Gannett Reports Fourth Quarter and Full-Year 2018 Results

Gannett Co., Inc. (NYSE:GCI) ("Gannett" or "company" or "we" or "our") today reported fourth quarter and full-year 2018 financial results for the period ended December 31, 2018 ⁽¹⁾.

"We were pleased to see accelerated growth in our Publishing segment digital advertising and marketing services revenue in the quarter, driven by strong national advertising across the USA TODAY NETWORK," said Robert J. Dickey, president and chief executive officer. "Additionally, our ReachLocal segment executed solid revenue performance and margin expansion, fueled by our recent WordStream acquisition."

Dickey continued, "During 2018, our B2B organization implemented a strategic sales transformation that has positioned us well for future expansion and our B2C organization delivered strong audience gains while also winning three Pulitzer prizes. As we look forward to 2019, we remain committed to producing award-winning journalism, driving growth across our digital businesses to reach a key milestone of more than half our advertising revenues from digital sources and continuing our cost rationalization efforts to support our transformation."

Fourth Quarter 2018 Consolidated Results⁽²⁾

• Operating revenues were $751.4 million, compared to $854.2 million in the fourth quarter of 2017.
• Unfavorable changes in foreign currency exchange rates negatively impacted revenues by $4.3 million.
• Same store, day adjusted operating revenues declined 8.6% year-over-year. Further adjusting for day trades as compared to the year-ago fourth quarter (one less Sunday, one more Monday), which impacts our print advertising and circulation revenues, the decline was 7.4%, an improvement of over 70 bps from the third quarter 2018 trend.
• Total digital revenues were $272.3 million, or approximately 36% of total revenue.
• Total digital advertising and marketing services revenues were $204.5 million, or 48% of total advertising and marketing services revenues.
• GAAP net loss was $14.2 million, including $56.3 million of after-tax restructuring, asset impairment charges and other costs.
• Adjusted EBITDA ⁽³⁾ totaled $111.0 million, compared to $132.7 million in the fourth quarter of 2017. Strong earnings growth at our ReachLocal segment was offset by lower revenues within our Publishing segment.

Fourth Quarter 2018 Publishing Segment

• Publishing segment operating revenues were $660.0 million, compared to $764.8 million in the fourth quarter of 2017. On a same store, day adjusted basis, Publishing segment revenues declined 9.8%. Further adjusting for the day trades, the decline was 8.5%.
• Same store, day adjusted print advertising revenues for the quarter declined 21.3% year-over-year. Adjusted for the day trades, the decline was 19.6%, an improvement from the third quarter 2018 trend.
• Same store, day adjusted digital advertising and marketing services revenues increased 3.4% year-over-year, an improvement from the third quarter 2018.
  • Digital marketing services revenues of $20.4 million rose 27.5%, on a same store, day adjusted basis, driven by higher average revenue per client.
  • Digital media revenues of $78.2 million increased 2.3%, on a same store, day adjusted basis, as strong growth in national premium and programmatic revenues more than offset weakness in local display.
  • Digital classified revenues of $16.4 million fell 12.9%, on a same store, day adjusted basis, reflecting weakness across all categories.

• Same store, day adjusted circulation revenues fell 4.6% from the prior year quarter. Adjusted for the day trades, the decline was 3.1%, an improvement from the third quarter trend, reflecting higher full-access subscriber pricing, offset by expected volume declines.
• Digital-only subscriber volumes grew 46.3% year-over-year and now total 504,000.
• Publishing segment Adjusted EBITDA was $116.6 million compared to $149.2 million in the prior year quarter.

Fourth Quarter 2018 ReachLocal Segment

• ReachLocal segment revenues were $105.0 million, up 3.5% year-over-year, reflecting the addition of WordStream offset by the divestiture of ReachLocal's European and Japanese operations. On a same store, day adjusted basis, ReachLocal segment revenues grew 5.4%.
• Adjusted EBITDA was $14.1 million, reflecting a 13.4% margin, more than double the $7.0 million in the fourth quarter of 2017.
• The improved revenue and profitability in the quarter were driven by the addition of WordStream and higher average revenue per client.

Fourth Quarter 2018 Cash Flow

• Net cash flow from operating activities was approximately $16.1 million, compared to $72.8 million in the prior year quarter, reflecting lower operating earnings and higher pension and other post-retirement payments of $14.2 million in the fourth quarter of 2018, as compared to the fourth quarter of 2017.
• Capital expenditures were approximately $19.3 million, primarily for product development, technology investments, and maintenance projects.
• The company paid dividends of $18.1 million; there were no share repurchases.
• As of the end of the fourth quarter, the company had a cash balance of $93.6 million, $135.0 million drawn on its revolver and $169.3 million in convertible notes, or net debt of $210.7 million.

Outlook

For 2019, the company is providing the following outlook:

• Consolidated revenues of $2.740-2.810 billion.
• Consolidated Adjusted EBITDA of $285-295 million, including roughly $8 million of one-time costs associated with the CEO transition.
• Capital expenditures of $50-60 million, excluding real estate projects.
• Depreciation and amortization of $150-160 million, excluding accelerated depreciation related to facility consolidations.
• The non-operating cost associated with our pension plans, recorded in other non-operating items, is currently estimated to be between $20-25 million as compared to a credit of $5.0 million in 2018.
• A non-GAAP effective tax rate of 28-30%. ⁽³⁾

Conference Call Information

The company will hold a conference call at 10:00 a.m. ET today to discuss its fourth quarter results. The call can be accessed via a live webcast through the company's investor site, http://investors.gannett.com/, or listen-only conference lines. U.S. callers should dial 855-462-1958 and international callers should dial 503-343-6635 at least 10 minutes prior to the scheduled start of the call. The confirmation code for the conference call is 3959279. A conference call replay will be available through March 21, 2019. U.S. callers should dial 855-859-2056 and international callers should dial 404-537-3406.

Forward Looking Statements

This press release contains certain forward-looking statements regarding business strategies, market potential, future financial performance and other matters. Forward-looking statements include all statements that are not historical facts. The words “believe,” “expect,” “estimate,” “could,” “should,” “intend,” “may,” “plan,” “seek,” “anticipate,” “project” and similar expressions, among others, generally identify forward-looking statements, which speak only as of the date the statements were made and are not guarantees of future performance. Where, in any forward-looking statement, an expectation or belief as to future results or events is expressed, such expectation or belief is based on the current plans and expectations of our management and expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. Whether or not any such forward-looking statements are in fact achieved will depend on future events, some of which are beyond our control. The matters discussed in these forward-looking statements are subject to a number of risks, trends, uncertainties and other factors that could cause actual results to differ materially from those projected, anticipated or implied in the forward-looking statements. These factors include, among other things:

• our ability to achieve our strategic transformation;
• potential disruption due to the reorganization of our sales force;
• an accelerated decline in general print readership and/or advertiser patterns as a result of changing consumer preferences, competitive alternative media, or other factors;
• an inability to adapt to technological changes or grow our digital businesses;
• risks associated with the operation of an increasingly digital business, such as rapid technological changes, challenges associated with frequent new delivery platforms, declines in web traffic levels, technical failures, and proliferation of ad blocking technologies;
• competitive pressures in the markets in which we operate;
• macroeconomic trends and conditions;
• increases in newsprint costs over the levels anticipated or declines in newsprint supply;
• risks and uncertainties associated with our ReachLocal segment, including its significant reliance on Google for media purchases, its international operations and its ability to develop and gain market acceptance for new products or services;
• our ability to protect our intellectual property or defend successfully against infringement claims;
• our ability to attract and retain talent;
• labor relations, including, but not limited to, labor disputes which may cause business interruptions, revenue declines or increased labor costs;
• potential disruption or interruption of our IT systems due to accidents, extraordinary weather events, civil unrest, political events, terrorism or cyber security attacks;
• risks and uncertainties related to strategic acquisitions or investments, including distraction of management attention, incurrence of additional debt, integration challenges, and failure to realize expected benefits or synergies or to operate businesses effectively following acquisitions;
• risks and uncertainties related to MNG Enterprises, Inc.’s unsolicited proposal to acquire the company and related nomination of six candidates for election to the company’s board of directors, which could, among other matters, cause us to incur significant expense and impact the trading value of our securities;
• variability in the exchange rate relative to the U.S. dollar of currencies in foreign jurisdictions in which we operate;
• risks associated with our underfunded pension plans;
• adverse outcomes in litigation or proceedings with governmental authorities or administrative agencies, or changes in the regulatory environment, any of which could encumber or impede our efforts to improve operating results or the value of assets;
• volatility in financial and credit markets which could affect the value of retirement plan assets and our ability to raise funds through debt or equity issuances and otherwise affect our ability to access the credit and capital markets at the times and in the amounts needed and on acceptable terms;
• risks to our liquidity related to the redemption, conversion and similar features of our convertible notes; and
• other uncertainties relating to general economic, political, business, industry, regulatory and market conditions.

A further description of these and other important risks, trends, uncertainties and other factors is provided in the company’s filings with the U.S. Securities and Exchange Commission, including the company’s annual report on Form 10-K for fiscal year 2017. Any forward-looking statements should be evaluated in light of these important risk factors. The company is not responsible for updating or revising any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Non-GAAP Financial Measures

This press release also contains a discussion of certain non-GAAP financial measures that the company presents to allow investors and analysts to measure, analyze and compare its financial condition and results of operations in a meaningful and consistent manner. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the tables accompanying this press release.

About Gannett

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

USE OF NON-GAAP INFORMATION

The company uses non-GAAP financial performance and liquidity measures to supplement the financial information presented on a GAAP basis. These non-GAAP financial measures, which may not be comparable to similarly titled measures reported by other companies, should not be considered in isolation from or as a substitute for the related GAAP measures and should be read together with financial information presented on a GAAP basis.

The company defines its non-GAAP measures as follows:

• Adjusted EBITDA is a non-GAAP financial performance measure that the company believes offers a useful view of the overall operation of our business. The company defines adjusted EBITDA as net income before (1) income taxes, (2) interest expense, (3) equity income, (4) other non-operating items, (5) restructuring costs, (6) acquisition-related expenses (including certain integration expenses), (7) asset impairment charges, (8) other items (including certain business transformation costs, litigation expenses, multi-employer pension withdrawals, and gains or losses on certain investments), (9) depreciation, and (10) amortization. The most directly comparable GAAP financial measure is net income.
• Adjusted net income is a non-GAAP financial performance measure that the company uses for calculating adjusted earnings per share ("EPS"). Adjusted net income is defined as net income before the adjustments we apply in calculating adjusted EPS, as described below. We believe presenting adjusted net income is useful to enable investors to understand how we calculate adjusted EPS, which provides a useful view of the overall operation of the company's business. The most directly comparable GAAP financial measure is net income.
• Adjusted diluted EPS is a non-GAAP financial performance measure that the company believes offers a useful view of the overall operation of our business. The company defines adjusted EPS as EPS before tax-effected (1) restructuring costs, (2) asset impairment charges, (3) acquisition-related expenses (including certain integration expenses), (4) non-operating (gains) losses, and (5) other items (including certain business transformation expenses, litigation expenses, multi-employer pension withdrawals and gains or losses on certain investments). The tax impact on these non-GAAP tax deductible adjustments is based on the estimated statutory tax rates for the United Kingdom of 19.0% and the United States of 25.5%. In addition, tax is adjusted for effects related to the passage of the Tax Cuts and Jobs Act and a valuation allowance on deferred tax assets related to the tax basis of certain intangibles. The most directly comparable GAAP financial measure is diluted EPS.
• Free cash flow is a non-GAAP liquidity measure that adjusts our reported GAAP results for items that we believe are critical to the ongoing success of our business. The company defines free cash flow as cash flow from operating activities as reported on the statement of cash flows less capital expenditures, which results in a figure representing free cash flow available for use in operations, additional investments, debt obligations, and returns to shareholders. The most directly comparable GAAP financial measure is net cash from operating activities.

The company uses non-GAAP financial measures for purposes of evaluating its performance and liquidity. Therefore, the company believes that each of the non-GAAP measures presented provides useful information to investors by allowing them to view our businesses through the eyes of our management and Board of Directors, facilitating comparison of results across historical periods, and providing a focus on the underlying ongoing operating performance of our business. Many of our peer group companies present similar non-GAAP measures to better facilitate industry comparisons.

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