Gannett Announces Second Quarter 2023 Results and Raises Full Year Outlook

• Operating Income of $13.5 million; Net Loss Attributable to Gannett of $12.7 million
• Adjusted EBITDA⁽¹⁾ of $71.2 million, up 40% Year-over-Year
• Cash Provided by Operating Activities of $46.1 million, up 250% Year-over-Year, Free Cash Flow⁽¹⁾ of $38.4 million, up 189% Year-over-Year

Total Digital Revenues returned to growth in Q2; expect further improvement to digital growth trend in Q3

Improving Digital-only subscription monetization; Digital-only ARPU⁽²⁾ up 6% Year-over-Year to $6.35

DMS achieved record high core platform revenues⁽³⁾ and ARPU⁽²⁾; sequential improvement to customer count⁽²⁾

Gannett Co., Inc. ("Gannett", "we", "us", "our", or the "Company") (NYSE: GCI) today reported its financial results for the second quarter ended June 30, 2023.

"We are pleased to report strong operational and financial results for the quarter. In the second quarter, Adjusted EBITDA grew by 40% year-over-year, reflecting a margin of approximately 11%, a sizable increase compared to the prior year's margin of about 7%. Additionally, free cash flow increased by 189% year-over-year, while our strategic initiatives drove ongoing sequential improvements in same-store revenue trends. As a result, our total digital revenues returned to growth in the second quarter and account for nearly 40% of total revenues, representing an all-time high. We believe we are making great progress on our strategy, and our results signify a notable turning point in our business trajectory," said Michael Reed, Gannett Chairman and Chief Executive Officer.

"In the second quarter, our digital businesses continued to deliver solid results. Digital-only subscription revenues experienced growth of 17% year-over-year on a same store basis, while our digital marketing solutions business achieved record high core platform revenues and ARPU, and sustained strong Adjusted EBITDA margins. We also repaid $15 million of debt, and combined with our improving Adjusted EBITDA performance, we materially reduced our first lien net leverage to 2.26x, while maintaining a healthy liquidity position."

"We continue to build on the strong foundation we laid over the past year and our focus persists on profitability, digital revenue growth and continuing to enhance our balance sheet. We believe that focus is evident in our results, enabling us to raise our full year guidance again this quarter. We expect sustained improvement in same store revenue trends throughout the second half of the year, alongside more substantial growth in our digital revenue trends. Our strong performance expected in the latter half of this year also extends to Adjusted EBITDA and free cash flow, reinforcing our confidence in achieving a first lien net leverage well below 2.0x by the end of 2023."

Second Quarter 2023 Highlights:

• Total revenues of $672.4 million decreased 10.2% compared to the second quarter of 2022
  • Same store revenues⁽¹⁾ decreased 8.6% compared to the second quarter of 2022, reflecting a sequential improvement of 70 basis points compared to the first quarter of 2023
• Total digital revenues were $262.1 million, or 39.0% of total revenues, up 0.8% over the same period in the prior year on a same store⁽¹⁾ basis
• Net loss attributable to Gannett of $12.7 million improved by $41.0 million versus the net loss attributable to Gannett of $53.7 million in the second quarter of 2022
  • Adjusted net loss attributable to Gannett⁽¹⁾ of $6.0 million
• Adjusted EBITDA⁽¹⁾ totaled $71.2 million, an increase of 39.9% compared to the second quarter of 2022
  • Adjusted EBITDA margin⁽¹⁾ of 10.6% improved 380 basis points compared to the 6.8% Adjusted EBITDA margin⁽¹⁾ in the second quarter of 2022
• Cash provided by operating activities of $46.1 million
• Free cash flow⁽¹⁾ of $38.4 million, an increase of 188.8% compared to second quarter of 2022
• Strengthened our executive leadership team through the strategic appointments of:
  • Chris Cho as President of Digital Marketing Solutions
  • Imtiaz Patel as Gannett Media Chief Consumer Officer
  • Kristin Roberts as Gannett Media Chief Content Officer
  • Jason Taylor as Gannett Media Chief Sales Officer

Second Quarter 2023 Gannett Media Highlights:

• Digital-only subscription revenues of $37.9 million grew 16.6% year-over-year and increased 17.3% year-over-year on a same store basis⁽¹⁾
• Digital-only paid subscriptions⁽²⁾ of 1.95 million at the end of the second quarter of 2023, up 4.6% compared to same period in the prior year
• Digital-only average revenue per user⁽²⁾ of $6.35 increased 6.2% year-over-year, reflecting the execution of our refined acquisition strategy with a heightened focus on profitability and digital-only average revenue per user⁽²⁾
• 185 million average monthly unique visitors in the second quarter of 2023 with 134 million average monthly unique visitors coming from our USA TODAY NETWORK (based on June 2023 Comscore Media Metrix®) and 51 million average monthly unique visitors resulting from our U.K. digital properties⁽⁴⁾

Second Quarter 2023 Digital Marketing Solutions Highlights:

• Digital Marketing Solutions segment revenues of $122.8 million grew 4.0% year-over year and increased 4.6% year-over-year on a same store basis⁽¹⁾
  • Total core platform revenues⁽³⁾ of $121.6 million in the second quarter of 2023, up 4.4% compared to the same quarter in the prior year
  • Total core platform average customer count⁽²⁾ of 15.3 thousand increased sequentially by 4.1% compared to the first quarter of 2023
  • Core platform average revenue per user⁽²⁾ was $2,642, a 10.4% increase year-over-year
  • Customer budget retention⁽⁵⁾ was 95.6%, an increase of 70 basis points compared to the second quarter of 2022
• Net income attributable to Gannett within the segment was $9.3 million in the second quarter of 2023 and Net income attributable to Gannett margin within the segment was 7.6% in the second quarter of 2023 versus 3.6% in the same quarter of the prior year
• Adjusted EBITDA⁽¹⁾ within the segment of $15.5 million in the second quarter of 2023, increasing 8.1% compared to the same period in the prior year. Adjusted EBITDA margin⁽¹⁾ within the segment increased to 12.6% in the second quarter of 2023 versus 12.1% in the same quarter of the prior year

Second Quarter 2023 Capital Structure Highlights:

• As of June 30, 2023, the Company had cash and cash equivalents of $106.6 million
• Total principal amount of debt outstanding as of June 30, 2023 was $1,219.7 million including $731.1 million in first lien debt, which resulted in a First Lien Net Leverage⁽⁶⁾ of 2.26x - a decline of 15.7% compared to 2.68x in the fourth quarter of 2022
• During the second quarter of 2023, the Company repaid $15.1 million of debt through its scheduled quarterly amortization payment on its five-year senior secured term loan facility (the “New Senior Secured Term Loan”)
• Subsequent to June 30, 2023, the Company repaid $8.2 million of its New Senior Secured Term Loan using the proceeds from real estate asset sales

Financial Highlights

Business Outlook

The Company is raising its 2023 full year outlook with respect to net income (loss) attributable to Gannett, cash provided by operating activities, free cash flow, and Adjusted EBITDA. The Company is reiterating its 2023 full year outlook with respect to revenues, same store total revenues year-over-year, and first lien net leverage. The Company's estimates do not factor in the impact of any future acquisitions or dispositions.

Earnings Conference Call

Management will host a conference call on Thursday, August 3, 2023 at 8:30 A.M. Eastern Time. A copy of the earnings release will be posted to the Investor Relations section of Gannett’s website, investors.gannett.com. The conference call may be accessed by dialing 1-877-451-6152 (from within the U.S.) or 1-201-389-0879 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference "Gannett Second Quarter Earnings Call" or access code "13733335". A simultaneous webcast of the conference call will be available to the public on a listen-only basis at investors.gannett.com. Please allow extra time prior to the call to visit the website and download any necessary software required to listen to the internet broadcast. A telephonic replay of the conference call will also be available approximately two hours following the call’s completion through 11:59 P.M. Eastern Time on Thursday, August 17, 2023 by dialing 1-844-512-2921 (from within the U.S.) or 1-412-317-6671 (from outside of the U.S.); please reference access code "13733335".

About Gannett

Gannett Co., Inc. (NYSE: GCI) is a subscription-led and digitally-focused media and marketing solutions company committed to empowering communities to thrive. With an unmatched reach at the national and local level, Gannett touches the lives of millions with our Pulitzer Prize-winning content, consumer experiences and benefits, and advertiser products and services. Our current portfolio of media assets includes the USA TODAY NETWORK, which includes USA TODAY, and local media organizations in 43 states in the United States, and Newsquest, a wholly-owned subsidiary operating in the United Kingdom. We also own digital marketing services companies under the brand LocaliQ, which provide a cloud-based platform of products to enable small and medium-sized businesses to accomplish their marketing goals. In addition, our portfolio includes what we believe is the largest media-owned events business in the U.S., USA TODAY NETWORK Ventures. To connect with us, visit www.gannett.com.

Cautionary Statement Regarding Forward-Looking Statements

Certain items in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, our Business Outlook, statements regarding our business outlook, digital revenue performance and growth, growth in our Digital Marketing Solutions segment, growth of and demand for our digital-only subscriptions and digital marketing and advertising services, expectations regarding our free cash flows, revenues, net income (loss) attributable to Gannett, same-store revenues and cash flows, expectations regarding our long-term growth, expectations regarding growth in revenues and Adjusted EBITDA, our ability to create long-term stockholder value, our expectations, in terms of both amount and timing, with respect to debt repayment, our expected capital expenditures, expectations regarding real estate and other asset sales, our strategy, our ability to achieve our operating priorities, our long-term opportunities, economic impacts, our ability to navigate volatility, achieve our financial goals, optimize our capital structure and achieve optimal financial performance, our cost management programs, our cost structure and future revenue trends and our ability to influence trends. Words such as "expect(s)", believe(s)", "continue(s)", "persist(s)", "will", "anticipate", "outlook", "making", "target", "estimate(s)", "project(s)" and similar expressions are intended to identify such forward-looking statements. These statements are based on management’s current expectations and beliefs and are subject to a number of risks and uncertainties. These and other risks and uncertainties could cause actual results to differ materially from those described in the forward-looking statements, many of which are beyond our control. The Company can give no assurance its expectations will be attained. Accordingly, you should not place undue reliance on any forward-looking statements contained in this press release. For a discussion of some of the risks and important factors that could cause actual results to differ from such forward-looking statements, see the risks and other factors detailed from time to time in the Company’s most recent Annual Report on Form 10-K, our quarterly reports on Form 10-Q, and our other filings with the Securities and Exchange Commission. Furthermore, new risks and uncertainties emerge from time to time, and it is not possible for the Company to predict or assess the impact of every factor that may cause its actual results to differ from those contained in any forward-looking statements. Such forward-looking statements speak only as of the date of this press release. Except to the extent required by law, the Company expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company’s expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.

USE OF NON-GAAP INFORMATION

The Company uses non-GAAP financial performance and liquidity measures to supplement the financial information presented on a U.S. 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 U.S. GAAP measures and should be read together with financial information presented on a U.S. GAAP basis.

The Company defines its non-GAAP measures as follows:

• Adjusted EBITDA is a non-GAAP performance measure the Company believes offers a useful view of the overall and segment operations of our business. The Company defines 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-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, and (13) certain other non-recurring charges. The most directly comparable U.S. GAAP measure is Net income (loss) attributable to Gannett.
• Adjusted EBITDA margin is a non-GAAP performance measure the Company believes offers a useful view of the overall and segment operations of our business. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by total Operating revenues.
• Adjusted Net income (loss) attributable to Gannett is a non-GAAP performance measure the Company believes offers a useful view of the overall operations of our business and is useful to analysts and investors in evaluating the results of operations and operational trends. The Company defines Adjusted Net income (loss) attributable to Gannett before (1) Gains or losses on the early extinguishment of debt, (2) Loss on convertible notes derivative, (3) Integration and reorganization costs, (4) Other operating expenses, including third-party debt expenses and acquisition costs, (5) Asset impairments, (6) Goodwill and intangibles impairments, (7) Gains or losses on the sale or disposal of assets, (8) certain other non-recurring charges, and (9) the tax impact of the above items.
• Free cash flow is a non-GAAP liquidity measure that adjusts our reported U.S. GAAP results for items we believe are critical to the ongoing success of our business. The Company defines Free cash flow as Cash provided by (used for) operating activities as reported on the Consolidated 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 stockholders. The most directly comparable U.S. GAAP financial measure is Cash provided by (used for) operating activities.
• Same store revenues is a non-GAAP performance measure based on GAAP revenues for Gannett for the current period, excluding (1) acquired revenues (2) currency impact, and (3) exited operations.

Management’s Use of Non-GAAP Measures

Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net income (loss) attributable to Gannett, Free cash flow and Same store revenues 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, revenues, cash flow provided by (used for) operating activities, or any other measure of performance or liquidity derived in accordance with U.S. GAAP. We believe these non-GAAP financial 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 controllable 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, Adjusted EBITDA margin, Adjusted Net income (loss) attributable to Gannett, Free cash flow and Same store revenues 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, Adjusted EBITDA margin, Adjusted Net income (loss) attributable to Gannett, Free cash flow and Same store revenues

Each of our non-GAAP measures 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. Material limitations in making the adjustments to our earnings to calculate Adjusted EBITDA and Adjusted Net income (loss) attributable to Gannett 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 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, Adjusted EBITDA margin, Adjusted Net income (loss) attributable to Gannett, Free cash flow and Same store revenues are not alternatives to net income, margin, income from operations, cash flows provided by (used for) operations or revenues as calculated and presented 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 measure. We strongly urge you to review the reconciliations of Net income (loss) attributable to Gannett to Adjusted EBITDA, Adjusted EBITDA margin, Net income (loss) attributable to Gannett to Adjusted Net income (loss) attributable to Gannett, Cash provided by (used for) operations to Free cash flow and Revenues to Same Store revenues along with our Consolidated financial statements included elsewhere in this report. We also strongly urge you not to rely on any single financial measure to evaluate our business. In addition, because Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net income (loss) attributable to Gannett, Free cash flow and Same store revenues are not measures of financial performance under U.S. GAAP and are susceptible to varying calculations, the Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net income (loss) attributable to Gannett, Free cash flow and Same store revenues measures as presented in this report may differ from and may not be comparable to similarly titled measures used by other companies.

Non-GAAP Outlook

Our 2023 outlook included in this release includes certain non-GAAP measures, including Same store revenues, Adjusted EBITDA and Free cash flow. The outlook for these items does not factor in the impact of any further acquisitions or dispositions within 2023. We have provided these non-GAAP measures for future guidance for the same reasons that were outlined above for historical non-GAAP measures.

We have not fully reconciled non-GAAP forward-looking Same store revenues, Adjusted EBITDA and Free cash flow to its most directly comparable GAAP measure because the Company is unable to predict with reasonable certainty those items that may affect such measures calculated and presented in accordance with GAAP without unreasonable effort. These reconciling items are uncertain, depend on various factors and could significantly impact, either individually or in the aggregate, our comparable GAAP measures. For forward-looking Adjusted EBITDA and Same store revenues, the reconciliation is unavailable because it would include forward-looking financial statements in accordance with GAAP that are unavailable without unreasonable effort. For these reasons, we use a projected range of the aggregate amount of certain items in order to calculate our projected non-GAAP Adjusted EBITDA outlook (see Table 11 below), our projected non-GAAP Same Store revenues outlook (see Table 12 below) as well as our projected non-GAAP Free cash flow outlook (see Table 13 below). Accordingly, we are unable to provide a full reconciliation of these non-GAAP measures used in our outlook without unreasonable effort as certain information necessary to calculate such measures on a GAAP basis is unavailable, dependent on future events outside of our control and cannot be predicted without unreasonable efforts by the Company.

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 average revenue per user ("ARPU") as digital-only subscription average monthly revenues divided by the average digital-only 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 subscriptions, 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.

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