but not limited to, the price and availability of the Company's shares, trading volume, capital availability, Company performance and general economic and market conditions. The Stock Repurchase Program may be suspended or discontinued at any time. Further, future repurchases under our Stock Repurchase Program may be subject to various conditions under the terms of our various debt instruments and agreements, unless an exception is available or we obtain a waiver or similar relief.
During the three months ended March 31, 2023,2024, the Company did not repurchase any shares of Common Stock under the Stock Repurchase Program. As of March 31, 2023,2024, the remaining authorized amount under the Stock Repurchase Program was approximately $96.9 million. The Company does not anticipate repurchasing any shares of Common Stock pursuant to the Stock Repurchase Program during 2023.
Accumulated other comprehensive loss
The following tables summarize the components of, and the changes in, Accumulated other comprehensive loss, net of tax:
| | Three months ended March 31, 2023 | | Three months ended March 31, 2022 |
| Three months ended March 31, 2024 | | | Three months ended March 31, 2024 | | Three months ended March 31, 2023 |
In thousands | In thousands | Pension and postretirement benefit plans | | Foreign currency translation |
| Total | | Pension and postretirement benefit plans | | Foreign currency translation | | Total | In thousands | Pension and postretirement benefit plans | | Foreign currency translation |
| Total | | Pension and postretirement benefit plans | | Foreign currency translation | | Total |
Beginning balance | Beginning balance | $ | (86,351) | | | $ | (14,880) | | | $ | (101,231) | | | $ | 50,870 | | | $ | 9,128 | | | $ | 59,998 | |
Other comprehensive income (loss) before reclassifications, net of taxes | Other comprehensive income (loss) before reclassifications, net of taxes | 6,939 | | | 6,337 | | | 13,276 | | | (811) | | | (7,556) | | | (8,367) | |
Amounts reclassified from accumulated other comprehensive income (loss) (a)(b) | 14 | | | — | | | 14 | | | (24) | | | — | | | (24) | |
Net current period other comprehensive income (loss), net of taxes | 6,953 | | | 6,337 | | | 13,290 | | | (835) | | | (7,556) | | | (8,391) | |
Amounts reclassified from accumulated other comprehensive income(a)(b) | |
Net current period other comprehensive income (loss), net of tax | |
Ending balance | Ending balance | $ | (79,398) | | | $ | (8,543) | | | $ | (87,941) | | | $ | 50,035 | | | $ | 1,572 | | | $ | 51,607 | |
(a)Amounts reclassified from accumulated other comprehensive (loss) income are included in the computation of net periodic benefit cost. See Note 7 — Pensions and other postretirement benefit plans.
(b)Amounts reclassified from accumulated other comprehensive (loss) income are recorded net of tax impacts of $6$35 thousand and $8$6 thousand for the three months ended March 31, 20232024 and 2022,2023, respectively.
NOTE 11 — Commitments, contingencies, and other matters
Legal Proceedingsproceedings
The Company is and may become involved from time to time in legal proceedings in the ordinary course of its business, including, but not limited to, matters such as libel, invasion of privacy, intellectual property infringement, wrongful termination actions, complaints alleging employment discrimination, and regulatory investigations and inquiries. In addition, the Company is involved from time to time in governmental and administrative proceedings concerning employment, labor, environmental, and other claims. Insurance coverage mitigates potential loss for certain of these matters. Historically, such claims and proceedings have not had a material adverse effect on the Company's consolidated results of operations or financial position.
We are also defendants in judicial and administrative proceedings involving matters incidental to our business. Although the Company is unable to predict with certainty the eventual outcome of any litigation, regulatory investigation or inquiry, in the opinion of management, the Company does not believe it is reasonably possible thatexpect its current and any threatened legal proceedings willto have a material adverse effect on the Company's business, financial position or consolidated results of operations. Given the inherent unpredictability of these types of proceedings, however, it is possible that future adverse outcomes could have a material effect on the Company's financial results.
On June 20, 2023, the Company filed a civil action against Google LLC and Alphabet Inc. (together, "Google") in the U.S. District Court in the Southern District of New York seeking injunctive relief and damages for the anticompetitive monopolization of advertising technology markets and for deceptive commercial practices. The Company's complaint details more than a dozen anticompetitive and deceptive acts that the Company believes demonstrate Google's unfair control and manipulation of all sides of each online advertising transaction. The Company intends to vigorously pursue this action. However, at this stage, the Company is unable to predict the outcome or impact on its business and financial results. The Company is accounting for this matter as a gain contingency, and will record any such gain in future periods, if and when the contingency is resolved, in accordance with ASC 450 "Contingencies." We do not expect pursuing this lawsuit to be a significant cost to us.
The Company was a defendant in a lawsuit titled Scott O. Sapulpa ("Plaintiff") v. Gannett Co., Inc. in the District Court in the State of Oklahoma. In February 2024, a jury found for the Plaintiff and awarded compensatory damages of $5 million and $20 million in punitive damages. While we cannot predict with certainty the ultimate outcome of this action, the Company filed an appeal of the case in March 2024. We are currently unable to estimate a range of reasonably possible loss; however, we believe that damages, if any, would be covered by the Company's insurance policies. As a result, we believe the outcome will not have a material impact on the Company's condensed consolidated financial statements.
NOTE 12 — Segment reporting
We define our reportable segments based on the way the Chief Operating Decision Maker ("CODM"), which is our Chief Executive Officer, manages the operations for purposes of allocating resources and assessing performance. Our reportable segments include the following:
•Domestic Gannett Media is comprised of our portfolio of domestic local, regional, and national newspaper publishers. The results of this segment include Digital revenues mainly derived from digital advertising offerings such as classified advertisements and display advertisements run on our platforms as well as third-party sites, digital marketing services delivered by our DMS segment, digital distribution of our publications and digital content syndication and affiliate and partnership revenues and Print and commercial revenues mainly derived from the sale of local, national, and classified print advertising products, the sale of both home delivery and single copies of our publications, as well as commercial printing and distribution arrangements, and revenues from our events business.
•Newsquest is comprised of our portfolio of international newspaper publishers. The results of this segment include AdvertisingDigital revenues mainly derived from digital advertising offerings such as classified advertisements and display advertisements run on our platforms as well as third-party sites, digital marketing services delivered by our DMS segment, digital distribution of our publications and digital syndication revenues and Print and commercial revenues mainly derived from the sale of local, classified, and national advertising across multiple platforms, including print, online, mobile, and tablet as well as niche publications, Circulation revenues fromthe sale of both home delivery digital distribution and single copy salescopies of our publications, and Other revenues, mainly fromas well as commercial printing, distribution arrangements, revenues from our events business, digital content syndication and affiliate revenues, and third-party newsprint sales. The Gannett Media reportable segment is an aggregation of two operating segments: Domestic Gannett Media and Newsquest.printing.
•Digital Marketing Solutions is comprised of our digital marketing services companies under the brand LocaliQ. The results of this segment include Advertising andDigital revenues derived from digital marketing services revenuesgenerated through multiple
services, including search advertising, display advertising, search optimization, social media, website development, web presence products, customer relationship management, and software-as-a-service solutions.
In addition to the reportable segments above, we have a Corporate and other category that includes activities not directly attributable to a specific reportable segment. This category primarily consists of broad corporate functions, including legal, human resources, accounting, analytics, finance, marketing and marketing,technology, as well as other general business costs.
In the ordinary course of business, our reportable segments enter into transactions with one another. While intersegment transactions are treated like third-party transactions to determine segment performance, the revenues and expenses recognized by the segment that is the counterparty to the transaction are eliminated in consolidation and do not affect consolidated results.
The CODM uses Adjusted EBITDA and Adjusted EBITDA margin to evaluate the performance of the segments and allocate resources. Adjusted EBITDA and Adjusted EBITDA margin areis a non-GAAP financial performance measuresmeasure we believe offeroffers a useful view of the overall operation of our businesses and may be different than similarly-titled measures used by other companies. We define Adjusted EBITDA as Net income (loss) attributable to Gannett before (1) Income tax expense (benefit), (2) Interest expense, (3) Gains or losses on the early extinguishment of debt, (4) Non-operating pension income, (5) Loss on convertible notes derivative, (6) Depreciation and amortization, (7) Integration and reorganization costs, (8) Other operating expenses, including third-partyThird-party debt expenses and acquisition costs, (9) Asset impairments, (10) Goodwill and intangible impairments, (11) Gains or losses on the sale or disposal of assets, (12) Share-based compensation, (13) Other non-operating (income) expense, net, and (13) certain other non-recurring charges. We define Adjusted EBITDA margin as Adjusted EBITDA divided by total Operating revenues.(14) Non-recurring items.
Management considers Adjusted EBITDA and Adjusted EBITDA margin to be an important metricsmetric to evaluate and compare the ongoing operating performance of our segments on a consistent basis across reporting periods as they eliminateit eliminates the effect of items that we do not believe are indicative of each segment's core operating performance.
The following tables present our segment information: | | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
In thousands | | | | | 2024 | | 2023 |
Revenues: | | | | | | | |
Domestic Gannett Media | | | | | $ | 495,719 | | | $ | 529,937 | |
Newsquest | | | | | 60,198 | | | 59,158 | |
Digital Marketing Solutions | | | | | 117,045 | | | 112,817 |
Corporate and other | | | | | 1,604 | | | 1,398 |
Intersegment Eliminations | | | | | (38,805) | | | (34,393) |
Total revenues | | | | | 635,761 | | | 668,917 |
Adjusted EBITDA: | | | | | | | |
Domestic Gannett Media | | | | | 44,480 | | | 44,417 |
Newsquest | | | | | 14,163 | | | 12,846 |
Digital Marketing Solutions | | | | | 8,779 | | | 11,683 |
Corporate and other | | | | | (9,833) | | | (6,044) |
Net loss attributable to noncontrolling interests | | | | | — | | | 84 |
Interest expense | | | | | 26,565 | | | 28,330 |
Gain on early extinguishment of debt | | | | | (617) | | | (496) |
Non-operating pension income | | | | | (3,146) | | | (1,815) |
Depreciation and amortization | | | | | 38,298 | | | 43,698 |
Integration and reorganization costs | | | | | 17,881 | | | 12,127 |
Third-party debt expenses and acquisition costs(a) | | | | | 178 | | | 229 |
Asset impairments | | | | | 45,989 | | | 5 |
| | | | | | | |
Loss (gain) on sale or disposal of assets, net | | | | | 552 | | | (17,681) |
Share-based compensation expense | | | | | 2,826 | | | 3,736 |
Other non-operating expense, net | | | | | 1,817 | | | 1,221 |
Non-recurring items | | | | | 1,936 | | | 533 | |
Loss before income taxes | | | | | (74,690) | | | (7,069) |
Provision (benefit) for income taxes | | | | | 10,078 | | | (17,329) |
Net (loss) income | | | | | (84,768) | | | 10,260 |
Net loss attributable to noncontrolling interests | | | | | — | | | (84) |
Net (loss) income attributable to Gannett | | | | | $ | (84,768) | | | $ | 10,344 | |
(a)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2023 |
In thousands | Gannett Media | | Digital Marketing Solutions | | Corporate and other | | Intersegment Eliminations | | Consolidated |
Advertising and marketing services - external sales | $ | 228,030 | | | $ | 112,817 | | | $ | — | | | $ | — | | | $ | 340,847 | |
Advertising and marketing services - intersegment sales | 34,393 | | | — | | | — | | | (34,393) | | | — | |
Circulation | 241,285 | | | — | | | — | | | — | | | 241,285 | |
Other | 85,387 | | | — | | | 1,398 | | | — | | | 86,785 | |
Total operating revenues | $ | 589,095 | | | $ | 112,817 | | | $ | 1,398 | | | $ | (34,393) | | | $ | 668,917 | |
| | | | | | | | | |
Adjusted EBITDA (non-GAAP basis) | $ | 57,263 | | | $ | 11,683 | | | $ | (6,044) | | | $ | — | | | $ | 62,902 | |
Adjusted EBITDA margin (non-GAAP basis) | 9.7 | % | | 10.4 | % | | NM | | NM | | 9.4 | % |
NM indicates not meaningful.
Third-party debt expenses and acquisition costs are included in Other operating expenses on the condensed consolidated statements of operations and comprehensive income (loss).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2022 |
In thousands | Gannett Media | | Digital Marketing Solutions | | Corporate and other | | Intersegment Eliminations | | Consolidated |
Advertising and marketing services - external sales | $ | 265,405 | | | $ | 109,709 | | | $ | — | | | $ | — | | | $ | 375,114 | |
Advertising and marketing services - intersegment sales | 33,357 | | | — | | | — | | | (33,357) | | | — | |
Circulation | 288,602 | | | — | | | — | | | — | | | 288,602 | |
Other | 83,055 | | | — | | | 1,306 | | | — | | | 84,361 | |
Total operating revenues | $ | 670,419 | | | $ | 109,709 | | | $ | 1,306 | | | $ | (33,357) | | | $ | 748,077 | |
| | | | | | | | | |
Adjusted EBITDA (non-GAAP basis) | $ | 68,648 | | | $ | 11,180 | | | $ | (15,657) | | | $ | — | | | $ | 64,171 | |
Adjusted EBITDA margin (non-GAAP basis) | 10.2 | % | | 10.2 | % | | NM | | NM | | 8.6 | % |
NM indicates not meaningful.
The following table presents our reconciliation of Net income (loss) attributable to Gannett to Adjusted EBITDA and Net income (loss) attributable to Gannett margin to Adjusted EBITDA margin: | | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
In thousands | | | | | 2023 | | 2022 |
Net income (loss) attributable to Gannett | | | | | $ | 10,344 | | | $ | (2,967) | |
Benefit for income taxes | | | | | (17,329) | | | (7,607) | |
Interest expense | | | | | 28,330 | | | 26,006 | |
(Gain) loss on early extinguishment of debt | | | | | (496) | | | 2,743 | |
Non-operating pension income | | | | | (1,815) | | | (18,213) | |
| | | | | | | |
Depreciation and amortization | | | | | 43,698 | | | 47,783 | |
Integration and reorganization costs | | | | | 12,127 | | | 11,398 | |
Other operating expenses | | | | | 229 | | | 1,102 | |
Asset impairments | | | | | 5 | | | 854 | |
| | | | | | | |
Gain on sale or disposal of assets, net | | | | | (17,681) | | | (2,804) | |
Share-based compensation expense | | | | | 3,736 | | | 3,393 | |
Other items | | | | | 1,754 | | | 2,483 | |
Adjusted EBITDA (non-GAAP basis) | | | | | $ | 62,902 | | | $ | 64,171 | |
Net income (loss) attributable to Gannett margin | | | | | 1.5 | % | | (0.4) | % |
Adjusted EBITDA margin (non-GAAP basis) | | | | | 9.4 | % | | 8.6 | % |
Asset information by segment is not a key measure of performance used by the CODM function. Accordingly, we have not disclosed asset information by segment. Additionally, equity income in unconsolidated investees, net, interest expense, other non-operating items, net, and provision (benefit) for income taxes, as reported in the condensed consolidated financial statements, are not part of operating income and are primarily recorded at the corporate level.
NOTE 13 — Other supplemental information
Cash and cash equivalents, including restricted cash
Cash equivalents represent highly liquid certificates of deposit which have original maturities of three months or less. Restricted cash is held as cash collateral for certain business operations. Restricted cash primarily consists of funding for letters of credit, cash held in an irrevocable grantor trust for our deferred compensation plans and cash held with banking institutions for insurance.
The following table presents a reconciliation of cash, cash equivalents and restricted cash:
| | March 31, |
| March 31, | | | March 31, |
In thousands | In thousands | 2023 | | 2022 | In thousands | 2024 | | 2023 |
Cash and cash equivalents | Cash and cash equivalents | $ | 83,074 | | | $ | 152,191 | |
Restricted cash included in other current assets | Restricted cash included in other current assets | 1,275 | | | 1,105 | |
Restricted cash included in pension and other assets | Restricted cash included in pension and other assets | 9,275 | | | 11,722 | |
Total cash, cash equivalents and restricted cash | Total cash, cash equivalents and restricted cash | $ | 93,624 | | | $ | 165,018 | |
Supplemental cash flow information
The following table presents supplemental cash flow information, including non-cash investing and financing activities:
| | Three months ended March 31, |
| Three months ended March 31, | | | Three months ended March 31, |
In thousands | In thousands | 2023 | | 2022 | In thousands | 2024 | | 2023 |
Cash paid for taxes, net of refunds | Cash paid for taxes, net of refunds | $ | 953 | | | $ | 846 | |
Cash paid for interest | Cash paid for interest | 10,499 | | | 7,531 | |
Non-cash investing and financing activities: | Non-cash investing and financing activities: | |
Accrued capital expenditures | Accrued capital expenditures | $ | 342 | | | $ | 1,160 | |
Accrued capital expenditures | |
Accrued capital expenditures | |
Accounts payable and accrued liabilities
A breakout of Accounts payable and accrued liabilities is presented below:
| In thousands | In thousands | March 31, 2023 | | December 31, 2022 | In thousands | March 31, 2024 | | December 31, 2023 |
Accounts payable | Accounts payable | $ | 154,859 | | | $ | 189,094 | |
Compensation | Compensation | 60,241 | | | 87,937 | |
Taxes (primarily property, sales, and payroll taxes) | Taxes (primarily property, sales, and payroll taxes) | 12,373 | | | 11,940 | |
Benefits | Benefits | 19,482 | | | 21,942 | |
Interest | Interest | 18,227 | | | 6,162 | |
Other | Other | 39,730 | | | 34,773 | |
Accounts payable and accrued liabilities | Accounts payable and accrued liabilities | $ | 304,912 | | | $ | 351,848 | |
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations and quantitative and qualitative disclosures should be read in conjunction with our unaudited condensed consolidated financial statements and related notes and with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2022,2023, as filed with the Securities and Exchange Commission. Management's Discussion and Analysis of Financial Condition and Results of Operations contains a number of forward-looking statements that reflect our plans, estimates, and beliefs, all of which are based on our current expectations and could be affected by certain uncertainties, risks, and other factors described under Cautionary Note Regarding Forward-Looking Statements, Risk Factors, and elsewhere throughout this Quarterly Report, as well as the factors described in our Annual Report on Form 10-K for the year ended December 31, 2022,2023, and subsequent periodic reports filed with the Securities and Exchange Commission, particularly under "Risk Factors." Our actual results could differ materially from those discussed in the forward-looking statements.
OVERVIEW
We are a subscription-leddiversified media company with expansive reach at the national and digitally-focused media and marketing solutions company committedlocal level dedicated to empowering communitiesand enriching communities. We seek to thrive. We operateinspire, inform, and connect audiences as a scalable, data-drivensustainable, growth focused media platform that aligns with consumer and digital marketing trends.solutions company. We aimendeavor to be the premier source for clarity, connections, and solutions within our communities. Our mission is to provide unbiased, unique local and nationaldeliver essential content, and unrivaled marketing solutions, and experiences for curated audiences, advertisers, consumers, and stakeholders by leveraging our diverse teams and suite of products to enrich the local communities and businesses we serve. We seek to drive audience growth and engagement by delivering valuable content experiences to our consumers, while offering the unique products and marketing expertise our advertisers desire. Our strategy prioritizes the growth of highly recurring digital businesses, while maximizing the lifetime value of our legacy print business, and we expect the execution of this strategy to enable us to continue our evolution to a digitally-focused content platform.
Our current portfolio of trusted media assetsbrands includes the USA TODAY NETWORK, which includescomprised of the national publication, USA TODAY, and local media organizations in 43 states in the United States (the "U.S."), and Newsquest, a wholly-owned subsidiary operating in the United Kingdom (the "U.K."). We also ownOur digital marketing services companies under thesolutions brand, LocaliQ, which provide a cloud-based platform of productsuses innovation and software to enable small and medium-sized businesses ("SMBs") to accomplish their marketing goals. In addition, our portfolio includes what we believe is the largest media-owned events business in the U.S.,grow, and USA TODAY NETWORK Ventures.Ventures, our events division, creates impactful consumer engagements, promotions, and races.
Through USA TODAY, our network of local properties, and Newsquest, we deliver high-quality, trusted content with a commitment to balanced, unbiased journalism, where and when consumers want to engage with it on virtually any device or platform. Additionally, weengage. We have strong relationships with hundreds of thousands of local and national businesses in both our U.S. and U.K. markets due to our large local and national sales forces and a robust advertising and digital marketing solutions product suite. Our strategy prioritizes maximizing the monetization of our audience through the growth of increasingly diverse and highly recurring digital businesses. We expect the execution of this strategy to enable us to continue our evolution to a predominantly digital media company. We deliver value to our customers, advertisers, partners and shareholders with essential content, joyful experiences, and relevant digital solutions.
We report in two segments,three segments: Domestic Gannett Media, Newsquest and Digital Marketing Solutions ("DMS"). We also have a Corporate and other category that includes activities not directly attributable to a specific reportable segment and includessegment. This category primarily consists of broad corporate functions, such asincluding legal, human resources, accounting, analytics, finance, marketing and marketing,technology, as well as other general business costs. A full description of our reportable segments is included in Note 12 — Segment reporting in the notes to the condensed consolidated financial statements.
Business Trends
We have considered several industry trends when assessing our business strategy:
•Print advertising and Print circulation revenues have and are expected to continue to decline as our audience increasingly moves to digital platforms. We seek to optimize our print operations to efficiently manage for the declining print audience. We are focused on convertinggrowing a growing digitally-focuseddigitally-oriented audience into paid digital-only subscribers to our publications.across multiple platforms and revenue streams.
•SMBsOur revenues and results of operations continue to be influenced by general macroeconomic conditions, including, but not limited to, interest rates, housing demand, employment levels, and consumer confidence. We believe that these factors are facing a more complex marketing environmentcontributing to uncertainty, which is resulting in lower levels of advertising performance and need to create digital presence to capture audience online. Advertisers are increasingly looking for more effective ways to analyze their return on marketing investments and they are seeking solutions that offer greater attribution. We offer a broad suite of digital marketing services products that offer a single, unified solution to meet their digital marketing needs.reduced spending.
•Inflationary prices across a numberData privacy standards continue to evolve and implementation of categoriesstandards may result in incremental costs. Privacy standards, such as labor, fuel, delivery costs, newsprint, ink, and printing plates have had andthird-party cookie deprecation, are expectedanticipated to continueimpact the advertising industry more significantly over the next 12 to have a negative impact on18 months. We utilize first-party data to assist our overall cost structure. In the short term, we believe the impact of inflationary pressure peaked in 2022.
customer's advertising needs but an industry-wide solution to address impacts to programmatic advertising has not yet been developed.
Recent Developments
Corporate office relocation
On March 1, 2024, we exited and ceased use of our leased facility in McLean, Virginia and moved our corporate headquarters to our existing office space in New York. We will continue to seek subleases for the leased facility in McLean. As a result of the headquarters relocation, we recorded an impairment charge of approximately $46.0 million during the three months ended March 31, 2024 related to the McLean operating lease right-of-use asset and the associated leasehold improvements.
Debt Repurchase
In February 2023,March 2024, we entered intoreceived a privately negotiated agreement withwaiver from certain lenders of our five-year senior secured term loan facility in an original aggregate principal amount of $516.0 million (the "Senior Secured Term Loan") that reduced the scheduled quarterly amortization payments payable to those lenders by approximately $12.0 million for the three months ended March 31, 2024 (the "First Quarter 2024 Waiver"), so long as such amount was used to repurchase a holderportion of our $400 million aggregate principal amount of 6.00% first lien notes due November 1, 2026 (the "2026 Senior Notes") to repurchase $6.1. Also, in March 2024, we entered into a privately negotiated agreement with certain holders of our 2026 Senior Notes, and repurchased $13.0 million in aggregateof principal amount of our outstanding 2026 Senior Notes at a discount to par value. As a result of this transaction,repurchase of our 2026 Senior Notes, we recognized a net gain on the early extinguishment of debt of approximately $0.9$0.6 million during the three months ended March 31, 2023,2024, which included the write-off of unamortized original issue discount and deferred financing costs.
In addition, during the three months ended March 31, 2024, we repaid approximately $3.3 million of our Senior Secured Term Loan (net of the First Quarter 2024 Waiver), including quarterly amortization payments. As a result of the repayment related to our Senior Secured Term Loan, we recognized an immaterial loss on the early extinguishment of debt during the three months ended March 31, 2024, which included the write-off of unamortized original issue discount and deferred financing costs.
Certain Matters Affecting Comparability
The following items affect period-over-period comparisons and will continue to affect period-over-period comparisons for future results:
(Gain) lossAsset impairments
For the three months ended March 31, 2024, we recorded an impairment charge of approximately $46.0 million related to the McLean, Virginia operating lease right-of-use asset and the associated leasehold improvements. For the three months ended March 31, 2023, we recorded an immaterial asset impairment related to our continued plan to monetize non-strategic assets.
Loss (gain) on sale or disposal of assets, net
For the three months ended March 31, 2024, we recognized a net loss on the sale of assets of $0.6 million, primarily related to a net loss of $0.9 million at the Domestic Gannett Media segment, partially offset by a net gain of $0.4 million at the Newsquest segment, as part of our continued plan to monetize non-strategic assets.
For the three months ended March 31, 2023, we recognized a net gain on the sale of assets of $17.7 million, primarily related to a net gain of $16.3 million at the gain onDomestic Gannett Media segment primarily related to the sale of a domestic production facility at Gannett Media of $16.3 million as part of our plan to monetize non-corenon-strategic assets, as well as theand a gain on the sale of intellectual property of $1.4 million at our Corporate and other category. For the three months ended March 31, 2022, we recognized a gain oncategory related to the sale of assets of $2.8 million, primarily related to sales of real estate, partially offset by losses on the sales of non-core products which were divested at Gannett Media.intellectual property.
Integration and reorganization costs
For the three months ended March 31, 2024, we incurred Integration and reorganization costs of $17.9 million. Of the total costs incurred, $5.3 million were related to severance activities and $12.6 million were related to other costs, including $9.7 million expensed as of the cease-use date related to certain licensed content as well as costs for consolidating operations, mainly related to systems implementation.
For the three months ended March 31, 2023, we incurred Integration and reorganization costs of $12.1 million, of whichmillion. Of the total costs incurred, $10.3 million were related to severance activities and $1.9 million were related to other costs, including costs for consolidating operations, primarily related to systems implementation and the outsourcing of corporate functions, partially offset by the reversal of a withdrawal liability related to a multiemployer pension plan. Forplan of $2.0 million based on the three months ended March 31, 2022, we incurred Integration and reorganization costssettlement of $11.4 million, of which $5.4 million were related to severance activities and $6.0 million were related to other costs, including costs for consolidating operations, primarily related to systems implementation and the outsourcing of corporate functions.withdrawal liability.
Foreign currency
Our U.K. media operations are conducted through our Newsquest subsidiary. In addition, we have foreign operations in regions such as Canada, Australia, New Zealand and India. Earnings from operations in foreign regions are translated into U.S. dollars at average exchange rates prevailing during the period, and assets and liabilities are translated at exchange rates in effect at the balance sheet date. Currency translation fluctuations may impact revenue, expense, and operating income results for our international operations. Foreign currency headwinds have increased significantlyFor example, our international revenues are favorably impacted as the U.S. dollar strengthened in relationweakens relative to manyother foreign currencies, includingand unfavorably impacted as the U.K. pound sterling.U.S. dollar strengthens relative to other foreign currencies. Foreign currency exchange rate fluctuations negativelypositively impacted our revenues and profitability during the three months ended March 31, 2023, and may continue to negatively impact our financial results in the future.2024.
Strategy
Gannett isWe are committed to inspiring, informing and connecting audiences as a subscription-led business strategy that drives audience growthsustainable, growth-focused media and engagementdigital marketing solutions company. We endeavor to deliver essential content, marketing solutions and experiences for curated audiences, advertisers, consumers, and stakeholders by delivering valuable content experiencesleveraging our diverse teams and suite of products to our consumers, while offeringenrich the unique productslocal communities and marketing expertise our advertisers desire.businesses we serve. The execution of this strategy is expected to allow us to continue our evolution from a more traditional print media business to a digitally focused content creatorsustainable, growth-focused media and digital marketing solutions platform.company.
We intend to create stockholder value through a variety of methods, including organic growth driven by our consumer and business-to-business strategies, as well as through paying down debt. The five key operating pillars ofdebt to strengthen our strategy include:capital structure.
Driving digital subscriptionsStable foundation for ongoing growth
As consumersWe continue to optimize and improve our foundation – completing systems consolidations and migrations, improving process workflows, and ensuring we have become increasingly interested in digital consumption of news, a key element to our consumer strategy is growing our paid digital-only subscriber base. We are ablesynergy across the organization to deliver the stabilization required to fuel our unique local and national content to our customers
across multiple print and digital platforms, and expect the addressable market for our digital platforms to continue to grow. In service of that, we expect to develop and launch additional digital subscription offerings tailored to specific topics and audiences inplan into the future. We are focused on growingalso continue to invest in our digital-only subscriber basepeople and in orderthe skills needed to maximize overall returnsupport our future aims and as a result, the volume of new digital-only subscriptions is expected to fluctuate versus historical trends.retain our talent by remaining an attractive place to work.
Driving Digital Marketing SolutionsExpand reach with our customer segments
Key to our ongoing growth is expanding our base – whether clients in our DMS segment or audience in our Domestic Gannett Media and Newsquest segments – and optimizing our revenue streams across this growing base. For both the Domestic Gannett Media and Newsquest segments, this includes content expansion, establishing a seamless print to digital continuum to introduce clients, readers, viewers, and listeners to a broader range of products we offer. For the DMS segment, expanding our client base and core revenue is anticipated to be supplemented by engaging more customers in recurring monthly revenue offeringsthe development of a complementary software model.
Diversify digital revenues
We are now of significant digital scale, with unique reach at both the national and local community levels. We expect to leverage our integrated sales structure and lead generation strategy to continue to aggressively expand the ways that we grow digital revenues through innovative partnerships and developing new products and services that meet the needs of consumers and businesses. Examples of this growth strategy include our digital marketing services business intointention to continue to expand partnerships that rely on our local markets, both domesticallyunique and internationally. Given our extensive customerlarge audience base and volume of digital campaigns, we plan to use data and insights to informdeveloping new and dynamic advertising products, such as our "freemium" offering to complement our sales structures, which we believe will deliver superior results.DMS software solutions.
Optimizing our traditional businesses across print and advertising
We planFoundational commitment to continue to drive the profitability and lifetime value of our traditional operations by focusing on product and property-level performance across our portfolio. We expect the continued evolution of the core print product, but remain committed to providing strong customer service and delivering high quality products for our print subscribers. Advertising, both print and digital, continues to offer a compelling branding opportunity across our network due to our scale and unique reach at both the national and local community levels.
Prioritize investments in growth businesses
By leveraging our unique footprint, trusted brands, and media reach, we identify, experiment with, and invest in potential growth businesses. Some examples of our growth businesses include our community events and promotions subsidiary, USA TODAY NETWORK Ventures, our consumer product review site, Reviewed, and our sports betting presence, which we have expanded through strategic partnerships. We expect to engage in future partnerships and expanded product offerings that can further monetize our significant audience and unique footprint.
Building on our environmental, social, and governance focus to foster culturematters that impact our customers and community both internally and externallycommunities
We will continue our environmental, social and governance ("ESG") journey that is rooted in our strategic mission to empower our communities to thrive and putting our customers at the center of everything we do. We support that mission with clearly defined values that aim to influence not only what we do, but how we do it, with one of the core pillars focusing on our ongoing commitments to inclusion, diversity, and equity ("ID&E"). From our internal efforts around recruiting, development
and retention, to our external efforts to provide high quality products and excellent customer service, we believe our strategic focus will benefit from our continued commitment to building upon our culture and community values.
Macroeconomic Environment
The U.S.We are exposed to certain risks and global economiesuncertainties caused by factors beyond our control, including economic and markets experienced increased volatility in 2022, and are expected to continue to experience volatility, due to factors including higher inflation, increased interest rates, banking volatility,political instability and other geopolitical eventsevents. We believe that are anticipated to continue during the remainder of 2023. Uncertainthese uncertain economic conditions have adversely impacted and may continue to have an adverse impact on our advertising revenues, and the occurrence of these factors has resulted in a reduction in demand for our print and digital advertising, reduced the rates for our advertising, and caused marketers to shift, reduce or stop spend. The impact of the uncertain macroeconomic conditions has not changed substantially since the initial volatility that began in the second quarter of 2022.
These challenging conditions, especially higher inflation and interest rates, have negatively impacted the consumer and resulted in increased price sensitivity from our print and paid digital-only subscribers. Consumer purchases of discretionary items, including our products and services, generally decline during periods of economic uncertainty, when disposable income is reduced or when there is a reduction in consumer confidence. Increased consumer price sensitivity, along with delivery challenges associated with labor shortages, and ongoing consumer sentiment negatively impacted print circulation volumes as compared to the same periods in the prior year.
As a result of the macroeconomic volatility, we experienced rising costs, including costs associated with labor, newsprint, delivery, ink, printing plates, fuel, and utilities. We are also exposed to potential increases in interest rates associated with our five-year senior secured term loan facility in an original aggregate principal amount of $516.0 million (the "Senior Secured
Term Loan," formerly referred to as the New Senior Secured Term Loan),Loan, which as of March 31, 2023 and December 31, 2022, accounted for approximately 33% and 34%31% of our outstanding debt respectively,as of each March 31, 2024 and December 31, 2023, as well as fluctuations in foreign currency exchange rates, primarily related to our operations in the U.K. We expect continued uncertainty and volatility in the U.S. and global economies which will continue to impact our business.
Recent U.S. Tax Legislation
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the "Inflation Reduction Act"), which includes, among other provisions, changes to the U.S. corporate income tax system, including a 15% minimum tax based on "average adjusted financial statement income" exceeding $1 billion for any three consecutive years preceding the tax year and a 1% excise tax on net repurchases of stock in excess of $1 million after December 31, 2022. We do not anticipate a material financial impact from the Inflation Reduction Act during 2023.
Seasonality
Our revenues are subject to moderateWe experience some seasonality due primarily to fluctuations in advertising volumes. Advertising and marketing services revenues for our revenues. The Domestic Gannett Media segment are typically highestwitnesses the greatest impact from seasonality in the fourththird quarter, primarily dueattributed to fluctuationsreduced population in advertising volumes tied toseasonal markets and decreased holiday related spending. The DMS segment generally experiences the holidays, regional weather and levels of activity in our various markets, some of which have a high degree of seasonal residents and tourists. The volume of advertising sales in any period is also impacted by other external factors such as competitors' pricing, advertisers' decisions to increase or decrease their advertising expenditures in response to anticipated consumer demand, and general economic conditions. Uncertain economic conditions continued to adverselygreatest impact our advertising revenuesfrom seasonality in the first quarterhalf of 2023, and the occurrencefiscal year, which can be attributed to the advertising needs of these factors has resultedspecific verticals, which are generally lower in a reduction in demand for our print and digital advertising, reduced the rates for our advertising, and caused marketers to shift, reduce or stop spend. Refer to "Macroeconomic Environment" above for further discussion.first half of the year.
Environmental, Social and Governance Initiatives
As a leading media organization, our longstanding corporate social responsibility position is driven by our deep commitment to our communities. We are dedicated to ensuring that we have mindful and ethical business practices that positively impact our world. In early 2023,2024, we published our 20232024 ESG Report detailing the progress we made on our U.N. Sustainable Development Goals ("U.N. SDGs") that include Reduced Inequalities, Climate Action, and Peace, Justice &and Strong Institutions. The 20232024 ESG Report included noteworthy highlights such as our efforts to improveimproving our workplace diversity, expandexpanding our systems infrastructure to provide Scope 1 and Scope 2 emissions for our entire global carbon footprint, and reduce ourreducing the number of manufacturing facilities. Also,
We are committed to ensuring our coverage is widely available, actively promoted across our media sites and marketed to our millions of registered users. In January 2024, we recently published the inaugural edition of our network-wide 20222023 Journalism Impact Report, which highlighted what we believe are the most influential articles we produced in 20222023 and includescovers topics such as coverage on inclusion, diversity, and equity,ID&E, as well as climate change. We are committed to the ongoing publishing of an annual network-wide Journalism Impact Report, which surfaces the top stories we produced that led to action.
The well-being of our employees is of paramount importance to us and we are committed to maintaining a corporate culture that conducts business in a responsible and ethical manner that includes promoting, protecting and supporting human rights across our operations and throughout our entire organization, which is why we have adopted a company-wide Human Rights Policy. This policy expands upon an existing policy enacted by our U.K. operations. Our Human Rights Policy covers areas such as our commitment to diversity and inclusion, a safe and healthy workplace, our communities and stakeholders, and freedom of association and collective bargaining, which helps ensure our employees' right to form and choose whether to join a labor union without fear of reprisal, intimidation, or harassment. The Human Rights Policy also reflects our commitment to bargaining in good faith with chosen representatives of such groups in accordance with applicable laws.
Use of Website to Distribute Material Company Information
Our website is www.gannett.com. Information contained on our website is not part of this quarterly report. We use our website as a distribution channel for material company information. Financial and other important information regarding the Company is routinely posted on and accessible on the Investor Relations and News and Events subpages of our website, which are accessible by clicking on the tab labeled "Investor Relations" and "News and Events", respectively, on the website home page. Therefore, investors should look to the Investor Relations, and News and Events subpages of the Company's website for important and time-critical information.
RESULTS OF OPERATIONS
Consolidated Summary
A summary of our consolidated results is presented below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
In thousands, except per share amounts | | | | | | | | | | | Change |
| | | | | | | | 2023 | | 2022 | | $ | | % |
Operating revenues: | | | | | | | | | | | | | | | |
Local and national print | | | | | | | | | $ | 82,149 | | | $ | 102,744 | | | (20,595) | | | (20) | % |
Classified print | | | | | | | | | 65,805 | | | 70,774 | | | (4,969) | | | (7) | % |
Print advertising | | | | | | | | | 147,954 | | | 173,518 | | | (25,564) | | | (15) | % |
| | | | | | | | | | | | | | | |
Digital media | | | | | | | | | 66,133 | | | 78,771 | | | (12,638) | | | (16) | % |
Digital marketing services (a) | | | | | | | | | 112,683 | | | 108,991 | | | 3,692 | | | 3 | % |
Digital classified | | | | | | | | | 14,077 | | | 13,834 | | | 243 | | | 2 | % |
Digital advertising and marketing services | | | | | | | | | 192,893 | | | 201,596 | | | (8,703) | | | (4) | % |
| | | | | | | | | | | | | | | |
Advertising and marketing services | | | | | | | | | 340,847 | | | 375,114 | | | (34,267) | | | (9) | % |
| | | | | | | | | | | | | | | |
Print circulation | | | | | | | | | 205,454 | | | 258,476 | | | (53,022) | | | (21) | % |
Digital-only circulation | | | | | | | | | 35,831 | | | 30,126 | | | 5,705 | | | 19 | % |
Circulation | | | | | | | | | 241,285 | | | 288,602 | | | (47,317) | | | (16) | % |
| | | | | | | | | | | | | | | |
Other | | | | | | | | | 86,785 | | | 84,361 | | | 2,424 | | | 3 | % |
| | | | | | | | | | | | | | | |
Total operating revenues | | | | | | | | | 668,917 | | | 748,077 | | | (79,160) | | | (11) | % |
| | | | | | | | | | | | | | | |
Total operating expenses (a) | | | | | | | | | 648,956 | | | 750,055 | | | (101,099) | | | (13) | % |
Operating income (loss) | | | | | | | | | 19,961 | | | (1,978) | | | 21,939 | | | *** |
Non-operating expenses | | | | | | | | | 27,030 | | | 8,731 | | | 18,299 | | | *** |
Loss before income taxes | | | | | | | | | (7,069) | | | (10,709) | | | 3,640 | | | (34) | % |
Benefit for income taxes | | | | | | | | | (17,329) | | | (7,607) | | | (9,722) | | | *** |
Net income (loss) | | | | | | | | | 10,260 | | | (3,102) | | | 13,362 | | | *** |
Net loss attributable to noncontrolling interests | | | | | | | | | (84) | | | (135) | | | 51 | | | (38) | % |
Net income (loss) attributable to Gannett | | | | | | | | | $ | 10,344 | | | $ | (2,967) | | | $ | 13,311 | | | *** |
| | | | | | | | | | | | | | | |
Income (loss) per share attributable to Gannett - basic | | | | | | | | | $ | 0.07 | | | $ | (0.02) | | | $ | 0.09 | | | *** |
Income (loss) per share attributable to Gannett - diluted | | | | | | | | | $ | 0.07 | | | $ | (0.02) | | | $ | 0.09 | | | *** |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
In thousands, except per share amounts | | | | | | | | | | | Change |
| | | | | | | | 2024 | | 2023 | | $ | | % |
Revenues: | | | | | | | | | | | | | | | |
Digital advertising | | | | | | | | | $ | 84,466 | | | $ | 80,210 | | | $ | 4,256 | | | 5 | % |
Digital marketing services(a) | | | | | | | | | 116,414 | | | 112,683 | | | 3,731 | | | 3 | % |
Digital-only subscription | | | | | | | | | 43,479 | | | 35,831 | | | 7,648 | | | 21 | % |
Digital other | | | | | | | | | 23,140 | | | 18,754 | | | 4,386 | | | 23 | % |
Digital | | | | | | | | | 267,499 | | | 247,478 | | | 20,021 | | | 8 | % |
| | | | | | | | | | | | | | | |
Print advertising | | | | | | | | | 134,676 | | | 147,954 | | | (13,278) | | | (9) | % |
Print circulation | | | | | | | | | 173,323 | | | 205,454 | | | (32,131) | | | (16) | % |
Commercial and other | | | | | | | | | 60,263 | | | 68,031 | | | (7,768) | | | (11) | % |
Print and commercial | | | | | | | | | 368,262 | | | 421,439 | | | (53,177) | | | (13) | % |
| | | | | | | | | | | | | | | |
Total revenues | | | | | | | | | 635,761 | | | 668,917 | | | (33,156) | | | (5) | % |
| | | | | | | | | | | | | | | |
Total operating expenses (a) | | | | | | | | | 685,647 | | | 648,956 | | | 36,691 | | | 6 | % |
Operating (loss) income | | | | | | | | | (49,886) | | | 19,961 | | | (69,847) | | | *** |
Non-operating expenses | | | | | | | | | 24,804 | | | 27,030 | | | (2,226) | | | (8) | % |
Loss before income taxes | | | | | | | | | (74,690) | | | (7,069) | | | (67,621) | | | *** |
Provision (benefit) for income taxes | | | | | | | | | 10,078 | | | (17,329) | | | 27,407 | | | *** |
Net (loss) income | | | | | | | | | (84,768) | | | 10,260 | | | (95,028) | | | *** |
Net loss attributable to noncontrolling interests | | | | | | | | | — | | | (84) | | | 84 | | | (100) | % |
Net (loss) income attributable to Gannett | | | | | | | | | $ | (84,768) | | | $ | 10,344 | | | $ | (95,112) | | | *** |
| | | | | | | | | | | | | | | |
(Loss) income per share attributable to Gannett - basic | | | | | | | | | $ | (0.60) | | | $ | 0.07 | | | $ | (0.67) | | | *** |
(Loss) income per share attributable to Gannett - diluted | | | | | | | | | $ | (0.60) | | | $ | 0.07 | | | $ | (0.67) | | | *** |
*** Indicates an absolute value percentage change greater than 100.
(a) Amounts are net of intersegment eliminations of $34.4$38.8 million and $33.4$34.4 million for the three months ended March 31, 2024 and 2023, and 2022, respectively, whichrespectively. Intersegment eliminations represent digital advertising marketing services revenues and expenses associated with products sold by sales teams in our U.S. localDomestic Gannett Media sales teamsand Newsquest segments but fulfilled by our DMS segment. When discussing segment results, these revenues and expenses are presented gross but are eliminated in consolidation.
*** Indicates an absolute value percentage change greater than 100.
Revenues
Operating revenues
Advertising and marketing servicesDigital revenues are generated by both the Gannett Media and DMS segments. At the Gannett Media segment, Advertising and marketing services revenues are generated by the sale of local, national, and classified print advertising products,primarily derived from digital advertising offerings such as digital classified advertisements digital media such asand display advertisements run on our platforms as well as third-party sites, and digital marketing services delivered by our DMS segment. At the DMS segment, Advertising and marketing services revenues are generated through multiple services, including search advertising, display advertising, search optimization, social media, website development, web presence products, customer relationship management, and software-as-a-service solutions.solutions, digital distribution of our publications, as well as digital syndication, affiliate, partnership, and licensing revenues.
CirculationPrint and commercial revenues which are generated atfrom the Gannett Media segment, are derived fromsale of local, national, and classified print advertising products, the sale of both home delivery digital distribution and single copy salescopies of our publications.
Other revenues, which are primarily generated at the Gannett Media segment, are derived mainly frompublications, as well as commercial printing and distribution arrangements, and revenues from our events business, digital content syndication and affiliate revenues and third-party newsprint sales, and to a lesser extent generated at our Corporate and other category, mainly driven by sales of cloud-based products with expert guidance and support.business.
Operating expenses
Operating expenses consist primarily of the following:
•Operating costs at the Domestic Gannett Media segmentand Newsquest segments include labor, newsprint, delivery and deliverydigital costs and at the DMS segment include the cost of online media acquired from third parties and costs to manage and operate our marketing solutions and technology infrastructure;
•Selling, general and administrative expenses include labor, payroll, outside services, benefits costs and bad debt expense;
•Depreciation and amortization;
•Integration and reorganization costs include severance chargescosts as well as other reorganization costs associated with individual restructuring programs, designed primarily to right-size the Company's employee base, consolidate facilities and other costs, including those for the purpose of consolidating our operations (i.e., facility consolidation expenses and integration-related costs);improve operations;
•Impairment charges, including costs incurred related to goodwill, intangible assets and property, plant and equipment;
•Gains or losses on the sale or disposal of assets; and
•Other operating expenses, including third-party debt expenses as well as acquisition-related costs.
Refer to Segment results below for a discussion of the results of operations by segment.
Non-operating (income) expenseexpenses
Interest expense: For the three months ended March 31, 2023,2024, Interest expense was $28.3$26.6 million compared to $26.0$28.3 million for the three months ended March 31, 2022. The increase in2023. For the three months ended March 31, 2024, interest expense fordecreased compared to the three months ended March 31, 2023, compared to the same period in 2022 was mainlyprimarily due to the impact of the increase in interest rates on our Senior Secured Term Loan, partially offset by a lower debt balance, mainly driven by quarterly amortization payments and required prepayments on theour Senior Secured Term Loan and repurchases of our 2026 Senior Notes.
(Gain) lossNotes, partially offset by an increase in interest rates on early extinguishment of debt: For the three months ended March 31, 2023, the gain on early extinguishment of debt was $0.5 million compared to a loss of $2.7 million for the three months ended March 31, 2022. For the three months ended March 31, 2023, the change in the (Gain) loss on the early extinguishment of debt compared to the same period in 2022 was mainly due to refinancing activities related to our 2026 Senior Notes and the Senior Secured Term Loan.
Non-operating pension income: For the three months ended March 31, 2023,2024, Non-operating pension income was $1.8$3.1 million compared to $18.2$1.8 million for the three months ended March 31, 2022.2023. The decreaseincrease in non-operatingNon-operating pension income for the three months ended March 31, 20232024, compared to the same period in 20222023 was primarily due to athe decrease in the expected return on plan assets mainly drivendiscount rate, partially offset by a decreasedecline in assets following the annuity contract entered into during the three months ended September 30, 2022 related to the Gannett Retirement Plan (the "GR Plan").
Other non-operating expense (income), net: Other non-operating expense (income), net consisted of certain items that fall outside of our normal business operations. For the three months ended March 31, 2023, we recorded Other non-operating expense, net of $1.0 million, compared to Other non-operating income, net of $1.8 million for the three months ended March 31, 2022.projected benefit obligation.
BenefitProvision (benefit) for income taxes
The following table outlines our pre-tax net loss before income taxes and income tax accounts:
| | | Three months ended March 31, |
| | | Three months ended March 31, | |
| | | Three months ended March 31, | |
| | | Three months ended March 31, | |
In thousands | In thousands | | 2023 | | 2022 | In thousands | | | | | 2024 | | 2023 |
Loss before income taxes | Loss before income taxes | | $ | (7,069) | | | $ | (10,709) | |
Benefit for income taxes | | (17,329) | | | (7,607) | |
Provision (benefit) for income taxes | |
Effective tax rate | Effective tax rate | | 245.1 | % | | 71.0 | % | Effective tax rate | | | | | (13.5) | % | | 245.1 | % |
The provision for income taxes is calculated by applying the projected annual effective tax rate for the year to the current period income or loss before tax plus the tax effect of any significant or unusual items (discrete events), and changes in tax laws. The provision for income taxes for the three months ended March 31, 2024, was mainly driven by the pre-tax book loss, the increase in valuation allowances on non-deductible U.S. interest expense carryforwards, the global intangible low-taxed income inclusion and state tax expense. The provision was calculated using an estimated annual effective tax rate of negative 11.1%. The estimated annual effective tax rate is principally impacted by valuation allowances on non-deductible interest expense carryforwards, foreign tax expense, and the global intangible low-taxed income inclusion, partially offset by the benefit of U.S. pre-tax book loss. The estimated annual effective tax rate is based on the projected tax expense for the full year.
laws. The benefit for income taxes for the three months ended March 31, 2023, was mainly driven by the tax benefit of the pre-tax book loss, the change in valuation allowances on non-deductible U.S. interest expense carryforwards, the global intangible low-taxed income inclusion and stock compensation. The benefit was calculated using an estimated annual effective tax rate of 273.3%. The estimated annual effective tax rate is principally impacted by valuation allowances on non-deductible interest expense carryforwards, the global intangible low-taxed income inclusion and foreign tax expense, partially offset by the benefit of U.S. pre-tax book loss. The estimated annual effective tax rate is based on the projected tax expense for the full year. We do not anticipate a material financial impact from the Inflation Reduction Act during 2023. See "Recent U.S. Tax Legislation" above.
The benefit for income taxes for the three months ended March 31, 2022, was mainly driven by pre-tax loss and the then current year tax benefit from the release of tax reserves, partially offset by the creation of valuation allowances on non-deductible interest expense carryforwards. The provision was calculated using the estimated annual effective tax rate of 41.3%negative 273.3%.
Net (loss) income (loss) attributable to Gannett and diluted (loss) income (loss) per share attributable to Gannett
For the three months ended March 31, 2023,2024, Net loss attributable to Gannett and diluted loss per share attributable to Gannett were $84.8 million and $0.60, respectively, compared to Net income attributable to Gannett and diluted income per share attributable to Gannett wereof $10.3 million and $0.07, respectively, compared to Net loss attributable to Gannett and diluted loss per share attributable to Gannett of $3.0 million and $0.02, respectively, for the three months ended March 31, 2022.2023. The change for the three months ended March 31, 20232024, compared to the same periodsperiod in the prior year reflects the various items discussed above.
Segment Results
Domestic Gannett Media segment
A summary of our Domestic Gannett Media segment results is presented below:
| | | Three months ended March 31, |
| | | Change |
| | | Three months ended March 31, | |
| | | Three months ended March 31, | |
| | | Three months ended March 31, | |
| | | | | | | | | | | Change | | | | | | | | | | | | | Change |
In thousands | In thousands | | 2023 | | 2022 | | $ | | % | In thousands | | | | | | | | | 2024 | | 2023 | | $ | | % |
Operating revenues: | | |
Advertising and marketing services | | $ | 262,423 | | | $ | 298,762 | | | $ | (36,339) | | | (12) | % |
Circulation | | 241,285 | | | 288,602 | | | (47,317) | | | (16) | % |
Other | | 85,387 | | | 83,055 | | | 2,332 | | | 3 | % |
Total operating revenues | | 589,095 | | | 670,419 | | | (81,324) | | | (12) | % |
Revenues: | |
Digital | |
Digital | |
Digital | | | | | | | | | | $ | 167,735 | | | $ | 149,308 | | | $ | 18,427 | | | 12 | % |
Print and commercial | | Print and commercial | | | | | | | | | 327,984 | | | 380,629 | | | (52,645) | | | (14) | % |
Total revenues | | Total revenues | | | | | | | | | 495,719 | | | 529,937 | | | (34,218) | | | (6) | % |
Operating expenses: | Operating expenses: | | |
Operating costs | |
Operating costs | |
Operating costs | Operating costs | | 379,565 | | | 426,116 | | | (46,551) | | | (11) | % | | | | | | | | | 320,862 | | | 349,328 | | 349,328 | | | (28,466) | | (28,466) | | | (8) | | (8) | % |
Selling, general and administrative expenses | Selling, general and administrative expenses | | 152,648 | | | 176,932 | | | (24,284) | | | (14) | % | Selling, general and administrative expenses | | | | | | | | | 130,244 | | | 136,490 | | 136,490 | | | (6,246) | | (6,246) | | | (5) | | (5) | % |
Depreciation and amortization | Depreciation and amortization | | 33,509 | | | 37,431 | | | (3,922) | | | (10) | % | Depreciation and amortization | | | | | | | | | 24,877 | | | 31,751 | | 31,751 | | | (6,874) | | (6,874) | | | (22) | | (22) | % |
Integration and reorganization costs | Integration and reorganization costs | | 4,649 | | | 5,721 | | | (1,072) | | | (19) | % | Integration and reorganization costs | | | | | | | | | 14,889 | | | 4,049 | | 4,049 | | | 10,840 | | 10,840 | | | *** | | *** |
Asset impairments | Asset impairments | | 5 | | | 854 | | | (849) | | | (99) | % | Asset impairments | | | | | | | | | — | | | 5 | | 5 | | | (5) | | (5) | | | (100) | | (100) | % |
| Gain on sale or disposal of assets, net | | (16,268) | | | (2,968) | | | (13,300) | | | *** |
Other operating expenses | | — | | | 741 | | | (741) | | | (100) | % |
Loss (gain) on sale or disposal of assets, net | |
Loss (gain) on sale or disposal of assets, net | |
Loss (gain) on sale or disposal of assets, net | | | | | | | | | | 904 | | | (16,271) | | | 17,175 | | | *** |
Other operating income | | Other operating income | | | | | | | | | (52) | | | — | | | (52) | | | *** |
Total operating expenses | Total operating expenses | | 554,108 | | | 644,827 | | | (90,719) | | | (14) | % | Total operating expenses | | | | | | | | | 491,724 | | | 505,352 | | 505,352 | | | (13,628) | | (13,628) | | | (3) | | (3) | % |
Operating income | Operating income | | $ | 34,987 | | | $ | 25,592 | | | $ | 9,395 | | | 37 | % | Operating income | | | | | | | | | $ | 3,995 | | | $ | | $ | 24,585 | | | $ | | $ | (20,590) | | | (84) | | (84) | % |
*** Indicates an absolute value percentage change greater than 100.
Operating revenuesRevenues
The following table provides the breakout of Operating revenuesRevenues by category: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
| | | | | | | | | | | Change |
In thousands | | | | | | | | | 2023 | | 2022 | | $ | | % |
Local and national print | | | | | | | | | $ | 82,149 | | | $ | 102,744 | | | $ | (20,595) | | | (20) | % |
Classified print | | | | | | | | | 65,805 | | | 70,774 | | | (4,969) | | | (7) | % |
Print advertising | | | | | | | | | 147,954 | | | 173,518 | | | (25,564) | | | (15) | % |
| | | | | | | | | | | | | | | |
Digital media | | | | | | | | | 66,133 | | | 78,771 | | | (12,638) | | | (16) | % |
Digital marketing services | | | | | | | | | 34,259 | | | 32,639 | | | 1,620 | | | 5 | % |
Digital classified | | | | | | | | | 14,077 | | | 13,834 | | | 243 | | | 2 | % |
Digital advertising and marketing services | | | | | | | | | 114,469 | | | 125,244 | | | (10,775) | | | (9) | % |
| | | | | | | | | | | | | | | |
Advertising and marketing services | | | | | | | | | 262,423 | | | 298,762 | | | (36,339) | | | (12) | % |
| | | | | | | | | | | | | | | |
Print circulation | | | | | | | | | 205,454 | | | 258,476 | | | (53,022) | | | (21) | % |
Digital-only circulation | | | | | | | | | 35,831 | | | 30,126 | | | 5,705 | | | 19 | % |
Circulation | | | | | | | | | 241,285 | | | 288,602 | | | (47,317) | | | (16) | % |
| | | | | | | | | | | | | | | |
Other | | | | | | | | | 85,387 | | | 83,055 | | | 2,332 | | | 3 | % |
| | | | | | | | | | | | | | | |
Total operating revenues | | | | | | | | | $ | 589,095 | | | $ | 670,419 | | | $ | (81,324) | | | (12) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
| | | | | | | | | | | Change |
In thousands | | | | | | | | | 2024 | | 2023 | | $ | | % |
Digital advertising | | | | | | | | | $ | 70,941 | | | $ | 67,674 | | | $ | 3,267 | | | 5 | % |
Digital marketing services | | | | | | | | | 36,086 | | | 32,065 | | | 4,021 | | | 13 | % |
Digital-only subscription | | | | | | | | | 41,911 | | | 34,678 | | | 7,233 | | | 21 | % |
Digital other | | | | | | | | | 18,797 | | | 14,891 | | | 3,906 | | | 26 | % |
Digital | | | | | | | | | 167,735 | | | 149,308 | | | 18,427 | | | 12 | % |
| | | | | | | | | | | | | | | |
Print advertising | | | | | | | | | 115,619 | | | 128,177 | | | (12,558) | | | (10) | % |
Print circulation | | | | | | | | | 156,246 | | | 188,503 | | | (32,257) | | | (17) | % |
Commercial and other | | | | | | | | | 56,119 | | | 63,949 | | | (7,830) | | | (12) | % |
Print and commercial | | | | | | | | | 327,984 | | | 380,629 | | | (52,645) | | | (14) | % |
| | | | | | | | | | | | | | | |
Total revenues | | | | | | | | | $ | 495,719 | | | $ | 529,937 | | | $ | (34,218) | | | (6) | % |
For the three months ended March 31, 2023, Local and national print2024, Digital advertising revenues decreasedincreased compared to the three months ended March 31, 2022,2023, primarily due to a decreasean increase in advertiser inserts, mainly due to volume declines, and a decrease in localsponsored link and national print advertisements, mainly due to the ongoing decline associated with secular trends and both a shift and a reduction in spend from customers driven by macroeconomic factors,programmatic revenue, as well as the absence of $10.3 million of Print Advertising revenues associated with both businesses divestedhigher spend on automotive advertisements, partially offset by lower spend on obituary and non-core products which were sunset in 2023 and 2022. employment notifications.
For the three months ended March 31, 2023, Classified print advertising revenues decreased compared to the three months ended March 31, 2022, due to lower spend on classified advertisements, mainly driven by lower spend on obituary notifications.
For the three months ended March 31, 2023, Digital media revenues decreased compared to the three months ended March 31, 2022, driven by decreases in both national and local revenue volumes and a reduction in digital advertising demand as a result of a more challenging macroeconomic environment. For the three months ended March 31, 2023,2024, Digital marketing services revenues increased compared to the three months ended March 31, 20222023, primarily due to an increase in average revenue per user ("ARPU"), which we define as monthly revenues divided by average client count within the period, partially offset by a decrease in client counts. spend.
For the three months ended March 31, 2023, Digital classified2024, Digital-only subscription revenues increased compared to the three months ended March 31, 20222023, primarily driven by an increase in Digital-only subscription average revenue per user ("Digital-only ARPU") of 24%, mainly due to higherproduct mix. Refer to "Key Performance Indicators" below for further discussion of Digital-only ARPU.
For the three months ended March 31, 2024, Digital other revenues increased compared to the three months ended March
31, 2023, primarily due to an increase in affiliate and partnership revenues.
For the three months ended March 31, 2024, Print advertising revenues decreased compared to the three months ended March 31, 2023, primarily due to a decrease in local and national print advertisements and lower advertiser inserts, mainly due to a reduction in spend from customers driven by macroeconomic factors, and lower spend on classified advertisements, mainly driven by automotive advertisements, partially offset by lower spend on employment andassociated with obituary notifications.
For the three months ended March 31, 2023,2024, Print circulation revenues decreased compared to the three months ended March 31, 2022,2023, due to a decline in home delivery sales, mainly driven byand single copy as a result of a reduction in the volume of subscribers, partially offset by an increase in rates, as well as a decline in single copy sales reflecting a reduction in volume related to increasing sensitivity from customers due to price increases and product changes. rates.
For the three months ended March 31, 2023, Digital-only circulation2024, Commercial and other revenues increaseddecreased compared to the three months ended March 31, 2022, driven by an increase of 15.4% in paid digital-only subscriptions, including those subscribers on introductory subscription offers, to approximately 2.02 million as of March 31, 2023. For the three months ended March 31, 2023, the increase in Digital-only circulation revenues was offset by a slight decrease in ARPU compared to the same period in the prior year, mainly driven by product mix.
For the three months ended March 31, 2023, Other revenues increased compared to the three months ended March 31, 2022, primarily due to a decrease in commercial print revenues, driven by the decline in production volume, as well as facility closures, and delivery growtha decrease in local markets, and to a lesser extent,the price of newsprint, partially offset by an increase in event revenues, (though not to pre-pandemic levels), primarily driven by an increase in sponsorship revenues, registration fees and merchandising revenues, partially offset by fewer events dueticket sales related to a shift in the timing of events driving lower attendance as compared to the same period in the prior year, partially offset by a decrease in digital content syndication volume and other digital revenues.higher attendance.
Operating expenses
For the three months ended March 31, 2023,2024, Operating costs decreased $46.6$28.5 million compared to the three months ended March 31, 2022.2023. The following table provides the breakout of Operating costs:
| | | Three months ended March 31, |
| | | Change |
| | | Three months ended March 31, | |
| | | Three months ended March 31, | |
| | | Three months ended March 31, | |
| | | | | | | | | | | Change | | | | | | | | | | | | | Change |
In thousands | In thousands | | 2023 | | 2022 | | $ | | % | In thousands | | | | | | | | | 2024 | | 2023 | | $ | | % |
Newsprint and ink | Newsprint and ink | | $ | 33,493 | | | $ | 34,632 | | | $ | (1,139) | | | (3) | % | Newsprint and ink | | | | | | | | | $ | 18,573 | | | $ | | $ | 29,597 | | | $ | | $ | (11,024) | | | (37) | | (37) | % |
Distribution | Distribution | | 87,372 | | | 102,398 | | | (15,026) | | | (15) | % | Distribution | | | | | | | | | 74,483 | | | 83,942 | | 83,942 | | | (9,459) | | (9,459) | | | (11) | | (11) | % |
Compensation and benefits | Compensation and benefits | | 112,892 | | | 140,129 | | | (27,237) | | | (19) | % | Compensation and benefits | | | | | | | | | 96,501 | | | 100,930 | | 100,930 | | | (4,429) | | (4,429) | | | (4) | | (4) | % |
Outside services | Outside services | | 82,894 | | | 82,784 | | | 110 | | | — | % | Outside services | | | | | | | | | 80,965 | | | 78,995 | | 78,995 | | | 1,970 | | 1,970 | | | 2 | | 2 | % |
Other | Other | | 62,914 | | | 66,173 | | | (3,259) | | | (5) | % | Other | | | | | | | | | 50,340 | | | 55,864 | | 55,864 | | | (5,524) | | (5,524) | | | (10) | | (10) | % |
Total operating costs | Total operating costs | | $ | 379,565 | | | $ | 426,116 | | | $ | (46,551) | | | (11) | % | Total operating costs | | | | | | | | | $ | 320,862 | | | $ | | $ | 349,328 | | | $ | | $ | (28,466) | | | (8) | | (8) | % |
For the three months ended March 31, 2023,2024, Newsprint and ink costs decreased compared to the three months ended March 31, 2022,2023, primarily due to alower volume due to the decline in the volume of home delivery and single copy sales,revenues, as well as reductiona decrease in the cost of print offerings, partially offset by higher newsprint prices driven by inflationary pressures experienced during 2022, as well as growth in our commercial print business.of approximately $4.9 million.
For the three months ended March 31, 2023,2024, Distribution costs decreased compared to the three months ended March 31, 2022,2023, primarily due to the reduced volumea decrease of approximately $12.0 million associated with lower home delivery and single copy sales, cost savings driven by the reduction of print offerings, a decrease in third-party distribution costs, as well as the absence of expenses associated with both businesses divested and non-core products which were sunset in 2023 and 2022,revenues, partially offset by higheran increase in postage costs.costs of approximately $2.5 million, mainly due to conversion to mail delivery in multiple markets.
For the three months ended March 31, 2023,2024, Compensation and benefits costs decreased compared to the three months ended March 31, 2022,2023, primarily due to lower domestic payroll expense driven by a decrease in headcount tied to ongoing cost control initiatives.initiatives, including facility closures and conversion to mail delivery in multiple markets.
For the three months ended March 31, 2024, Outside services costs, which includes professional services fulfilled by third parties, media fees and other digital costs, and paid search and ad serving services, increased compared to the three months ended March 31, 2023, primarily due to higher third-party media fees of approximately $2.6 million, partially offset by a decrease of approximately $0.6 million in miscellaneous expenses.
For the three months ended March 31, 2024, Other costs decreased compared to the three months ended March 31, 2022,2023, primarily due primarily to the absence of expenses associated with both businesses divested and non-core products which were sunset in 2023 and 2022, and a decrease inlower facility related expenses including lower lease, supplies and utilities costs, as well as a decline in property taxes,of approximately $3.8 million, mainly due toassociated with real estate sales and facility consolidations and lower miscellaneous expenses of approximately $3.8 million, mainly related to lower technology costs, partially offset by an increase in technology costs.higher promotion costs of approximately $2.1 million.
For the three months ended March 31, 2023,2024, Selling, general and administrative expenses decreased $24.3$6.2 million compared to the three months ended March 31, 2022.2023. The following table provides the breakout of Selling, general and administrative expenses:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
| | | | | | | | | | | Change |
In thousands | | | | | | | | | 2023 | | 2022 | | $ | | % |
Compensation and benefits | | | | | | | | | $ | 73,685 | | | $ | 86,866 | | | $ | (13,181) | | | (15) | % |
Outside services and other | | | | | | | | | 78,963 | | | 90,066 | | | (11,103) | | | (12) | % |
Total selling, general and administrative expenses | | | | | | | | | $ | 152,648 | | | $ | 176,932 | | | $ | (24,284) | | | (14) | % |
For the three months ended March 31, 2023, Compensation and benefits costs decreased compared to the three months ended March 31, 2022, primarily due to lower payroll expense driven by a decrease in headcount tied to ongoing cost control initiatives. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
| | | | | | | | | | | Change |
In thousands | | | | | | | | | 2024 | | 2023 | | $ | | % |
Compensation and benefits | | | | | | | | | $ | 62,663 | | | $ | 62,179 | | | $ | 484 | | | 1 | % |
Outside services and other | | | | | | | | | 67,581 | | | 74,311 | | | (6,730) | | | (9) | % |
Total selling, general and administrative expenses | | | | | | | | | $ | 130,244 | | | $ | 136,490 | | | $ | (6,246) | | | (5) | % |
For the three months ended March 31, 2023,2024, Outside services and other costs, which include services fulfilled by third
parties, decreased compared to the three months ended March 31, 2022,2023, primarily due to a decrease in variouslower miscellaneous expenses of approximately $5.5 million, including costs related to technology, promotionspromotional expenses, and professional services.lower bad debt expense of approximately $1.2 million.
For the three months ended March 31, 2023,2024, Depreciation and amortization expense decreased compared to the three months ended March 31, 2022,2023, reflecting the impact of fewer print facilities in the first quarter of 20232024 compared to the first quarter of 2022.2023.
For the three months ended March 31, 2023,2024, Integration and reorganization costs decreasedincreased compared to the three months ended March 31, 2022,2023, mainly due to a decreasean increase in other costs of $2.0$12.3 million, partially offset by a decrease in severance costs of $1.4 million. The change in other costs for the three months ended March 31, 2024 was primarily due to $9.7 million expensed as of the cease-use date related to certain licensed content and the absence in the first quarter of 2024 of a reversal of a withdrawal liability related to a multiemployer pension plan partially offset by an increase in severance coststhe first quarter of $0.9 million.2023 of $2.0 million based on the settlement of the withdrawal liability.
For the three months ended March 31, 2024, we recognized a net loss on the sale of assets of $0.9 million as part of our continued plan to monetize non-strategic assets. For the three months ended March 31, 2023, we recognized a net gain on the sale of assets of $16.3 million, primarily related to the sale of a domestic production facility as part of our plan to monetize non-corenon-strategic assets. For the three months ended March 31, 2022, we recognized a net gain on the sale of assets of $3.0 million, primarily related to sales of real estate, partially offset by losses on the sales of non-core products which were divested.
Domestic Gannett Media segment Adjusted EBITDA
| | | Three months ended March 31, |
| | | Change |
| | | Three months ended March 31, | |
| | | Three months ended March 31, | |
| | | Three months ended March 31, | |
| | | | | | | | | | | Change | | | | | | | | | | | | | Change |
In thousands | In thousands | | 2023 | | 2022 | | $ | | % | In thousands | | | | | | | | | 2024 | | 2023 | | $ | | % |
Net income attributable to Gannett | Net income attributable to Gannett | | $ | 35,027 | | | $ | 42,814 | | | $ | (7,787) | | | (18) | % | Net income attributable to Gannett | | | | | | | | | $ | 5,463 | | | $ | | $ | 23,009 | | | $ | | $ | (17,546) | | | (76) | | (76) | % |
| Non-operating pension income | | (1,815) | | | (18,213) | | | 16,398 | | | (90) | % |
Non-operating pension (income) expense | | Non-operating pension (income) expense | | | | | | | | | (1,306) | | | 303 | | | (1,609) | | | *** |
Depreciation and amortization | Depreciation and amortization | | 33,509 | | | 37,431 | | | (3,922) | | | (10) | % | Depreciation and amortization | | | | | | | | | 24,877 | | | 31,751 | | 31,751 | | | (6,874) | | (6,874) | | | (22) | | (22) | % |
Integration and reorganization costs | Integration and reorganization costs | | 4,649 | | | 5,721 | | | (1,072) | | | (19) | % | Integration and reorganization costs | | | | | | | | | 14,889 | | | 4,049 | | 4,049 | | | 10,840 | | 10,840 | | | *** | | *** |
Other operating expenses | | — | | | 741 | | | (741) | | | (100) | % |
| Asset impairments | |
Asset impairments | |
Asset impairments | Asset impairments | | 5 | | | 854 | | | (849) | | | (99) | % | | | | | | | | | — | | | 5 | | 5 | | | (5) | | (5) | | | (100) | | (100) | % |
| Gain on sale or disposal of assets, net | | (16,268) | | | (2,968) | | | (13,300) | | | *** |
Other items | | 2,156 | | | 2,268 | | | (112) | | | (5) | % |
Loss (gain) on sale or disposal of assets, net | |
Loss (gain) on sale or disposal of assets, net | |
Loss (gain) on sale or disposal of assets, net | | | | | | | | | | 904 | | | (16,271) | | | 17,175 | | | *** |
Other non-operating (income) expense, net | | Other non-operating (income) expense, net | | | | | | | | | (347) | | | 1,567 | | | (1,914) | | | *** |
Non-recurring items | | Non-recurring items | | | | | | | | | — | | | 4 | | | (4) | | | (100) | % |
Adjusted EBITDA (non-GAAP basis)(a) | Adjusted EBITDA (non-GAAP basis)(a) | | $ | 57,263 | | | $ | 68,648 | | | $ | (11,385) | | | (17) | % | Adjusted EBITDA (non-GAAP basis)(a) | | | | | | | | | $ | 44,480 | | | $ | | $ | 44,417 | | | $ | | $ | 63 | | | — | | — | % |
Net income attributable to Gannett margin | Net income attributable to Gannett margin | | 5.9 | % | | 6.4 | % | |
Adjusted EBITDA margin (non-GAAP basis)(a)(b) | Adjusted EBITDA margin (non-GAAP basis)(a)(b) | | 9.7 | % | | 10.2 | % | |
Adjusted EBITDA margin (non-GAAP basis)(a)(b) | |
Adjusted EBITDA margin (non-GAAP basis)(a)(b) | |
*** Indicates an absolute value percentage change greater than 100.
(a)See "Non-GAAP Financial Measures" below for additional information about non-GAAP measures.
(b)We define Adjusted EBITDA margin as Adjusted EBITDA divided by total Operating revenues.Revenues.
For the three months ended March 31, 2023,2024, the decreaseincrease in Domestic Gannett Media segment Adjusted EBITDA compared to the three months ended March 31, 2022,2023, was primarily attributable to the changes discussed above.
Digital Marketing SolutionsNewsquest segment
A summary of our DMSNewsquest segment results is presented below:
| | | Three months ended March 31, |
| | | Change |
| | | Three months ended March 31, | |
| | | Three months ended March 31, | |
| | | Three months ended March 31, | |
| | | | | | | | | | | Change | | | | | | | | | | | | | Change |
In thousands | In thousands | | 2023 | | 2022 | | $ | | % | In thousands | | | | | | | | | 2024 | | 2023 | | $ | | % |
Operating revenues: | | |
Advertising and marketing services | | $ | 112,817 | | | $ | 109,709 | | | $ | 3,108 | | | 3 | % |
| Total operating revenues | | 112,817 | | | 109,709 | | | 3,108 | | | 3 | % |
Revenues: | |
Digital | |
Digital | |
Digital | | | | | | | | | | $ | 19,920 | | | $ | 18,348 | | | $ | 1,572 | | | 9 | % |
Print and commercial | | Print and commercial | | | | | | | | | 40,278 | | | 40,810 | | | (532) | | | (1) | % |
Total revenues | | Total revenues | | | | | | | | | 60,198 | | | 59,158 | | | 1,040 | | | 2 | % |
Operating expenses: | Operating expenses: | | |
Operating costs | |
Operating costs | |
Operating costs | Operating costs | | 78,990 | | | 76,331 | | | 2,659 | | | 3 | % | | | | | | | | | 30,526 | | | 30,237 | | 30,237 | | | 289 | | 289 | | | 1 | | 1 | % |
Selling, general and administrative expenses | Selling, general and administrative expenses | | 22,144 | | | 22,198 | | | (54) | | | — | % | Selling, general and administrative expenses | | | | | | | | | 15,596 | | | 16,158 | | 16,158 | | | (562) | | (562) | | | (3) | | (3) | % |
Depreciation and amortization | Depreciation and amortization | | 5,860 | | | 6,458 | | | (598) | | | (9) | % | Depreciation and amortization | | | | | | | | | 2,035 | | | 1,758 | | 1,758 | | | 277 | | 277 | | | 16 | | 16 | % |
Integration and reorganization costs | Integration and reorganization costs | | 20 | | | 151 | | | (131) | | | (87) | % | Integration and reorganization costs | | | | | | | | | 169 | | | 600 | | 600 | | | (431) | | (431) | | | (72) | | (72) | % |
| Loss on sale or disposal of assets, net | | 35 | | | 157 | | | (122) | | | (78) | % |
(Gain) loss on sale or disposal of assets, net | |
| (Gain) loss on sale or disposal of assets, net | |
| (Gain) loss on sale or disposal of assets, net | | | | | | | | | | (445) | | | 3 | | | (448) | | | *** |
Other operating income | | Other operating income | | | | | | | | | (87) | | | — | | | (87) | | | *** |
Total operating expenses | Total operating expenses | | 107,049 | | | 105,295 | | | 1,754 | | | 2 | % | Total operating expenses | | | | | | | | | 47,794 | | | 48,756 | | 48,756 | | | (962) | | (962) | | | (2) | | (2) | % |
Operating income | Operating income | | $ | 5,768 | | | $ | 4,414 | | | $ | 1,354 | | | 31 | % | Operating income | | | | | | | | | $ | 12,404 | | | $ | | $ | 10,402 | | | $ | | $ | 2,002 | | | 19 | | 19 | % |
*** Indicates an absolute value percentage change greater than 100.
Operating revenuesRevenues
The following table provides the breakout of Revenues by category: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
| | | | | | | | | | | Change |
In thousands | | | | | | | | | 2024 | | 2023 | | $ | | % |
Digital advertising | | | | | | | | | $ | 13,525 | | | $ | 12,536 | | | $ | 989 | | | 8 | % |
Digital marketing services | | | | | | | | | 2,088 | | | 2,194 | | | (106) | | | (5) | % |
Digital-only subscription | | | | | | | | | 1,568 | | | 1,153 | | | 415 | | | 36 | % |
Digital other | | | | | | | | | 2,739 | | | 2,465 | | | 274 | | | 11 | % |
Digital | | | | | | | | | 19,920 | | | 18,348 | | | 1,572 | | | 9 | % |
| | | | | | | | | | | | | | | |
Print advertising | | | | | | | | | 19,057 | | | 19,777 | | | (720) | | | (4) | % |
Print circulation | | | | | | | | | 17,077 | | | 16,951 | | | 126 | | | 1 | % |
Commercial and other | | | | | | | | | 4,144 | | | 4,082 | | | 62 | | | 2 | % |
Print and commercial | | | | | | | | | 40,278 | | | 40,810 | | | (532) | | | (1) | % |
| | | | | | | | | | | | | | | |
Total revenues | | | | | | | | | $ | 60,198 | | | $ | 59,158 | | | $ | 1,040 | | | 2 | % |
For the three months ended March 31, 2023, Advertising and marketing services2024, Digital advertising revenues increased compared to the three months ended March 31, 2022,2023, primarily due to growthan increase in the core direct business, as well as a growth inlocal revenues, associated with local markets, partially offset by the impact of the sunset of non-core products.lower spend on employment notifications.
For the three months ended March 31, 2024, Digital-only subscription revenues increased compared to the three months ended March 31, 2023, primarily driven by the increase in digital-only paid subscriptions. Refer to "Key Performance Indicators" below for further discussion of digital-only paid subscriptions.
For the three months ended March 31, 2024, Digital other revenues increased compared to the three months ended March 31, 2023, primarily due to higher syndication revenues.
For the three months ended March 31, 2024, Print advertising revenues decreased compared to the three months ended March 31, 2023, primarily due to a decrease in sponsorship revenues due to timing and the ongoing shift in spend to digital platforms.
Operating expenses
For the three months ended March 31, 2023,2024, Operating costs increased $2.7$0.3 million compared to the three months ended March 31, 2022.2023. The following table provides the breakout of Operating costs:
| | | Three months ended March 31, |
| | | Change |
| | | Three months ended March 31, | |
| | | Three months ended March 31, | |
| | | Three months ended March 31, | |
| | | | | | | | | | | Change | | | | | | | | | | | | | Change |
In thousands | In thousands | | 2023 | | 2022 | | $ | | % | In thousands | | | | | | | | | 2024 | | 2023 | | $ | | % |
Newsprint and ink | | Newsprint and ink | | | | | | | | | $ | 2,624 | | | $ | 3,896 | | | $ | (1,272) | | | (33) | % |
Distribution | | Distribution | | | | | | | | | 3,186 | | | 3,430 | | | (244) | | | (7) | % |
Compensation and benefits | | Compensation and benefits | | | | | | | | | 12,979 | | | 11,962 | | | 1,017 | | | 9 | % |
Outside services | Outside services | | $ | 69,096 | | | $ | 66,227 | | | $ | 2,869 | | | 4 | % | Outside services | | | | | | | | | 3,848 | | | 3,899 | | 3,899 | | | (51) | | (51) | | | (1) | | (1) | % |
Compensation and benefits | | 8,440 | | | 7,875 | | | 565 | | | 7 | % |
Other | Other | | 1,454 | | | 2,229 | | | (775) | | | (35) | % | Other | | | | | | | | | 7,889 | | | 7,050 | | 7,050 | | | 839 | | 839 | | | 12 | | 12 | % |
Total operating costs | Total operating costs | | $ | 78,990 | | | $ | 76,331 | | | $ | 2,659 | | | 3 | % | Total operating costs | | | | | | | | | $ | 30,526 | | | $ | | $ | 30,237 | | | $ | | $ | 289 | | | 1 | | 1 | % |
For the three months ended March 31, 2023, Outside services2024, Newsprint and ink costs which includes professional services fulfilled by third parties, media fees and other digital costs, and paid search and ad serving services, increaseddecreased compared to the three months ended March 31, 2022,2023, primarily due to an increasea decrease in expenses associated with third-party media fees, driven by a corresponding increasethe cost of newsprint of approximately $1.0 million.
For the three months ended March 31, 2024, Distribution costs decreased compared to the three months ended March 31, 2023, primarily due to the decline in revenues.
For the three months ended March 31, 2023,2024, Compensation and benefits costs increased compared to the three months ended March 31, 2022,2023, primarily due to an increase in payroll expense driven by higher headcount.
For the three months ended March 31, 2023,2024, Other costs decreasedincreased compared to the three months ended March 31, 2022,2023, primarily due to a decreasean increase in lease expenses, mainly as a result of exiting space associated with the sunset of non-core products.miscellaneous expenses.
For the three months ended March 31, 2023,2024, Selling, general and administrative expenses remained essentially flatdecreased $0.6 million compared to the three months ended March 31, 2022.2023. The following table provides the breakout of Selling, general and administrative expenses:
| | | Three months ended March 31, |
| | | Change |
| | | Three months ended March 31, | |
| | | Three months ended March 31, | |
| | | Three months ended March 31, | |
| | | | | | | | | | | Change | | | | | | | | | | | | | Change |
In thousands | In thousands | | 2023 | | 2022 | | $ | | % | In thousands | | | | | | | | | 2024 | | 2023 | | $ | | % |
Compensation and benefits | Compensation and benefits | | $ | 19,066 | | | $ | 18,598 | | | $ | 468 | | | 3 | % | Compensation and benefits | | | | | | | | | $ | 11,745 | | | $ | | $ | 11,506 | | | $ | | $ | 239 | | | 2 | | 2 | % |
Outside services and other | Outside services and other | | 3,078 | | | 3,600 | | | (522) | | | (15) | % | Outside services and other | | | | | | | | | 3,851 | | | 4,652 | | 4,652 | | | (801) | | (801) | | | (17) | | (17) | % |
Total selling, general and administrative expenses | Total selling, general and administrative expenses | | $ | 22,144 | | | $ | 22,198 | | | $ | (54) | | | — | % | Total selling, general and administrative expenses | | | | | | | | | $ | 15,596 | | | $ | | $ | 16,158 | | | $ | | $ | (562) | | | (3) | | (3) | % |
For the three months ended March 31, 2023,2024, Compensation and benefits costs increased compared to the three months ended March 31, 2022,2023, primarily due to an increase in payroll expense driven by higher headcount as well as an increase in incentive pay, driven by a corresponding increase in revenues.bonuses.
For the three months ended March 31, 2023,2024, Outside services and other costs decreased compared to the three months ended March 31, 2022, due to a decrease in various miscellaneous expenses, including lower technology and software costs, partially offset by higher promotion and marketing expenses, mainly driven by lead generation.
For the three months ended March 31, 2023, Depreciation and amortization expense decreased compared to the three months ended March 31, 2022, primarily due to a decrease in amortizationfacility related costs as well as lower bad debt expense mainly due to the impact of intangibles becoming fully amortized in the fourth quarter of 2022, partially offset by an increase in depreciation expense related to capitalized software.approximately $0.3 million.
Newsquest segment Adjusted EBITDA
| | | Three months ended March 31, |
| | | Change |
| | | Three months ended March 31, | |
| | | Three months ended March 31, | |
| | | Three months ended March 31, | |
| | | | | | | | | | | Change | | | | | | | | | | | | | Change |
In thousands | In thousands | | 2023 | | 2022 | | $ | | % | In thousands | | | | | | | | | 2024 | | 2023 | | $ | | % |
Net income attributable to Gannett | Net income attributable to Gannett | | $ | 5,623 | | | $ | 5,257 | | | $ | 366 | | | 7 | % | Net income attributable to Gannett | | | | | | | | | $ | 14,544 | | | $ | | $ | 12,018 | | | $ | | $ | 2,526 | | | 21 | | 21 | % |
Non-operating pension income | | Non-operating pension income | | | | | | | | | (1,840) | | | (2,118) | | | 278 | | | (13) | % |
Depreciation and amortization | Depreciation and amortization | | 5,860 | | | 6,458 | | | (598) | | | (9) | % | Depreciation and amortization | | | | | | | | | 2,035 | | | 1,758 | | 1,758 | | | 277 | | 277 | | | 16 | | 16 | % |
Integration and reorganization costs | Integration and reorganization costs | | 20 | | | 151 | | | (131) | | | (87) | % | Integration and reorganization costs | | | | | | | | | 169 | | | 600 | | 600 | | | (431) | | (431) | | | (72) | | (72) | % |
| Loss on sale or disposal of assets, net | | 35 | | | 157 | | | (122) | | | (78) | % |
Other items | | 145 | | | (843) | | | 988 | | | *** |
| (Gain) loss on sale or disposal of assets, net | |
| (Gain) loss on sale or disposal of assets, net | |
| (Gain) loss on sale or disposal of assets, net | | | | | | | | | | (445) | | | 3 | | | (448) | | | *** |
Other non-operating (income) expense, net | | Other non-operating (income) expense, net | | | | | | | | | (300) | | | 502 | | | (802) | | | *** |
Non-recurring items | | Non-recurring items | | | | | | | | | — | | | 83 | | | (83) | | | (100) | % |
Adjusted EBITDA (non-GAAP basis)(a) | Adjusted EBITDA (non-GAAP basis)(a) | | $ | 11,683 | | | $ | 11,180 | | | $ | 503 | | | 4 | % | Adjusted EBITDA (non-GAAP basis)(a) | | | | | | | | | $ | 14,163 | | | $ | | $ | 12,846 | | | $ | | $ | 1,317 | | | 10 | | 10 | % |
Net income attributable to Gannett margin | Net income attributable to Gannett margin | | 5.0 | % | | 4.8 | % | |
Adjusted EBITDA margin (non-GAAP basis)(a)(b) | Adjusted EBITDA margin (non-GAAP basis)(a)(b) | | 10.4 | % | | 10.2 | % | |
Adjusted EBITDA margin (non-GAAP basis)(a)(b) | |
Adjusted EBITDA margin (non-GAAP basis)(a)(b) | |
*** Indicates an absolute value percentage change greater than 100.
(a)See "Non-GAAP Financial Measures" below for additional information about non-GAAP measures.
(b)We define Adjusted EBITDA margin as Adjusted EBITDA divided by total Operating revenues.Revenues.
For the three months ended March 31, 2023,2024, the increase in Newsquest segment Adjusted EBITDA compared to the three months ended March 31, 2022,2023, was primarily attributable to the changes discussed above.
Digital Marketing Solutions segment
A summary of our DMS segment results is presented below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
| | | | | | | | | | | Change |
In thousands | | | | | | | | | 2024 | | 2023 | | $ | | % |
Revenues: | | | | | | | | | | | | | | | |
Digital(a) | | | | | | | | | $ | 117,045 | | | $ | 112,817 | | | $ | 4,228 | | | 4 | % |
| | | | | | | | | | | | | | | |
Total revenues | | | | | | | | | 117,045 | | | 112,817 | | | 4,228 | | | 4 | % |
Operating expenses: | | | | | | | | | | | | | | | |
Operating costs | | | | | | | | | 84,931 | | | 78,990 | | | 5,941 | | | 8 | % |
Selling, general and administrative expenses | | | | | | | | | 23,965 | | | 22,144 | | | 1,821 | | | 8 | % |
Depreciation and amortization | | | | | | | | | 5,880 | | | 5,860 | | | 20 | | | — | % |
Integration and reorganization costs | | | | | | | | | 25 | | | 20 | | | 5 | | | 25 | % |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Loss on sale or disposal of assets, net | | | | | | | | | 89 | | | 35 | | | 54 | | | *** |
Total operating expenses | | | | | | | | | 114,890 | | | 107,049 | | | 7,841 | | | 7 | % |
Operating income | | | | | | | | | $ | 2,155 | | | $ | 5,768 | | | $ | (3,613) | | | (63) | % |
*** Indicates an absolute value percentage change greater than 100.(a)Digital revenues are solely generated by digital marketing services revenues.
Revenues
For the three months ended March 31, 2024, Digital revenues increased compared to the three months ended March 31, 2023, primarily due to growth in the core direct business, including growth in revenues associated with both local and multi-location customers, and an increase in core platform average revenue per user ("Core platform ARPU") of 6% for the three months ended March 31, 2024. Refer to "Key Performance Indicators" below for further discussion of Core platform ARPU.
Operating expenses
For the three months ended March 31, 2024, Operating costs increased $5.9 million compared to the three months ended March 31, 2023. The following table provides the breakout of Operating costs:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
| | | | | | | | | | | Change |
In thousands | | | | | | | | | 2024 | | 2023 | | $ | | % |
Outside services | | | | | | | | | $ | 74,099 | | | $ | 69,096 | | | $ | 5,003 | | | 7 | % |
Compensation and benefits | | | | | | | | | 9,006 | | | 8,440 | | | 566 | | | 7 | % |
Other | | | | | | | | | 1,826 | | | 1,454 | | | 372 | | | 26 | % |
Total operating costs | | | | | | | | | $ | 84,931 | | | $ | 78,990 | | | $ | 5,941 | | | 8 | % |
For the three months ended March 31, 2024, Outside services costs, which includes professional services fulfilled by third parties, media fees and other digital costs, and paid search and ad serving services, increased compared to the three months ended March 31, 2023, due to an increase in expenses associated with third-party media fees driven by a corresponding increase in revenues.
For the three months ended March 31, 2024, Compensation and benefits costs increased compared to the three months ended March 31, 2023, primarily due to higher headcount.
For the three months ended March 31, 2024, Other costs increased compared to the three months ended March 31, 2023, primarily due to an increase in miscellaneous expenses, including higher facility related expenses.
For the three months ended March 31, 2024, Selling, general and administrative expenses increased $1.8 million compared to the three months ended March 31, 2023. The following table provides the breakout of Selling, general and administrative expenses:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
| | | | | | | | | | | Change |
In thousands | | | | | | | | | 2024 | | 2023 | | $ | | % |
Compensation and benefits | | | | | | | | | $ | 19,645 | | | $ | 19,066 | | | $ | 579 | | | 3 | % |
Outside services and other | | | | | | | | | 4,320 | | | 3,078 | | | 1,242 | | | 40 | % |
Total selling, general and administrative expenses | | | | | | | | | $ | 23,965 | | | $ | 22,144 | | | $ | 1,821 | | | 8 | % |
For the three months ended March 31, 2024, Compensation and benefits costs increased compared to the three months ended March 31, 2023, primarily due to higher headcount.
For the three months ended March 31, 2024, Outside services and other costs increased compared to the three months ended March 31, 2023, due to an increase in miscellaneous expenses, including higher bad debt expense of $0.7 million.
DMS segment Adjusted EBITDA
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
| | | | | | | | | | | Change |
In thousands | | | | | | | | | 2024 | | 2023 | | $ | | % |
Net income attributable to Gannett | | | | | | | | | $ | 609 | | | $ | 5,623 | | | $ | (5,014) | | | (89) | % |
Depreciation and amortization | | | | | | | | | 5,880 | | | 5,860 | | | 20 | | | — | % |
Integration and reorganization costs | | | | | | | | | 25 | | | 20 | | | 5 | | | 25 | % |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Loss on sale or disposal of assets, net | | | | | | | | | 89 | | | 35 | | | 54 | | | *** |
Other non-operating expense, net | | | | | | | | | 1,546 | | | 145 | | | 1,401 | | | *** |
Non-recurring items | | | | | | | | | 630 | | | — | | | 630 | | | *** |
Adjusted EBITDA (non-GAAP basis)(a) | | | | | | | | | $ | 8,779 | | | $ | 11,683 | | | $ | (2,904) | | | (25) | % |
Net income attributable to Gannett margin | | | | | | | | | 0.5 | % | | 5.0 | % | | | | |
Adjusted EBITDA margin (non-GAAP basis)(a)(b) | | | | | | | | | 7.5 | % | | 10.4 | % | | | | |
*** Indicates an absolute value percentage change greater than 100.
(a)See "Non-GAAP Financial Measures" below for additional information about non-GAAP measures.
(b)We define Adjusted EBITDA margin as Adjusted EBITDA divided by total Revenues.
For the three months ended March 31, 2024, the decrease in DMS segment Adjusted EBITDA compared to the three months ended March 31, 2023, was primarily attributable to the changes discussed above. In addition, for the three months
ended March 31, 2024, Other non-operating expense, net increased compared to the three months ended March 31, 2023, mainly due to an increase in unrealized foreign currency losses.
Corporate and other category
For the three months ended March 31, 2023,2024, Corporate and other operating revenues were $1.4$1.6 million compared to $1.3$1.4 million for the three months ended March 31, 2022.
For the three months ended March 31, 2023,2024, Corporate and other operating expenses decreased $11.1increased $47.9 million compared to the three months ended March 31, 2022.2023. The following table provides the breakout of Corporate and other operating expenses:
| | | Three months ended March 31, |
| | | Change |
| | | Three months ended March 31, | |
| | | Three months ended March 31, | |
| | | Three months ended March 31, | |
| | | | | | | | | | | Change | | | | | | | | | | | | | Change |
In thousands | In thousands | | 2023 | | 2022 | | $ | | % | In thousands | | | | | | | | | 2024 | | 2023 | | $ | | % |
Operating expenses: | Operating expenses: | | |
Operating costs | |
Operating costs | |
Operating costs | Operating costs | | $ | 6,026 | | | $ | 795 | | | $ | 5,231 | | | *** | | | | | | | | | $ | 4,885 | | | $ | | $ | 6,026 | | | $ | | $ | (1,141) | | | (19) | | (19) | % |
Selling, general and administrative expenses | Selling, general and administrative expenses | | 5,598 | | | 22,707 | | | (17,109) | | | (75) | % | Selling, general and administrative expenses | | | | | | | | | 10,684 | | | 5,598 | | 5,598 | | | 5,086 | | 5,086 | | | 91 | | 91 | % |
Depreciation and amortization | Depreciation and amortization | | 4,329 | | | 3,894 | | | 435 | | | 11 | % | Depreciation and amortization | | | | | | | | | 5,506 | | | 4,329 | | 4,329 | | | 1,177 | | 1,177 | | | 27 | | 27 | % |
Integration and reorganization costs | Integration and reorganization costs | | 7,458 | | | 5,526 | | | 1,932 | | | 35 | % | Integration and reorganization costs | | | | | | | | | 2,798 | | | 7,458 | | 7,458 | | | (4,660) | | (4,660) | | | (62) | | (62) | % |
(Gain) loss on sale or disposal of assets, net | | (1,448) | | | 7 | | | (1,455) | | | *** |
Asset Impairments | | Asset Impairments | | | | | | | | | 45,989 | | | — | | | 45,989 | | | *** |
Loss (gain) on sale or disposal of assets, net | | Loss (gain) on sale or disposal of assets, net | | | | | | | | | 4 | | | (1,448) | | | 1,452 | | | *** |
Other operating expenses | Other operating expenses | | 229 | | | 361 | | | (132) | | | (37) | % | Other operating expenses | | | | | | | | | 178 | | | 229 | | 229 | | | (51) | | (51) | | | (22) | | (22) | % |
Total operating expenses | Total operating expenses | | $ | 22,192 | | | $ | 33,290 | | | $ | (11,098) | | | (33) | % | Total operating expenses | | | | | | | | | $ | 70,044 | | | $ | | $ | 22,192 | | | $ | | $ | 47,852 | | | *** | | *** |
*** Indicates an absolute value percentage change greater than 100.
For the three months ended March 31, 2023,2024, Corporate and other operating expenses decreasedincreased compared to the three months ended March 31, 2022,2023, primarily due to a decreasethe impairment charge of approximately $46.0 million related to the write-off of the McLean, Virginia operating lease right-of-use asset and the associated leasehold improvements, an increase in Selling, general and administrative expenses, primarily driven bydue to a decrease in compensationhigher technology and product costs, as well as athe absence in 2024 of the $1.4 million gain on the sale of intellectual property partially offset by an increaseincurred in Operating costs, mainly due to an increase in Other service costs, and an increase in Integration and reorganization costs, mainly driven by an increase in severance costs,the first quarter of 2023. These increases were partially offset by a decrease in Integration and reorganization costs, primarily due to a decrease in severance costs of $3.1 million, and a decrease in other costs relatedof $1.5 million, mainly due to the outsourcing of corporate functions.a decrease in system integration costs.
LIQUIDITY AND CAPITAL RESOURCES
Our primary cash requirements are for working capital, debt obligations, and capital expenditures.
We expect to fund our operations and debt service requirements through cash provided by our operating activities. We expect we will have adequate capital resources and liquidity to meet our ongoing working capital needs, borrowing obligations, and all required capital expenditures for at least the next twelve months. However, a further economic downturn or an increased rate of revenue declines would negatively impact our revenue, cash provided by operating activities and liquidity. We continue to implement cost reduction initiatives to reduce our ongoing level of operating expense. We believe our ability to realize benefits from our cost reduction initiatives will be necessary to offset the continued secular decline in our legacy print business revenue streams. We believe that these measures are important in response to the overall challenging macroeconomic environment that we are facing. Refer to "Overview - Macroeconomic Environment" above for further discussion.
Details of our cash flows are included in the table below:
| | Three months ended March 31, |
| Three months ended March 31, | | | Three months ended March 31, |
In thousands | In thousands | 2023 | | 2022 | In thousands | 2024 | | 2023 |
Cash provided by operating activities | Cash provided by operating activities | $ | 6,718 | | | $ | 32,429 | |
Cash provided by (used for) investing activities | 20,704 | | | (6,220) | |
Cash (used for) provided by investing activities | |
Cash used for financing activities | Cash used for financing activities | (38,640) | | | (3,818) | |
Effect of currency exchange rate change on cash | Effect of currency exchange rate change on cash | 38 | | | (992) | |
Increase (decrease) in cash, cash equivalents and restricted cash | $ | (11,180) | | | $ | 21,399 | |
Decrease in cash, cash equivalents and restricted cash | |
Cash flows provided by operating activities: Our largest source of cash provided by our operationsoperating activities is Advertising revenues, primarily generated from Local and nationalby advertising and marketing services, revenues (retail,primarily from local and national print advertising, as well as retail, classified, and online).online revenues. Additionally, we generate cash through circulation subscribers, commercial printing and delivery services to third parties, and events. Our primary uses of cash from our operating activities include compensation, newsprint, delivery, and outside services.
Our cash flowCash flows provided by operating activities waswere $22.5 million for the three months ended March 31, 2024, compared to $6.7 million for the three months ended March 31, 2023, compared to $32.4 million for the three months ended March 31, 2022.2023. The decreaseincrease in cash flowflows provided by operating activities was primarily due to lowera decrease in severance payments and higher cash receipts related to deferred revenues, of $40.9 million and an increase in severance payments of $12.7 million, partially offset by a decreasean increase in contributions to our pension and other postretirement benefit plans of $7.3 million.plans.
Cash flows (used for) provided by (used for) investing activities: Cash flows used for investing activities was $12.4 million for the three months ended March 31, 2024, compared to cash provided by investing activities wasof $20.7 million for the three months ended March 31, 2023, compared to cash used of $6.2 million for the three months ended March 31, 2022.2023. The increasechange in cash flows provided by investing activities was primarily due to a decrease in cash paid for acquisitions, net of cash acquired, of $15.4 million, an increase in proceeds from the sale of real estate and other non-strategic assets of $9.0$28.9 million and a decreasean increase in purchases of property, plant and equipment of $2.0$4.2 million.
Cash flows used for financing activities: Cash flows used for financing activities waswere $18.2 million for the three months ended March 31, 2024, compared to $38.6 million for the three months ended March 31, 2023, compared to $3.8 million for the three months ended March 31, 2022.2023. The increasedecrease in cash flows used for financing activities was primarily due to $20.9 million in lower borrowings, netrepayments of long-term debt of $38.2 million, offset by a decrease in acquisition of noncontrolling interests of $2.1 million, a decrease in payments related to treasury stock of $1.0 million and a $0.4 million decrease in payments related to deferred financing costs.debt.
Debt
As of March 31, 2023,2024, the carrying value of our outstanding debt totaled $1.13$1.034 billion, which consisted of $397.6$341.5 million related to the Senior Secured Term Loan, $323.8$269.5 million related to the 2026 Senior Notes, $405.6$419.7 million related to the 2027 Notes (defined below), and $3.3 million related to the remaining 4.75% convertible senior notes due and repaid on April 15, 2024 (the "2024 Notes").
The Senior Secured Term Loan bears interest at a per annum rate equal to the Adjusted Term SOFR (which shall not be less than 0.50% per annum) plus a margin equal to 5.00% or an alternate base rate (which shall not be less than 1.50% per annum) plus a margin equal to 4.00%. We are required to repay the Senior Secured Term Loan from time to time with (i) the proceeds of non-ordinary course asset sales and casualty and condemnation events, (ii) the proceeds of indebtedness not permitted under the Senior Secured Term Loan, and (iii) the aggregate amount of cash and cash equivalents on hand at the Company and its restricted subsidiaries in excess of $100 million at the end of each fiscal year.year of the Company. Subsequent to the amendment effective as of April 8, 2022, the Senior Secured Term Loan is amortized at a rate equal to $15.1 million per quarter (or, if the
ratio of debt secured on an equal basis with the Senior Secured Term Loan less unrestricted cash of the Company and its restricted subsidiaries to Consolidated EBITDA (as such terms are defined in the Senior Secured Term Loan) (such ratio, the "First Lien Net Leverage Ratio"), for the most recently ended period of four consecutive fiscal quarters is equal to or less than 1.20 to 1.00, $7.6 million per quarter). For the three months ended March 31, 2023,2024, we made $31.3$3.3 million of prepayments, including quarterly amortization payments, on the Senior Secured Term Loan.
Interest on the 2026 Senior Notes is payable semi-annually in arrears. The 2026 Senior Notes mature on November 1, 2026,
unless redeemed or repurchased earlier pursuant to the 2026 Senior Notes Indenture.
Interest on the 6.0% Senior Secured Convertible Notes due 2027 (the "2027 Notes") is payable semi-annually in arrears. The 2027 Notes mature on December 1, 2027, unless earlier repurchased or converted. The 2027 Notes may be converted at any time by the holders into cash, shares of our common stock, par value $0.01 per share (the "Common Stock") or any combination of cash and Common Stock, at our election. The initial conversion rate is 200 shares of Common Stock per $1,000 principal amount of the 2027 Notes, which is equal to a conversion price of $5.00 per share of Common Stock (the "Conversion Price"). For the three months ended March 31, 2023,2024, no shares were issued upon conversion, exercise, or satisfaction of the required conditions.
Our Senior Secured Term Loan, 2024 Notes, 2026 Senior Notes and 2027 Notes all contain usual and customary covenants and events of default. As of March 31, 2023,2024, we were in compliance with all such covenants and obligations.
Refer to Note 6 — Debt in the notes to the condensed consolidated financial statements for additional discussion regarding our debt.
Additional information
We continue to evaluate our results of operations, liquidity and cash flows, and as part of these measures, we have taken steps to manage cash outflow by rationalizing expenses and implementing various cost management initiatives. We do not presently pay a quarterly dividend and there can be no assurance that we will pay dividends in the future. In addition, the terms of our indebtedness, including the Senior Secured Term Loan, the 2026 Senior Notes Indenture and the 2027 Notes Indenture have terms that restrict our ability to pay dividends.
On February 1, 2022, our Board of Directors authorized the repurchase of up to $100 million (the "Stock Repurchase Program") of our Common Stock. Repurchases may be made from time to time through open market purchases or privately negotiated transactions, pursuant to one or more plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or by means of one or more tender offers, in each case, as permitted by securities laws and other legal requirements. The amount and timing of the purchases, if any, will depend on a number of factors, including, but not limited to, the price and availability of our shares, trading volume, capital availability, our performance and general economic and market conditions. The Stock Repurchase Program may be suspended or discontinued at any time. Further, future repurchases under our Stock Repurchase Program may be subject to various conditions under the terms of our various debt instruments and agreements, unless an exception is available or we obtain a waiver or similar relief.
During the three months ended March 31, 2023,2024, we did not repurchase any shares of Common Stock under the Stock Repurchase Program. As of March 31, 2023,2024, the remaining authorized amount under the Stock Repurchase Program was approximately $96.9 million. We do not currently anticipate repurchasing any shares of Common Stock pursuant to the Stock Repurchase Program during the remaindersecond quarter of 2023.2024.
Beginning with the quarter ended December 31, 2022, and ending with the quarter ending September 30, 2024, the GRGannett Retirement Plan's (the "GR Plan") appointed actuary has and will certify the GR Plan's funded status for each quarter (the "Quarterly Certification") in accordance with U.S. GAAP. If the GR Plan is less than 100% funded, the Companywe will make a $1.0 million contribution to the GR Plan no later than 60 days following the receipt of the Quarterly Certification, provided, however, that the Company'sour obligation to make additional contractual contributions will terminate the earlier of (a) the day following the date that a contractual contribution would be due for the quarter ending September 30, 2024, and (b) the date the Company haswe have made a total of $5 million of contractual contributions subsequent to June 30, 2022. As of March 31, 2023,2024, theGR Plan was more than 100% funded.
We expect our capital expenditures for the remainder of 20232024 to total approximately $31.2$47 million. These capital expenditures are anticipated to be primarily comprised of projects related to digital product development, costs associated with our print and technology systems, and system upgrades.
Our leverage may adversely affect our business and financial performance and restricts our operating flexibility. The level of our indebtedness and our ongoing cash flow requirements may expose us to a risk that a substantial decrease in operating cash flows due to, among other things, continued or additional adverse economic conditions or adverse developments in our business, could make it difficult for us to meet the financial and operating covenants contained in our Senior Secured Term Loan, the 2026 Senior Notes, and the 2027 Notes. In addition, our leverage may limit cash flow available for general corporate purposes such as capital expenditures as well as share repurchases and acquisitions and our flexibility to react to competitive, technological, and other changes in our industry and economic conditions generally. We continue to closely monitor economic
factors, including, but not limited to, the current inflationary market and rising interest rates, and we expect to continue to take the steps necessary to appropriately manage liquidity.
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
See our most recent Annual Report on Form 10-K for the fiscal year ended December 31, 20222023 for a discussion of our critical accounting policies and use of estimates. There have been no material changes to our critical accounting policies and use of estimates discussed in such report.
NON-GAAP FINANCIAL MEASURES
A non-GAAP financial measure is generally defined as one that purports to measure historical or future financial performance, financial position, or cash flows, but excludes or includes amounts that would not be so excluded or included in the most comparable U.S. generally accepted accounting principles ("U.S. GAAP") measure.
Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial performance measures we believe offer a useful view of the overall operationoperations of our businessesbusiness. These non-GAAP financial performance measures, which may not be comparable to, and may be differentdefined differently than, similarly-titledsimilarly titled measures used or reported by other companies. companies, should not be considered in isolation from or as a substitute for the related U.S. GAAP measures and should be read together with financial information presented on a U.S. GAAP basis.
We define Adjusted EBITDA as Net income (loss) attributable to Gannett before (1) Income tax expense (benefit), (2) Interest expense, (3) Gains or losses on the early extinguishment of debt, (4) Non-operating pension income, (5) Loss on convertible notes derivative, (6) Depreciation and amortization, (7) Integration and reorganization costs, (8) Other operating expenses, including third-partyThird-party debt expenses and acquisition costs, (9) Asset impairments, (10) Goodwill and intangible impairments, (11) Gains or losses on the sale or disposal of assets, (12) Share-based compensation, (13) Other non-operating (income) expense, net, and (13) certain other non-recurring charges.(14) Non-recurring items. We define Adjusted EBITDA margin as Adjusted EBITDA divided by total Operating revenues.Revenues.
Management's use of Adjusted EBITDA and Adjusted EBITDA margin
Adjusted EBITDA and Adjusted EBITDA margin are not measurements of financial performance under U.S. GAAP and should not be considered in isolation or as an alternative to income (loss) from operations, net income (loss), margin, or any other measure of performance or liquidity derived in accordance with U.S. GAAP. We believe these non-GAAP financial performance measures, as we have defined them, are helpful in identifying trends in our day-to-day performance because the items excluded have little or no significance on our day-to-day operations. These measures provide an assessment of controllablecore expenses and afford management the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieve optimal financial performance.
We use Adjusted EBITDA and Adjusted EBITDA margin as measures of our day-to-day operating performance, which is evidenced by the publishing and delivery of news and other media and excludes certain expenses that may not be indicative of our day-to-day business operating results.
Limitations of Adjusted EBITDA and Adjusted EBITDA margin
Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools. They should not be viewed in isolation or as a substitute for U.S. GAAP measures of earnings or cash flows.earnings. Material limitations in making the adjustments to our earnings to calculate Adjusted EBITDA and Adjusted EBITDA margin and using these non-GAAP financial measures as compared to U.S. GAAP net income (loss) include: the cash portion of interest/financing expense, income tax (benefit) provision, and charges related to asset impairments, which may significantly affect our financial results.
Management believes these items are important in evaluating our performance, results of operations, and financial position. We use non-GAAP financial performance measures to supplement our U.S. GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.
Adjusted EBITDA and Adjusted EBITDA margin are not alternatives to Netnet income (loss) attributable to Gannett and, margin, as calculated and presentedor any other measure of performance or liquidity derived in accordance with U.S. GAAP. As such, they should not be considered or relied upon as substitutes or alternatives for any such U.S. GAAP financial measures. We strongly urge you to review the reconciliation of Net income (loss) attributable to Gannett to Adjusted EBITDA and Adjusted EBITDA margin along with our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. We also strongly urge you not to rely on any single financial performance measure to evaluate our business. In addition, because Adjusted EBITDA and Adjusted EBITDA margin are not measures of financial performance under U.S. GAAP and are susceptible to varying calculations, the Adjusted
EBITDA and Adjusted EBITDA margin measures as presented in this report may differ from and may not be comparable to similarly titled measures used by other companies.
The table below shows the reconciliation of Net (loss) income (loss) attributable to Gannett to Adjusted EBITDA and Net (loss) income (loss) attributable to Gannett margin to Adjusted EBITDA margin:
| | | Three months ended March 31, |
| Three months ended March 31, | |
| Three months ended March 31, | |
| Three months ended March 31, | |
In thousands | In thousands | | 2023 | | 2022 |
Net income (loss) attributable to Gannett | | $ | 10,344 | | | $ | (2,967) | |
Benefit for income taxes | | (17,329) | | | (7,607) | |
In thousands | |
In thousands | |
Net (loss) income attributable to Gannett | |
Net (loss) income attributable to Gannett | |
Net (loss) income attributable to Gannett | |
Provision (benefit) for income taxes | |
Provision (benefit) for income taxes | |
Provision (benefit) for income taxes | |
Interest expense | Interest expense | | 28,330 | | | 26,006 | |
(Gain) loss on early extinguishment of debt | | (496) | | | 2,743 | |
Interest expense | |
Interest expense | |
Gain on early extinguishment of debt | |
Gain on early extinguishment of debt | |
Gain on early extinguishment of debt | |
Non-operating pension income | |
Non-operating pension income | |
Non-operating pension income | Non-operating pension income | | (1,815) | | | (18,213) | |
Depreciation and amortization | Depreciation and amortization | | 43,698 | | | 47,783 | |
Depreciation and amortization | |
Depreciation and amortization | |
Integration and reorganization costs | Integration and reorganization costs | | 12,127 | | | 11,398 | |
Other operating expenses | | 229 | | | 1,102 | |
Integration and reorganization costs | |
Integration and reorganization costs | |
Third-party debt expenses and acquisition costs | |
Third-party debt expenses and acquisition costs | |
Third-party debt expenses and acquisition costs | |
Asset impairments | |
Asset impairments | |
Asset impairments | Asset impairments | | 5 | | | 854 | |
| Gain on sale or disposal of assets, net | | (17,681) | | | (2,804) | |
Loss (gain) on sale or disposal of assets, net | |
| Loss (gain) on sale or disposal of assets, net | |
| Loss (gain) on sale or disposal of assets, net | |
Share-based compensation expense | Share-based compensation expense | | 3,736 | | | 3,393 | |
Other items | | 1,754 | | | 2,483 | |
Share-based compensation expense | |
Share-based compensation expense | |
Other non-operating expense, net | |
Other non-operating expense, net | |
Other non-operating expense, net | |
Non-recurring items | |
Non-recurring items | |
Non-recurring items | |
Adjusted EBITDA (non-GAAP basis) | Adjusted EBITDA (non-GAAP basis) | | $ | 62,902 | | | $ | 64,171 | |
Net income (loss) attributable to Gannett margin | | 1.5 | % | | (0.4) | % |
Adjusted EBITDA (non-GAAP basis) | |
Adjusted EBITDA (non-GAAP basis) | |
Net (loss) income attributable to Gannett margin | |
Net (loss) income attributable to Gannett margin | |
Net (loss) income attributable to Gannett margin | |
Adjusted EBITDA margin (non-GAAP basis) | Adjusted EBITDA margin (non-GAAP basis) | | 9.4 | % | | 8.6 | % |
Adjusted EBITDA margin (non-GAAP basis) | |
Adjusted EBITDA margin (non-GAAP basis) | |
KEY PERFORMANCE INDICATORS
A key performance indicator ("KPI") is generally defined as a quantifiable measurement or metric used to gauge performance, specifically to help determine strategic, financial, and operational achievements, especially compared to those of similar businesses.
We define Digital-only ARPU as digital-only subscription average monthly revenues divided by the average digital-only paid subscriptions within the respective period. We define Core platform ARPU as core platform average monthly revenues divided by average monthly customer count within the period. We define Core platform revenues as revenue derived from customers utilizing our proprietary digital marketing services platform that are sold by either our direct or local market teams.
Management believes Digital-only ARPU, Core platform ARPU, digital-only paid subscriptions, core platform revenues and core platform average customer count are KPIs that offer useful information in understanding consumer behavior, trends in our business, and our overall operating results. Management utilizes these KPIs to track and analyze trends across our segments.
The following tables provide information regarding certain KPIs for the Domestic Gannett Media, Newsquest and DMS segments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
In thousands, except ARPU | | | | | | | | | 2024 | | 2023 | | Change | | % Change |
Domestic Gannett Media | | | | | | | | | | | | | | | |
Digital-only ARPU | | | | | | | | | $ | 7.28 | | | $ | 5.88 | | | $ | 1.40 | | | 24 | % |
| | | | | | | | | | | | | | | |
Newsquest | | | | | | | | | | | | | | | |
Digital-only ARPU | | | | | | | | | $ | 6.03 | | | $ | 6.41 | | | $ | (0.38) | | | (6) | % |
| | | | | | | | | | | | | | | |
Total Gannett | | | | | | | | | | | | | | | |
Digital-only ARPU | | | | | | | | | $ | 7.22 | | | $ | 5.90 | | | $ | 1.32 | | | 22 | % |
| | | | | | | | | | | | | | | |
DMS | | | | | | | | | | | | | | | |
Core platform revenues | | | | | | | | | $ | 116,050 | | | $ | 111,407 | | | $ | 4,643 | | | 4 | % |
Core platform ARPU | | | | | | | | | $ | 2,697 | | | $ | 2,535 | | | $ | 162 | | | 6 | % |
Core platform average customer count | | | | | | | | | 14.3 | | | 14.7 | | | (0.4) | | | (3) | % |
| | | | | | | | | | | | | | | | | |
| As of March 31, |
In thousands | 2024 | | 2023 | | % Change |
Digital-only paid subscriptions | | | | | |
Domestic Gannett Media | 1,927 | | | 1,962 | | | (2) | % |
Newsquest | 90 | | | 61 | | | 48 | % |
Total Gannett | 2,017 | | | 2,023 | | — | % |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk, including from changes in interest rates, commodity prices, and foreign currency exchange rates. Changes in these factors could cause fluctuations in earnings and cash flow. In the normal course of business, exposure to certain of these market risks is managed as described below.
Interest Rates
We generally manage our risk associated with changes in interest rates through the use of a combination of variable and fixed-rate debt. As of March 31, 2023,2024, we had variable and fixed-rate debt totaling $407.1$347.1 million and $827.7$767.1 million, respectively. Our variable-rate debt consisted of the Senior Secured Term Loan, which bears interest at the Adjusted Term Secured Overnight Financing Rate. A hypothetical interest rate increase of 150100 basis points would have increased our interest expense related to our variable-rate debt and likewise decreased our income and cash flows by approximately $1.5$0.9 million for the three months ended March 31, 2023.2024. See Note 6 — Debt to our condensed consolidated financial statements for further discussion of our debt.
Commodity Prices
Certain operating expenses of ours are sensitive to commodity price fluctuations, as well as inflation. Our primary commodity price exposures are newsprint and, to a lesser extent, ink, which in the aggregate represented approximately 3.1% and 5.2% of operating expenses for the three months ended March 31, 2024 and 2023, respectively. A hypothetical $10 per metric ton increase in newsprint price would not have materially impacted our results of operations or cash flows based on newsprint usage for the quarter ended March 31, 2024 of approximately 25 thousand metric tons.
Foreign Currency
We are exposed to foreign exchange rate risk due to our operations in the U.K., for which the British pound sterling is the functional currency. We are also exposed to foreign exchange rate risk due to our DMS segment which has operating activities denominated in currencies other than the U.S. dollar, including the Australian dollar, Canadian dollar, Indian rupee, and New Zealand dollar.
CumulativeTranslation gains or losses affecting the condensed consolidated financial statements have not been significant in the past. At March 31, 2024 and 2023, cumulative foreign currency translation gains and losses reported as part of equity equated to a loss ofwere $1.9 million and $8.5 million, at March 31, 2023 and a gain of $1.6 million at March 31, 2022.respectively. The fluctuation in cumulative foreign currency translation gains and losses was driven by the impact of changing exchange rates, primarily due to the British pound sterling. A hypothetical 10% fluctuation of the price of the British pound sterling and the currencies in our DMS segment against the U.S. dollar would not have materially impacted operating income for the three months ended March 31, 2023.2024.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of the end of the period covered by this Quarterly Report under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures were effective in recording, processing, summarizing and reporting on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and were effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 20232024 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments with respectInformation regarding legal proceedings may be found in Note 11 — Commitments, contingencies, and other matters — Legal Proceedings of the notes to the information previously reported under Part I, Item 3 of our Annualcondensed consolidated financial statements in this Quarterly Report on Form 10-K for the fiscal year ended December 31, 2022.10-Q, which is incorporated herein by reference.
ITEM 1A. RISK FACTORS
In additionThere have been no material changes to the other information set forth in this Quarterly Report on Form 10-Q, you should consider the risksrisk factors described in Part I, Item 1A, "Risk Factors"Risk Factors of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Except as set forth below, there have been no material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022. Any of these risksand uncertainties, including those discussed below, could materially and adversely affect our business, results of operations, financial condition, and/or the market price of our common stock, par value $0.01 per share (the "Common Stock"). The risks described below and in our Annual Report on Form 10-K for the year ended December 31, 2022, are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our financial condition and/or operating results.
Risks Related to Macroeconomic Factors
Actual or perceived events involving banking volatility or limited liquidity, defaults or other adverse developments that affect the U.S. or international financial systems, may result in market-wide liquidity problems which could have a material and adverse impact on our available cash and results of operations.
At any point in time, the funds in our operating accounts with financial institutions or financial services industry companies with which we have financial or business relationships may exceed the applicable Federal Deposit Insurance Corporation ("FDIC") insurance limits. While we monitor the cash balances in our operating accounts and adjust the cash balances as appropriate, these cash balances could be impacted if the underlying financial institutions fail. There is no guarantee that the FDIC, the Financial Services Compensation Scheme in the U.K., or the applicable deposit insurance, if any, in other countries in which we conduct significant business, will provide access to all or some uninsured funds in the event of the closure, default or non-performance of the financial institution or financial services industry company with which we have a relationship, or that they would do so in a timely manner. Additionally, if any parties with whom we conduct business are unable to access funds with their financial institutions or financial services industry companies with which they have relationships, such parties may be unable to satisfy their obligations to us. To date, we have not experienced significant losses of cash in our operating accounts or our invested cash or cash equivalents as a result of any banking volatility; however, we can provide no assurances that access to our operating cash or invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets. Further, banking volatility or adverse developments impacting financial systems may make equity or debt financing more difficult to obtain, and additional equity or debt financing might not be available on reasonable terms, if at all. Difficulties obtaining equity or debt financing could have a material adverse effect on our financial condition and results of operations.2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) Issuer Purchases of Equity Securities
The following table detailsprovides information regarding shares withheld from our monthly share repurchasesemployees to satisfy certain tax obligations in connection with the vesting of the Company's commonrestricted stock par value $0.01 per share (the "Common Stock")awards during the three months ended March 31, 2023:2024. The shares of common stock withheld to satisfy tax withholding obligations may be deemed purchases of such shares required to be disclosed pursuant to this Item 2. We did not repurchase any of our equity securities in the open market during the three months ended March 31, 2024.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
In thousands, except per share amounts | | Total number of shares purchased (a) | | Average price paid per share (a) | | Total number of shares purchased as part of publicly announced program (b) | | Maximum approximate dollar value that may yet be purchased under the Stock Repurchase Program (b) |
Period | | | | |
January 1, 2023 - January 31, 2023 | | — | | | $ | — | | | — | | | $ | — | |
February 1, 2023 - February 28, 2023 | | — | | | $ | — | | | — | | | $ | — | |
March 1, 2023 - March 31, 2023 (b) | | 66 | | | $ | 1.83 | | | — | | | $ | — | |
Total | | 66 | | | $ | 1.83 | | | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
In thousands, except per share amounts | | Total number of shares purchased (a) | | Average price paid per share (a) | | Total number of shares purchased as part of publicly announced program (b) | | Maximum approximate dollar value of shares that may yet be purchased under the Stock Repurchase Program (b) |
Period | | | | |
January 1, 2024 - January 31, 2024 | | — | | | $ | — | | | — | | | $ | — | |
February 1, 2024 - February 29, 2024 | | — | | | $ | — | | | — | | | $ | — | |
March 1, 2024 - March 31, 2024 | | 275 | | | $ | 2.21 | | | — | | | $ | — | |
Total | | 275 | | | $ | 2.21 | | | — | | | $ | — | |
(a)Represents shares of Common Stock withheld pursuant to the 2020 Omnibus2023 Stock Incentive Compensation Plan to cover employee tax-withholding obligations upon vesting of restricted stock awards that vested in the first quarter of 2023.2024. Amounts in the average price paid per share column reflect the weighted average price for shares withheld in satisfaction of these tax-withholding obligations.
(b)In February 2022, the Company's Board of Directors authorized the repurchase of up to $100 million of Common Stock (the "Stock Repurchase Program"). Repurchases may be made from time to time through open market purchases or privately negotiated transactions, pursuant to one or more plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or by means of one or more tender offers, in each case, as permitted by securities laws and other legal requirements. During the three months ended March 31, 2023,2024, the Company did not repurchase any shares of Common Stock under the Stock Repurchase Program. As of March 31, 2023,2024, the remaining authorized amount under the Stock Repurchase Program was approximately $96.9 million. The Company does not anticipate repurchasing any shares of Common Stock pursuant to the Stock Repurchase Program during 2023.
the second quarter of 2024.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
This item is not applicable.
ITEM 5. OTHER INFORMATION
None.Form of Indemnification Agreement
On April 29, 2024, the Company's Board of Directors approved and adopted a new form of indemnification agreement (the "Indemnification Agreement"), to be entered into by the Company with its directors. The Indemnification Agreement replaces the Company's existing form of indemnification agreement. As is the case with the Company's previous form of indemnification agreement, the Indemnification Agreement provides for the indemnification and advancement by the Company of certain expenses and costs relating to claims, suits or proceedings arising from service to the Company or, at its request, service to other entities, as officers, directors,agents, or similar capacities, to the maximum extent permitted by law, subject to the terms and conditions of the Indemnification Agreement.
The foregoing summary of the Indemnification Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Indemnification Agreement, the form of which is filed as Exhibit 10.2 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.
ITEM 6. EXHIBITS
| | | | | | | | | | | | | | |
Exhibit Number | | Description | | Location |
10.1 | | Form of Gannett Co., Inc. Employee Cash Performance Unit Award Agreement (2020 Omnibus Incentive Compensation Plan, as amended).* | | |
10.2 | | Form of Gannett Co., Inc. Employee Restricted Stock Grant Agreement (2020 Omnibus Incentive Compensation Plan, as amended).* | | |
10.3 | | Form of Gannett Co., Inc. Employee Long-Term Cash Award Agreement (2020 Omnibus Incentive Compensation Plan, as amended).* | | |
10.4 | | Gannett Co., Inc. 2023 Annual Bonus Plan.*† | | |
10.2 | | Form of Indemnification Agreement.* | | |
31.1 | | Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(d)15d-14(a) of the Securities Exchange Act of 1934. | | |
31.2 | | Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(d)15d-14(a) of the Securities Exchange Act of 1934. | | |
32.1 | | Section 1350 Certification of Principal Executive Officer. | | |
32.2 | | Section 1350 Certification of Principal Financial Officer. | | |
101 | | The following financial information from Gannett Co., Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2023,2024, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations and Comprehensive Income; (iii) Condensed Consolidated Statements of Cash Flow; (iv) Condensed Consolidated Statements of Equity; and (v) Notes to Condensed Consolidated Financial Statements | | Attached. |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and embedded within the Inline XBRL document) | | Attached. |
| | | | |
* | | Management contract or compensatory plan or arrangement. | | |
† | | Certain identified information has been redacted from the exhibit in accordance with Item 601(b)(10) of Regulation S-K. The Company agrees to furnish supplementally an unredacted copy of the exhibit to the Securities and Exchange Commission upon its request. | | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | |
Date: May 4, 20232, 2024 | GANNETT CO., INC. |
| |
| /s/ Douglas E. Horne |
| Douglas E. Horne |
| Chief Financial Officer and Chief Accounting Officer |
| (On behalf of the Registrant and as principal financial and principal accounting officer) |