Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 1.99M
2: EX-10.1 Material Contract HTML 32K
3: EX-31.1 Certification -- §302 - SOA'02 HTML 26K
4: EX-31.2 Certification -- §302 - SOA'02 HTML 26K
5: EX-32.1 Certification -- §906 - SOA'02 HTML 22K
6: EX-32.2 Certification -- §906 - SOA'02 HTML 22K
12: R1 Cover Page HTML 74K
13: R2 Condensed Consolidated Balance Sheets HTML 169K
14: R3 Condensed Consolidated Balance Sheets HTML 50K
(Parenthetical)
15: R4 Condensed Consolidated Statements of Operations HTML 173K
and Comprehensive Income (Loss) (Unaudited)
16: R5 Condensed Consolidated Statements of Cash Flows HTML 95K
(Unaudited)
17: R6 Condensed Consolidated Statements of Equity HTML 124K
(Unaudited)
18: R7 Condensed Consolidated Statements of Equity HTML 27K
(Unaudited) (Parenthetical)
19: R8 Description of business and basis of presentation HTML 32K
20: R9 Revenues HTML 75K
21: R10 Accounts receivable, net HTML 34K
22: R11 Goodwill and intangible assets HTML 54K
23: R12 Integration and reorganization costs HTML 56K
24: R13 Debt HTML 90K
25: R14 Pensions and other postretirement benefit plans HTML 76K
26: R15 Fair value measurement HTML 29K
27: R16 Income taxes HTML 43K
28: R17 Supplemental equity information HTML 90K
29: R18 Commitments, contingencies and other matters HTML 28K
30: R19 Segment reporting HTML 75K
31: R20 Other supplemental information HTML 49K
32: R21 Description of business and basis of presentation HTML 33K
(Policies)
33: R22 Revenues (Tables) HTML 71K
34: R23 Accounts receivable, net (Tables) HTML 32K
35: R24 Goodwill and intangible assets (Tables) HTML 53K
36: R25 Integration and reorganization costs (Tables) HTML 58K
37: R26 Debt (Tables) HTML 57K
38: R27 Pensions and other postretirement benefit plans HTML 71K
(Tables)
39: R28 Income taxes (Tables) HTML 34K
40: R29 Supplemental equity information (Tables) HTML 84K
41: R30 Segment reporting (Tables) HTML 66K
42: R31 Other supplemental information (Tables) HTML 61K
43: R32 Description of business and basis of presentation HTML 26K
- Narrative (Details)
44: R33 Revenues - Disaggregation of Revenue (Details) HTML 48K
45: R34 Revenues - Narrative (Details) HTML 29K
46: R35 Revenues - Deferred Revenues Narrative (Details) HTML 30K
47: R36 Revenues - Deferred Revenue (Details) HTML 38K
48: R37 Accounts receivable, net - Allowance for doubtful HTML 34K
accounts (Details)
49: R38 Accounts receivable, net - Narrative (Details) HTML 24K
50: R39 Goodwill and intangible assets - Schedule of HTML 51K
goodwill and intangible assets (Detail)
51: R40 Goodwill and intangible assets - Narrative HTML 26K
(Details)
52: R41 Integration and reorganization costs - Severance HTML 36K
Related Expenses (Details)
53: R42 Integration and reorganization costs - HTML 31K
Restructuring Reserve (Details)
54: R43 Integration and reorganization costs - Facility HTML 36K
Consolidation Charges and Accelerated Depreciation
(Details)
55: R44 Debt - Schedule of Debt Outstanding (Details) HTML 81K
56: R45 Debt - Senior Secured Term Loan (Details) HTML 97K
57: R46 Debt - Senior Secured Notes due 2026 (Details) HTML 77K
58: R47 Debt - Senior Secured Convertible Notes due 2027 HTML 87K
(Details)
59: R48 Debt - Senior Convertible Notes due 2024 (Details) HTML 32K
60: R49 Pensions and other postretirement benefit plans - HTML 55K
Pension Costs (Details)
61: R50 Pensions and other postretirement benefit plans - HTML 42K
Narrative (Details)
62: R51 Fair value measurement (Details) HTML 30K
63: R52 Income taxes - Pre-tax Net Income (Loss) and HTML 33K
Income Tax (Details)
64: R53 Income taxes - Narrative (Details) HTML 30K
65: R54 Supplemental equity information - Loss Per Share HTML 52K
(Basic and Diluted) (Details)
66: R55 Supplemental equity information - Computation of HTML 42K
Diluted Loss Per Share (Details)
67: R56 Supplemental equity information - Narrative HTML 58K
(Details)
68: R57 Supplemental equity information - Preferred Stock HTML 47K
and Stock Repurchase Program (Details)
69: R58 Supplemental equity information - Accumulated HTML 59K
Other Comprehensive Loss (Details)
70: R59 Segment reporting - Narrative (Details) HTML 26K
71: R60 Segment reporting - Reconciliation of EBITDA to HTML 105K
Operating Loss (Details)
72: R61 Other supplemental information - cash, cash HTML 34K
equivalents and restricted cash (Details)
73: R62 Other supplemental information - cash flow HTML 31K
information (Details)
74: R63 Other supplemental information - Supplemental HTML 33K
Lease Information (Details)
75: R64 Other supplemental information - Accounts payable HTML 38K
and accrued liabilities (Details)
78: XML IDEA XML File -- Filing Summary XML 139K
76: XML XBRL Instance -- gci-20230930_htm XML 1.86M
77: EXCEL IDEA Workbook of Financial Report Info XLSX 143K
8: EX-101.CAL XBRL Calculations -- gci-20230930_cal XML 196K
9: EX-101.DEF XBRL Definitions -- gci-20230930_def XML 672K
10: EX-101.LAB XBRL Labels -- gci-20230930_lab XML 1.48M
11: EX-101.PRE XBRL Presentations -- gci-20230930_pre XML 954K
7: EX-101.SCH XBRL Schema -- gci-20230930 XSD 155K
79: JSON XBRL Instance as JSON Data -- MetaLinks 499± 733K
80: ZIP XBRL Zipped Folder -- 0001579684-23-000042-xbrl Zip 367K
iGANNETT
CO., INC. (Exact name of registrant as specified in its charter)
___________________________
iDelaware
i38-3910250
(State
or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
i7950 Jones Branch Drive,
iMcLean,
iVirginia
i22107-0910
(Address
of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (i703) i854-6000
Securities registered pursuant to Section 12(b) of the Act:
Title
of Each Class
Trading Symbol
Name of Each Exchange on Which Registered
iCommon Stock, par value $0.01 per share
iGCI
iNew
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. iYes☒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).iYes☒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
☐
iAccelerated Filer
☒
Non-Accelerated Filer
☐
Smaller Reporting Company
i☐
Emerging
Growth Company
i☐
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 i☒
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"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, 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),""goal,""project(s),""believe(s),""focused on,""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, filed with the Securities and Exchange Commission on February 23, 2023, 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.
Property,
plant and equipment, net of accumulated depreciation of $i373,232 and $i360,522
as of September 30, 2023 and December 31, 2022, respectively
i246,271
i305,994
Operating
lease assets
i230,961
i233,322
Goodwill
i533,264
i533,166
Intangible
assets, net
i545,740
i613,358
Deferred
tax assets
i57,284
i56,618
Pension
and other assets
i172,237
i143,320
Total
assets
$
i2,249,377
$
i2,393,555
Liabilities
and equity
Current liabilities:
Accounts payable and accrued liabilities
$
i310,527
$
i351,848
Deferred
revenue
i128,599
i153,648
Current
portion of long-term debt
i69,339
i60,452
Operating lease liabilities
i46,918
i44,872
Other
current liabilities
i5,797
i6,218
Total
current liabilities
i561,180
i617,038
Long-term
debt
i580,789
i695,642
Convertible
debt
i412,483
i405,681
Deferred
tax liabilities
i—
i1,439
Pension
and other postretirement benefit obligations
i43,966
i50,710
Long-term
operating lease liabilities
i212,681
i219,109
Other
long-term liabilities
i112,227
i108,563
Total
noncurrent liabilities
i1,362,146
i1,481,144
Total
liabilities
i1,923,326
i2,098,182
Commitments
and contingent liabilities (See Note 11)
i
i
Equity
Preferred
stock, $ii0.01/ par value per share, ii300,000/
shares authorized, of which i0 shares and i150,000 shares were designated as Series A Junior Participating Preferred Stock at September 30, 2023 and December 31, 2022, respectively,
iiiinone///
of which were issued and outstanding at September 30, 2023 and December 31, 2022
i—
i—
Common
stock, $ii0.01/ par value per share, ii2,000,000,000/
shares authorized, i158,446,632 shares issued and i149,002,959 shares outstanding at September 30, 2023; i153,286,104
shares issued and i146,223,179 shares outstanding at December 31, 2022
(a)For the three months ended September 30, 2023 and 2022, Other comprehensive (loss) is net of an income tax provision of $i1.5 million and an income tax benefit of $i26.0
million, respectively.
(a)For the nine months ended September 30, 2023 and 2022, Other comprehensive income (loss) is net of an income tax provision of $i6.8 million and an income tax benefit of $i23.3
million, respectively.
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
i
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-led and digitally-focused media and marketing solutions company committed to empowering communities to thrive. Gannett operates a scalable, data-driven media platform that aligns with consumer and digital marketing trends. We aim to be the premier source for clarity, connections, and solutions within our communities. Our mission is to provide unbiased, unique local and national content and unrivaled marketing solutions to the communities 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 media assets includes the USA TODAY NETWORK, which includes USA TODAY and local media organizations in i43 states in the United States (the "U.S."), and Newsquest, a wholly-owned subsidiary operating in the United Kingdom (the "U.K.").
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.
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 has 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 marketing
solutions product suite. The Company reports in itwo segments: Gannett Media 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 and marketing, 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.
i
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.
In the opinion of management, the unaudited condensed consolidated financial statements as of September 30, 2023 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 September 30, 2023 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.
i
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.
i
Recent accounting pronouncements not yet adopted
Disclosure Improvements
In October 2023, the Financial Accounting Standards Board (the "FASB") issued guidance, ASU 2023-06, that incorporates several disclosure and presentation requirements into the FASB’s Accounting Standards Codification (the "Codification") currently residing in SEC Regulation S-X and Regulation S-K. As the
Company is currently subject to these SEC requirements, ASU 2023-06 is not expected to have a significant impact on the Company. The effective date for each amendment in the Codification will be the date on which the SEC's removal of the related disclosure from Regulation S-X or Regulation S-K becomes effective. If, by June 30, 2027, the SEC has not removed the existing disclosure requirements from Regulation S-X or Regulation S-K, the pending disclosure requirements will be removed from the Codification and will not become effective for any entity. ASU 2023-06 will be applied prospectively.
i
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. iThe
following table presents our revenues disaggregated by source:
Three months ended September 30,
Nine months ended September 30,
In thousands
2023
2022
2023
2022
Print
advertising
$
i137,154
$
i159,324
$
i434,383
$
i506,295
Digital
advertising and marketing services
i202,649
i202,523
i599,577
i614,275
Advertising
and marketing services
i339,803
i361,847
i1,033,960
i1,120,570
Print
circulation
i187,065
i230,200
i588,275
i730,827
Digital-only
subscription
i40,039
i34,532
i113,726
i97,131
Circulation
i227,104
i264,732
i702,001
i827,958
Other
(a)
i85,964
i91,323
i258,184
i266,111
Total
operating revenues
$
i652,871
$
i717,902
$
i1,994,145
$
i2,214,639
(a)For the three and nine months ended September 30, 2023, Other revenues included Other Digital revenues, including digital syndication, affiliate, production and licensing revenues of $i21.0 million and $i59.9
million, respectively, compared to $i19.4 million and $i57.9 million for the three and nine months ended September
30, 2022, respectively.
For the three and nine months ended September 30, 2023, revenues generated from international locations were approximately i10.6% and i10.3% of total revenues,
respectively. For the three and nine months ended September 30, 2022, revenues generated from international locations were approximately i9.6% and i9.4% of total revenues, 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 itwelve
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.
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. iThe following table presents changes in the allowance for doubtful accounts:
Nine
months ended September 30,
In thousands
2023
2022
Beginning balance
$
i16,697
$
i16,470
Current
period provision
i7,073
i5,074
Write-offs
charged against the allowance
(i14,075)
(i13,149)
Recoveries
of amounts previously written-off
i3,429
i3,469
Other
i19
i192
Ending
balance
$
i13,143
$
i12,056
/
For
the three and nine months ended September 30, 2023, the Company recorded $i3.8 million and $i7.1 million in bad debt
expense, respectively. For the three and nine months ended September 30, 2022, the Company recorded $i3.5 million and $i5.1
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).
i
NOTE 4 — Goodwill and intangible assets
i
Goodwill
and intangible assets consisted of the following:
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 September 30, 2023, the Company performed a review of potential impairment
indicators under both ASC 350 and ASC 360, and it was determined that iino/ indicators of impairment were present.
i
NOTE
5 — Integration and reorganization costs
Over the past several years, the Company has engaged in a series of individual restructuring programs, designed primarily to right-size the Company's employee base, consolidate facilities and improve operations, including those of acquired entities. 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
i
The Company recorded severance-related expenses by segment as follows:
Three
months ended September 30,
Nine months ended September 30,
In thousands
2023
2022
2023
2022
Gannett Media
$
i495
$
i11,334
$
i8,315
$
i27,106
Digital
Marketing Solutions
i630
i191
i602
i340
Corporate
and other
i338
i4,212
i5,350
i5,288
Total
$
i1,463
$
i15,737
$
i14,267
$
i32,734
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 nine months ended September 30, 2023 is as follows:
In thousands
Severance and related costs
Beginning balance
$
i29,773
Restructuring
provision included in integration and reorganization costs
i14,267
Cash payments
(i36,484)
Ending
balance
$
i7,556
/
Other restructuring-related expenses
Other restructuring-related expenses represent costs for consolidating operations, systems implementation, outsourcing of corporate functions and facility
consolidations. iThe Company recorded Other restructuring-related costs by segment as follows:
Three
months ended September 30,
Nine months ended September 30,
In thousands
2023
2022
2023
2022
Gannett Media (a)
$
(i4,034)
$
i14,044
$
(i4,895)
$
i15,034
Digital
Marketing Solutions
i—
i240
i—
i535
Corporate
and other
i1,616
i3,290
i9,087
i12,151
Total
$
(i2,418)
$
i17,574
$
i4,192
$
i27,720
(a)
For the three and nine months ended September 30, 2023, Other restructuring-related costs at the Gannett Media segment reflected the reversal of withdrawal liabilities related to multiemployer pension plans based on settlement of the withdrawal liability. For the three and nine months ended September 30, 2022, Other restructuring-related costs at the Gannett Media segment reflected a withdrawal liability which was expensed as a result of ceasing contributions to a multiemployer pension plan, as well as facilities consolidation expenses associated with exiting a lease.
On October 15, 2021, Gannett Holdings LLC ("Gannett Holdings"), a wholly-owned subsidiary of the Company, entered into the ifive-year senior secured term loan facility in an original aggregate principal amount of $i516.0
million (the "Senior Secured Term Loan," formerly referred to as the New Senior Secured Term 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 $i50 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, 2022, Gannett Holdings entered into itwo separate amendments to the Senior Secured Term Loan to provide for incremental senior secured term loans totaling an aggregate principal
amount of $i30.0 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 i0.50%
per annum) plus a margin equal to i5.00% or an alternate base rate (which shall not be less than i1.50% per annum) plus a margin equal to i4.00%.Loans under the Senior Secured Term Loanmay 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 $i100
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 $i15.1 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 i1.20 to 1.00, $i7.6
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 $i30 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 $i25
million per fiscal quarter if the First Lien Net Leverage Ratio for such fiscal quarter is equal to or less than i2.00 to 1.00, (ii) an amount of up to $i50 million per fiscal quarter if the First Lien Net Leverage Ratio for such fiscal
quarter is equal to or less than i1.50 to 1.00, and (iii) an unlimited amount if First Lien Net Leverage Ratio for such fiscal quarter is equal to or less than i1.00 to 1.00. As of September 30, 2023, the Company
was in compliance with all of the covenants and obligations under the Senior Secured Term Loan.
As of September 30, 2023 and December 31, 2022, 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.
For the three and nine months ended September 30, 2023, the Company recognized interest expense of $i9.9
million and $i30.6 million, respectively, and paid cash interest of $i9.8 million and $i30.6
million, respectively. For the three and nine months ended September 30, 2022, the Company recognized interest expense of $i8.9 million and $i23.3 million,
respectively, and paid cash interest of $i8.9 million and $i23.3 million, respectively. For the three and nine months ended September 30, 2023, the Company recognized amortization
of original issue discount of $i0.7 million and $i2.2 million, respectively, and amortization of deferred financing costs of $i0.2
million and $i0.5 million, respectively. For the three and nine months ended September 30, 2022, the Company recognized amortization of original issue discount of $i0.9
million and $i2.7 million, respectively, and amortization of deferred financing costs of $i0.2 million and $i0.6
million, respectively. Additionally, during the three and nine months ended September 30, 2023, there were losses on the early extinguishment of debt of $i0.6 million and $i1.0
million, respectively. For the three and nine months ended September 30, 2022, the Company recognized losses on early extinguishment of debt which were immaterial and $i1.8 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 and nine months
ended September 30, 2023, the Company made payments of $i31.7 million and $i78.1 million, respectively, including quarterly
amortization payments, which were classified as financing activities in the condensed consolidated statements of cash flows. In September 2023, the Company received a waiver from certain lenders of the Senior Secured Term Loan that reduced the scheduled quarterly amortization payment payable to those lenders by $i13.1 million for the three months ended September 30, 2023, which was the amount used by the
Company to repurchase a portion of its 2026 Senior Notes (defined below). As of September 30, 2023, the effective interest rate for the Senior Secured Term Loan was i11.3%.
Senior Secured Notes due 2026
On October 15, 2021, Gannett Holdings completed a private offering of $i400 million
aggregate principal amount of i6.00% 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, 2022, the Company repurchased $i54.8 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 $i30.0 million of the 2026 Senior Notes for $i30.0 million of new term loans under the
Senior Secured 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 $i2.6 million, which included write-offs of unamortized original issue discount and deferred financing costs.
The
Company entered into privately negotiated agreements with certain holders of our 2026 Senior Notes, and for the three and nine months ended September 30, 2023, repurchased $i33.5 million and $i39.6
million, respectively, of principal of our outstanding 2026 Senior Notes at a discount to par value. In connection with the repurchase of our 2026 Senior Notes in September 2023, the Company received a waiver from certain lenders of the Senior Secured Term Loan which reduced the quarterly amortization payment payable to those lenders by $i13.1 million for the three months ended September 30, 2023.As a result of these
transactions, for the three and nine months ended September 30, 2023, the Company recognized a net gain on the early extinguishment of debt of approximately $i3.3 million and $i4.2
million, respectively, which included the write-off of unamortized original issue discount and deferred financing costs.
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 i40%
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 i101% 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 i10% 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 i103%
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 September
30, 2023 and December 31, 2022, 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 $i264.3 million and $i281.7
million as of September 30, 2023 and December 31, 2022, respectively, and was primarily affected by fluctuations in market interest rates.
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 and nine months ended September 30, 2023, the Company recognized interest expense of $i4.9
million and $i15.0 million, respectively, and paid cash interest of $i0.6 million and $i10.9
million, respectively. For the three and nine months ended September 30, 2022, the Company recognized interest expense of $i5.6 million and $i17.1 million,
respectively, and paid cash interest of $i0.2 million and $i13.1 million, respectively. For the three and nine months ended September 30, 2023, the Company recognized amortization of original
issue discount of $i0.6 million and $i1.8 million, respectively, and amortization of deferred financing costs of $i0.4
million and $i1.4 million, respectively. For the three and nine months ended September 30, 2022, the Company recognized amortization of original discount of $i0.7
million and $i2.1 million, respectively, and amortization of deferred financing costs of $i0.5 million and $i1.6
million, respectively. As of September 30, 2023, the effective interest rate on the 2026 Senior Notes was i7.3%.
Senior Secured Convertible Notes due 2027
The $i497.1
million in aggregate principal amount of i6.0% 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 $i0.01 per share (the "Common Stock") or any combination of cash and Common Stock, at the Company's election. The initial conversion rate is i200
shares of Common Stock per $1,000 principal amount of the 2027 Notes, which is equal to a conversion price of $i5.00 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 i42% (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 $i11.8
million in aggregate principal amount of outstanding 2027 Notes during the year ended December 31, 2021, such percentage is approximately i41%.
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 i110% of the principal amount thereof.
Holders of the 2027 Notes will have the right to put up to approximately $i100
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 i1.5 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 ifour-year
anniversary of the issuance date, the Company will have the right to redeem for cash up to approximately $i99.4 million of the 2027 Notes at a redemption price of i130%
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, 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 $i30.0 million of Qualified Cash (as defined in the 2027 Notes Indenture). The 2027 Notes Indenture includes customary events of default.
The 2027 Notes have itwo
components: (i) a debt component, and (ii) an equity component. As of September 30, 2023 and December 31, 2022, 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 as of September 30, 2023 and December 31, 2022. 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 $i393.1
million and $i353.7 million as of September 30, 2023 and December 31, 2022, 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 September 30, 2023 and December 31, 2022, the amount of the conversion feature recorded in Additional paid-in capital was $ii279.6/
million.
For the three and nine months ended September 30, 2023, the Company recognized interest expense of $i7.3 million and $i21.8 million,
respectively, and paid ino interest expense for the three months ended September 30, 2023, and paid interest expense of $i14.6 million for the nine months ended September 30, 2023. For the three and nine months ended September
30, 2022, the Company recognized interest expense of $i7.3 million and $i21.8 million, respectively, and paid ino
interest expense for the three months ended September 30, 2022, and paid interest expense of $i14.6 million for the nine months ended September 30, 2022. In addition, during the three and nine months ended September 30, 2023, the Company recognized amortization of the original issue discount of $i3.4 million
and $i9.9 million, respectively, and an iiimmaterial/
amount of amortization of deferred financing costs. For the three and nine months ended September 30, 2022, the Company recognized amortization of original issue discount of $i3.1 million and $i8.9
million, respectively, and an iiimmaterial/ amount of amortization of deferred financing costs. As of September
30, 2023, the effective interest rate on the liability component of the 2027 Notes was i10.5%.
For the nine months ended September 30, 2023, no shares were issued upon conversion, exercise, or satisfaction of the required conditions. Refer to Note 10 — Supplemental equity 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 $i3.3 million principal value of the remaining i4.75% convertible senior notes due April 15, 2024 (the "2024 Notes")
outstanding is reported within the Current portion of long-term debt in the September 30, 2023 condensed consolidated balance sheet. As of September 30, 2023, the effective interest rate on the 2024 Notes was i6.05%. As of September 30, 2023 and December 31, 2022, the 2024 Notes were recorded at carrying value, which approximated fair value, in the condensed consolidated balance sheets and were classified as Level
2.
i
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.
i
Retirement plan costs include the following components:
We
are contractually obligated to contribute to our pension and postretirement benefit plans. During the nine months ended September 30, 2023, we contributed $i1.2 million and $i3.6
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 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 i100% funded, the Company will make a $i1.0 million
contribution to the GR Plan no later than i60 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 $i5.0 million of contractual contributions subsequent to June 30, 2022. As of September 30, 2023, theGR Plan was more than i100%
funded.
i
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 September 30, 2023 and December 31, 2022, 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 has classified certain real estate assets as held for sale, primarily at the Gannett Media segment, totaling $i1.3 million and $i8.4 million as of
September 30, 2023 and December 31, 2022, respectively, as part of our plan to monetize non-core assets. We expect to record a gain on the sale of assets held for sale as of September 30, 2023 in the fourth quarter of 2023 upon closing of the transactions. During the three and nine months ended September 30, 2023, we recognized net gains on the sale of assets of $i23.3 million and $i40.9
million, respectively, primarily in connection with assets held for sale at both June 30, 2023 and December 31, 2022.
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.
i
NOTE 9 — Income taxes
i
The
following table outlines our pre-tax net income (loss) and income tax amounts:
Three months ended September 30,
Nine months ended September 30,
In thousands
2023
2022
2023
2022
Income
(loss) before income taxes
$
i13,576
$
(i36,024)
$
(i4,850)
$
(i78,275)
Provision
for income taxes
i16,144
i18,098
i148
i32,649
Effective
tax rate
i118.9
%
(i50.2)
%
(i3.1)
%
(i41.7)
%
/
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 September 30, 2023, was mainly driven by an increase in the estimated annual effective tax rate applied to the full year resulting from a decrease in the net income before tax projections used in the third quarter of 2023, the change in valuation allowances on non-deductible U.S. interest expense carryforwards, and the global intangible low-taxed income inclusion. The provision was calculated using an estimated annual effective tax rate of i159.4%.
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, which is 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 provision for income taxes for the nine months ended September 30, 2023, was mainly driven by the change in valuation allowances on non-deductible U.S. interest expense carryforwards and the global intangible low-taxed income inclusion, partially offset by the tax benefit of the year to date pre-tax book loss.
The total amount of unrecognized tax benefits that, if recognized, may
impact the effective tax rate was approximately $i61.5 million and $i43.3 million as of September
30, 2023 and December 31, 2022, respectively. 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 $i4.6 million and $i3.9
million as of September 30, 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 the potential change to the amount of unrecognized tax benefits cannot be made.
The provision for income taxes for the three months ended September 30, 2022, was mainly driven by the valuation allowances on non-deductible interest expense carryforwards and the global intangible low-taxed income inclusion from our wholly owned U.K. subsidiary. The provision was
calculated using the estimated annual effective tax rate of negative i46.3%.
The provision for income taxes for the nine months ended September 30, 2022, was mainly driven by the valuation allowances on non-deductible interest expense carryforwards, the global intangible low-taxed income inclusion and foreign taxes, offset by the benefit of the pre-tax book loss.
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. During the three and nine
months
ended September 30, 2023, we did not experience a material financial impact from the Inflation Reduction Act. We do not anticipate a material financial impact from the Inflation Reduction Act during the fourth quarter of 2023.
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, the Company does 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. On December 12, 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 effective date is January 1, 2024 for the Pillar Two directive. Other countries are also actively considering changes to their tax laws to adopt certain parts of the OECD's proposals. The Company will continue to evaluate the potential future impact of Pillar One and Pillar Two proposals on our consolidated financial statements and related disclosures.
i
NOTE
10 — Supplemental equity information
Loss per share
i
The following table sets forth the information to compute basic and diluted loss per share:
Three
months ended September 30,
Nine months ended September 30,
In thousands, except per share data
2023
2022
2023
2022
Net loss attributable to Gannett
$
(i2,566)
$
(i54,114)
$
(i4,899)
$
(i110,769)
Basic
weighted average shares outstanding
i140,373
i137,008
i139,378
i136,857
Diluted
weighted average shares outstanding
i140,373
i137,008
i139,378
i136,857
Loss
per share attributable to Gannett - basic
$
(i0.02)
$
(i0.39)
$
(i0.04)
$
(i0.81)
Loss
per share attributable to Gannett - diluted
$
(i0.02)
$
(i0.39)
$
(i0.04)
$
(i0.81)
/
i
The
Company excluded the following securities from the computation of diluted loss per share because their effect would have been antidilutive:
Three months ended September 30,
Nine months ended September 30,
In thousands
2023
2022
2023
2022
Warrants
i845
i845
i845
i845
Stock
options
i6,068
i6,068
i6,068
i6,068
Restricted
stock grants(a)
i8,779
i11,211
i8,779
i11,211
2027
Notes (b)
i97,057
i97,057
i97,057
i97,057
(a)Includes
Restricted stock awards ("RSAs"), Restricted stock units ("RSUs") and Performance stock units ("PSUs").
(b)Represents the total number of shares that would be convertible at September 30, 2023 and 2022 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 i287.2 million shares of Common Stock. The Company has excluded
approximately i287.2 million shares from the income (loss) per share calculation, representing the total number of shares issuable assuming the maximum increase in the conversion rate. As of September 30, 2023, i97.1 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 expense was $i3.9
million and $i12.7 million for the three and nine months ended September 30, 2023, respectively, and $i4.5 million and $i13.3
million for the three and nine months ended September 30, 2022, respectively.
The total compensation cost not yet recognized related to non-vested awards as of September 30, 2023 was $i20.2 million, which is expected to be recognized over a weighted-average period of i1.7
years through June 2025.
Equity awards
During the nine months ended September 30, 2023, a total of i5.2 million RSAs 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 of RSAs granted during the nine months ended September 30, 2023 was $i1.87.
Preferred
stock
The Company has authorized i300,000 shares of preferred stock, par value $i0.01
per share, issuable in one or more series designated by the Company's Board of Directors. The Company previously designated i150,000 preferred shares as Series A Junior Participating Preferred Stock, which were eliminated on May 5, 2023 upon the filing of a Certificate of Elimination with the Secretary of State of the State of Delaware and which shares were returned to the status of
authorized but unissued shares of preferred stock, without designation. There were ino issuances of preferred stock during the nine months ended September 30, 2023.
Stock Repurchase Program
On February 1, 2022, the Company's Board of Directors authorized the repurchase of up to $i100 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 and nine months ended September 30, 2023, the Company did iinot/
repurchase any shares of Common Stock under the Stock Repurchase Program. As of September 30, 2023, the remaining authorized amount under the Stock Repurchase Program was approximately $i96.9 million. The Company does not anticipate repurchasing any shares of Common Stock pursuant to the Stock Repurchase Program during the fourth quarter of 2023.
Other
comprehensive income (loss) before reclassifications, net of taxes
i21,080
i4,835
i25,915
(i62,075)
(i44,925)
(i107,000)
Amounts
reclassified from accumulated other comprehensive loss(a)(b)(c)
(i457)
i—
(i457)
(i801)
i—
(i801)
Net
current period other comprehensive income (loss), net of taxes
i20,623
i4,835
i25,458
(i62,876)
(i44,925)
(i107,801)
Ending
balance
$
(i65,728)
$
(i10,045)
$
(i75,773)
$
(i12,006)
$
(i35,797)
$
(i47,803)
(a)Amounts
reclassified from accumulated other comprehensive loss 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 are recorded net of tax impacts of $i146 thousand and $i279
thousand for the nine months ended September 30, 2023 and 2022, respectively.
(c)Amounts reclassified from accumulated other comprehensive loss include a net pension settlement gain of $i0.7 million ($i0.5 million,
net of tax) for the nine months ended September 30, 2022. See Note 7 — Pensions and other postretirement benefit plans.
/
i
NOTE 11 — Commitments, contingencies, and other matters
Legal Proceedings
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 that its current and threatened legal proceedings will 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.
i
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:
•Gannett Media is comprised of our portfolio of local, regional, national, and international newspaper publishers. The results of this segment include Advertising and marketing services revenues from local, classified, and
national advertising across multiple platforms, including print, online, mobile, and tablet as well as niche publications, Circulation revenues from home delivery, digital distribution and single copy sales of our publications, and Other revenues, mainly from 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 itwo operating segments: Domestic Gannett Media and Newsquest.
•Digital
Marketing Solutions is comprised of our digital marketing services companies under the brand LocaliQ. The results of this segment include Advertising and marketing services revenues 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 segment. This category primarily consists of broad corporate functions, including legal, human resources, accounting, analytics, finance and marketing, 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 to evaluate the performance of the segments and allocate resources. Adjusted EBITDA is a non-GAAP financial performance measure we believe offers 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-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.
Management considers Adjusted EBITDA to be an important metric to evaluate and compare the ongoing operating performance of our segments on a consistent basis across reporting periods as it eliminates the effect of items that we do not believe are indicative of each segment's core operating performance.
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.
i
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.
ii
The
following table presents a reconciliation of cash, cash equivalents and restricted cash:
September 30,
In thousands
2023
2022
Cash and cash equivalents
$
i109,240
$
i124,867
Restricted
cash included in other current assets
i488
i1,078
Restricted
cash included in pension and other assets
The following table presents supplemental cash flow information, including non-cash investing and financing activities:
Nine
months ended September 30,
In thousands
2023
2022
Cash paid for taxes, net of refunds
$
i5,534
$
i2,726
Cash
paid for interest
i56,137
i51,021
Non-cash investing and financing
activities:
Accrued capital expenditures
$
i2,416
$
i970
/
Supplemental
lease information
In 2023, the Company sold itwo properties in Michigan and Arizona, for a total of $i60.5 million,
which resulted in a net gain of $i39.3 million. Contemporaneously with the closing of the sales, the Company entered into leases pursuant to which we leased back the properties for cumulative annual rent of $i39.9 million,
subject to annual escalations. The leases are being accounted for as operating leases. For the nine months ended September 30, 2023 and 2022, we recognized a gain on sale and leaseback transactions, net totaling $i40.6 million and $i12.3 million,
respectively.
Accounts payable and accrued liabilities
i
A breakout of Accounts payable and accrued liabilities is presented below:
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 notesand 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, 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 statementsthat 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, 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-led and digitally-focused media and marketing solutions company committed to empowering communities to thrive. We operate a scalable, data-driven media platform that aligns with consumer and digital marketing trends. We aim to be the premier source for clarity, connections, and solutions within our communities. Our mission is to provide unbiased, unique local and national content and unrivaled marketing solutions to the communities 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 media assets includes the USA TODAY NETWORK, which includes 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 own digital marketing services companies under the brand LocaliQ, which provide a cloud-based platform of products 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., USA TODAY NETWORK Ventures.
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, 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. We report in two segments: Gannett Media 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 and marketing, 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 circulation revenues 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 converting a growing digitally-focused audience into paid digital-only subscribers to our publications.
•Inflationary prices across a number of categories such as labor, fuel, delivery costs, newsprint, ink, and printing plates have had and are expected to continue to have a negative impact on our overall cost structure year over year. In the short term, we believe the impact of inflationary pressure peaked in 2022.
•Our
revenues and results of operations have been and can be significantly influenced by general macroeconomic conditions, including but not limited to, interest rates, inflation, housing demand, employment levels, and consumer confidence. We believe that these factors are contributing to uncertainty in SMBs, which is resulting in lower levels of advertising performance and reduced spending in categories such as home services.
During the three and nine months ended September 30, 2023, we entered into privately negotiated agreements with certain holders of our $400 million aggregate principal amount of 6.00% first lien notes due November 1, 2026 (the "2026 Senior Notes"), and repurchased $33.5 million and $39.6 million, respectively, of principal of our outstanding 2026 Senior Notes at a discount to par value. As a result of the repurchases of our 2026 Senior Notes, for the three and nine months ended September 30, 2023, we recognized net gains on the early extinguishment of debt of approximately $3.3 million and $4.2 million, respectively, which included the write-off of unamortized original issue discount and deferred financing costs. In addition, for the
three and nine months ended September 30, 2023, we repaid approximately $31.7 million and $78.1 million, respectively, of 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), including quarterly amortization payments. As a result of repayments related to our Senior Secured Term Loan, for the three and nine months ended September 30, 2023, we recognized net losses on the early extinguishment of debt of $0.6 million and $1.0 million, respectively, which included the write-off of unamortized original issue discount and deferred financing costs. In September 2023, we received a waiver from certain lenders of our Senior Secured Term Loan that reduced the scheduled quarterly amortization payment payable to those lenders by
$13.1 million for the three months ended September 30, 2023, which was the amount we used to repurchase a portion of our 2026 Senior Notes.
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 on sale or disposal of assets, net
For the three and nine months ended September 30, 2023, we recognized a net gain on the sale of assets of $23.3 million and
$40.9 million, respectively, primarily related to net gains of $23.5 million and $39.7 million, respectively, at the Gannett Media segment due to the sales of domestic production facilities as part of our plan to monetize non-core assets, and for the nine months ended September 30, 2023, the gain on the sale of assets also included the sale of intellectual property of $1.4 million at our Corporate and other category. For the three and nine months ended September 30, 2022, we recognized a net gain on the sale of assets of $7.2 million and $9.6 million, respectively, primarily at the Gannett Media segment mainly related to the sales of domestic production facilities as part of our plan to monetize non-core assets.
Integration and reorganization costs
For
the three and nine months ended September 30, 2023, we incurred Integration and reorganization costs, including $1.5 million and $14.3 million, respectively, related to severance activities and $1.9 million and $10.6 million, respectively, related to other costs, including costs for consolidating operations, primarily related to systems implementation and the outsourcing of corporate functions. In addition, for the three and nine months ended September 30, 2023, other costs were offset by the reversal of withdrawal liabilities related to multiemployer pension plans of $4.3 million and $6.4 million, respectively, based on settlement of the withdrawal liability. For the three and nine months ended September 30, 2022, we incurred Integration and reorganization costs of $33.3 million and $60.5 million, respectively. Of the
total costs incurred, $15.7 million and $32.7 million, respectively, were related to severance activities and $17.6 million and $27.7 million, respectively, were related to other costs, including a withdrawal liability of $8.6 million recognized in both the three and nine months ended September 30, 2022, which was expensed as a result of ceasing contributions to a multiemployer pension plan, costs related to consolidating operations, primarily related to systems implementation and the outsourcing of corporate functions as well as facilities consolidation expenses associated with exiting a lease.
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 significantly as the U.S. dollar strengthened in relation to many foreign currencies, including the U.K. pound sterling. Foreign currency exchange rate fluctuations negatively impacted our revenues and profitability during the three and nine months ended September 30, 2023,
and may continue to negatively impact our financial results in the future.
Strategy
Gannett is committed to a subscription-led business strategy that drives audience growth and engagement by delivering valuable content experiences to our consumers, while offering the unique products and marketing expertise our advertisers desire. 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 creator and marketing solutions platform.
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 of our strategy include:
Driving digital subscriptions growth
As consumers 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 able to deliver 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 in the future. We are focused on growing our digital-only subscriber base in order to maximize overall return and, as a result, the volume of
new digital-only subscriptions is expected to fluctuate versus historical trends.
Driving Digital Marketing Solutions growth by engaging more customers in recurring monthly revenue offerings
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 our digital marketing services business into our local markets, both domestically and internationally. Given our extensive customer base and volume of digital campaigns, we plan to use data and insights to inform new and dynamic advertising products, such as our "freemium" offering to complement our sales structures, which we believe will deliver superior results.
Optimizing
our traditional businesses across print and advertising
We plan 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 culture and community both internally and externally
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. and global economies 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, and other geopolitical events that are anticipated to continue during the remainder of 2023. Uncertain economic conditions adversely impacted 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. In addition, SMBs are facing a more complex marketing environment 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 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.
As
a result of the macroeconomic volatility, we experienced rising costs, including costs associated with labor, newsprint, delivery, ink, printing plates, fuel, and utilities. However, we believe that the inflationary pressures peaked in 2022 and we are beginning to realize and expect we may continue to realize lower prices related to newsprint costs. We are also exposed to potential increases in interest rates associated with our Senior Secured Term Loan, which as of September 30, 2023 and December 31, 2022, accounted for approximately 31% and 34% of our outstanding debt, respectively, 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. 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. During the three and nine months ended September 30, 2023, we did not experience a material financial impact from the Inflation Reduction Act. We do not anticipate a material financial impact from the Inflation Reduction Act during the fourth quarter
of 2023.
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. On December 12, 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 effective date is January 1, 2024 for the Pillar Two directive. Other countries are also actively considering changes
to their tax laws to adopt certain parts of the OECD's proposals. We will continue to evaluate the potential future impact of Pillar One and Pillar Two proposals on our consolidated financial statements and related disclosures.
Seasonality
Our revenues are subject to moderate seasonality, primarily due to fluctuations in advertising volumes. Advertising and marketing services revenues for our Gannett Media segment are typically highest in the fourth quarter, primarily due to fluctuations in advertising volumes tied to 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 adversely impact our advertising revenues during 2023, 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. Refer to "Macroeconomic Environment" above for further discussion.
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, we published our 2023 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 & Strong Institutions. The 2023 ESG Report included noteworthy highlights such as our efforts to improve our workplace diversity, expand our systems infrastructure to provide Scope 1 and 2 emissions for our entire global carbon footprint and reduce our number of manufacturing facilities. Also in early 2023, we published the inaugural edition of our network-wide 2022 Impact Report, which highlighted what we believe are the most influential articles we produced in 2022 and includes topics such as coverage on inclusion, diversity, and equity, as well as climate change.
A summary of our consolidated results is presented below:
Three
months ended September 30,
Nine months ended September 30,
In thousands, except per share amounts
Change
Change
2023
2022
$
%
2023
2022
$
%
Operating
revenues:
Local and national print
$
77,194
$
92,957
$
(15,763)
(17)
%
$
245,457
$
301,422
$
(55,965)
(19)
%
Classified
print
59,960
66,367
(6,407)
(10)
%
188,926
204,873
(15,947)
(8)
%
Print advertising
137,154
159,324
(22,170)
(14)
%
434,383
506,295
(71,912)
(14)
%
Digital
media
67,643
67,886
(243)
—
%
201,771
223,916
(22,145)
(10)
%
Digital
marketing services (a)
121,891
119,745
2,146
2
%
357,113
346,201
10,912
3
%
Digital
classified
13,115
14,892
(1,777)
(12)
%
40,693
44,158
(3,465)
(8)
%
Digital
advertising and marketing services
202,649
202,523
126
—
%
599,577
614,275
(14,698)
(2)
%
Advertising
and marketing services
339,803
361,847
(22,044)
(6)
%
1,033,960
1,120,570
(86,610)
(8)
%
Print
circulation
187,065
230,200
(43,135)
(19)
%
588,275
730,827
(142,552)
(20)
%
Digital-only
subscription
40,039
34,532
5,507
16
%
113,726
97,131
16,595
17
%
Circulation
227,104
264,732
(37,628)
(14)
%
702,001
827,958
(125,957)
(15)
%
Other
(a)
85,964
91,323
(5,359)
(6)
%
258,184
266,111
(7,927)
(3)
%
Total
operating revenues
652,871
717,902
(65,031)
(9)
%
1,994,145
2,214,639
(220,494)
(10)
%
Total
operating expenses (b)
617,930
743,045
(125,115)
(17)
%
1,925,732
2,262,984
(337,252)
(15)
%
Operating
income (loss)
34,941
(25,143)
60,084
***
68,413
(48,345)
116,758
***
Non-operating expenses
21,365
10,881
10,484
96
%
73,263
29,930
43,333
***
Income
(loss) before income taxes
13,576
(36,024)
49,600
***
(4,850)
(78,275)
73,425
(94)
%
Provision
for income taxes
16,144
18,098
(1,954)
(11)
%
148
32,649
(32,501)
(100)
%
Net
loss
(2,568)
(54,122)
51,554
(95)
%
(4,998)
(110,924)
105,926
(95)
%
Net
loss attributable to noncontrolling interests
(2)
(8)
6
(75)
%
(99)
(155)
56
(36)
%
Net
loss attributable to Gannett
$
(2,566)
$
(54,114)
$
51,548
(95)
%
$
(4,899)
$
(110,769)
$
105,870
(96)
%
Loss
per share attributable to Gannett - basic
$
(0.02)
$
(0.39)
$
0.37
(95)
%
$
(0.04)
$
(0.81)
$
0.77
(95)
%
Loss
per share attributable to Gannett - diluted
$
(0.02)
$
(0.39)
$
0.37
(95)
%
$
(0.04)
$
(0.81)
$
0.77
(95)
%
***
Indicates an absolute value percentage change greater than 100.
(a) For the three and nine months ended September 30, 2023, Other revenues included Other Digital revenues, including digital syndication, affiliate, production and licensing revenues of $21.0 million and $59.9 million, respectively, compared to $19.4 million and $57.9 million for the three and nine months ended September 30, 2022, respectively.
(b) Amounts are net of intersegment eliminations of $38.1 million and $36.5 million for the three months ended September 30, 2023 and 2022, respectively, and $110.4 million and $105.4 million for the nine months ended September
30, 2023 and 2022, respectively, which represent digital advertising marketing services revenues and expenses associated with products sold by our U.S. local Gannett Media sales teams but fulfilled by our DMS segment. When discussing segment results, these revenues and expenses are presented gross but are eliminated in consolidation.
Operating revenues
Advertising and marketing services 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, digital advertising offerings such as digital classified advertisements, digital media such as 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.
Circulation revenues, which are generated at the Gannett Media segment, are derived from home
delivery, digital distribution, and single copy sales of our publications.
Other revenues, which are primarily generated at the Gannett Media segment, are derived mainly from commercial printing, distribution arrangements, 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.
Operating expenses
Operating expenses consist primarily of the following:
•Operating costs at the Gannett Media segment include labor, newsprint and delivery 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 charges and other costs, including those for the purpose of consolidating our operations (i.e., facility consolidation expenses and integration-related costs);
•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) expense
Interest expense: For the three and nine months ended September 30, 2023, Interest expense was $27.9 million and $84.8 million, respectively, compared to $27.8 million and $79.8 million for the three and nine months
ended September 30, 2022, respectively. For the three and nine months ended September 30, 2023, interest expense increased compared to the three and nine months ended September 30, 2022, primarily 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 our Senior Secured Term Loan and repurchases of our 2026 Senior Notes.
(Gain) loss on early extinguishment of debt: For the three months ended September 30, 2023 and 2022, we recognized gains on the early extinguishment of debt
of $2.7 million and $1.2 million, respectively. For the nine months ended September 30, 2023, we recognized a gain on the early extinguishment of debt of $3.2 million compared to a loss of $2.3 million for the nine months ended September 30, 2022. For the three and nine months ended September 30, 2023, the change in the (Gain) loss on the early extinguishment of debt compared to the same periods in 2022 was mainly due to refinancing activities related to our 2026 Senior Notes and Senior Secured Term Loan. Refer to "Recent Development – Debt repurchases" above for further discussion.
Non-operating pension income: For the three and nine months ended September 30, 2023,
Non-operating pension income was $2.9 million and $7.0 million, respectively, compared to $15.0 million and $51.4 million for the three and nine months ended September 30, 2022, respectively. The decrease in Non-operating pension income for the three and nine months ended September 30, 2023, compared to the same periods in 2022 was primarily due to a decrease in the expected return on plan assets mainly driven by a decrease 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 income, net: Other
non-operating income, net consisted of certain items that fall outside of our normal business operations. For the three and nine months ended September 30, 2023, we recorded Other non-operating income, net of $0.9 million and $1.3 million, respectively, compared to Other non-operating income, net of $0.7 million and $0.8 million for the three and nine months ended September 30, 2022, respectively.
The following table outlines our pre-tax net income (loss) before income taxes and income tax accounts:
Three months ended September 30,
Nine months ended September 30,
In
thousands
2023
2022
2023
2022
Income (loss) before income taxes
$
13,576
$
(36,024)
$
(4,850)
$
(78,275)
Provision
for income taxes
16,144
18,098
148
32,649
Effective tax rate
118.9
%
(50.2)
%
(3.1)
%
(41.7)
%
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 September 30, 2023, was mainly driven by an increase in the estimated annual effective tax rate applied to the full year resulting from a decrease in the net income before tax projections used in the third quarter of 2023, the change in valuation allowances on non-deductible U.S. interest expense carryforwards, and the global intangible low-taxed income inclusion. The provision was calculated using an estimated annual effective tax rate of 159.4%. 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, which is 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. During the three and nine months ended September 30, 2023, we did not experience a material financial impact from the Inflation Reduction Act. We do not anticipate a material financial impact from the Inflation Reduction Act during the fourth quarter of 2023. See "Recent U.S. Tax Legislation" above.
The provision for income taxes for the nine months ended September 30, 2023, was mainly driven by the change in valuation allowances on non-deductible U.S. interest expense carryforwards and the global intangible low-taxed income inclusion, partially offset by the tax benefit of the
year to date pre-tax book loss.
The provision for income taxes for the three months ended September 30, 2022, was mainly driven by the valuation allowances on non-deductible interest expense carryforwards and the global intangible low-taxed income inclusion from our wholly owned U.K. subsidiary. The provision was calculated using the estimated annual effective tax rate of negative 46.3%.
The provision for income taxes for the nine months ended September 30, 2022, was mainly driven by the valuation allowances on non-deductible interest expense carryforwards, the global intangible low-taxed income inclusion and foreign taxes, offset by the benefit of the pre-tax book loss.
Net
loss attributable to Gannett and diluted loss per share attributable to Gannett
For the three months ended September 30, 2023, Net loss attributable to Gannett and diluted loss per share attributable to Gannett were $2.6 million and $0.02, respectively, compared to Net loss attributable to Gannett and diluted loss per share attributable to Gannett of $54.1 million and $0.39, respectively, for the three months ended September 30, 2022. For the nine months ended September 30, 2023, Net loss attributable to Gannett and diluted loss per share attributable to Gannett were $4.9 million and $0.04, respectively, compared to Net loss attributable to Gannett and diluted loss per share attributable to Gannett of $110.8 million and $0.81, respectively,
for the nine months ended September 30, 2022. The change for the three and nine months ended September 30, 2023, compared to the same periods in the prior year reflects the various items discussed above.
A
summary of our Gannett Media segment results is presented below:
Three
months ended September 30,
Nine months ended September 30,
Change
Change
In thousands
2023
2022
$
%
2023
2022
$
%
Operating
revenues:
Advertising and marketing services
$
256,004
$
278,279
$
(22,275)
(8)
%
$
786,856
$
878,242
$
(91,386)
(10)
%
Circulation
227,104
264,732
(37,628)
(14)
%
702,001
827,958
(125,957)
(15)
%
Other
84,432
89,995
(5,563)
(6)
%
253,581
262,069
(8,488)
(3)
%
Total
operating revenues
567,540
633,006
(65,466)
(10)
%
1,742,438
1,968,269
(225,831)
(11)
%
Operating
expenses:
Operating costs
362,292
411,236
(48,944)
(12)
%
1,114,418
1,268,427
(154,009)
(12)
%
Selling,
general and administrative expenses
151,604
176,806
(25,202)
(14)
%
452,410
537,470
(85,060)
(16)
%
Depreciation
and amortization
29,944
32,821
(2,877)
(9)
%
93,209
108,810
(15,601)
(14)
%
Integration
and reorganization costs (reversal)
(3,539)
25,378
(28,917)
***
3,420
42,140
(38,720)
(92)
%
Asset impairments
188
71
117
***
1,370
1,010
360
36
%
Gain
on sale or disposal of assets, net
(23,465)
(7,171)
(16,294)
***
(39,653)
(9,786)
(29,867)
***
Other operating expenses (income)
139
(48)
187
***
139
727
(588)
(81)
%
Total
operating expenses
517,163
639,093
(121,930)
(19)
%
1,625,313
1,948,798
(323,485)
(17)
%
Operating
income (loss)
$
50,377
$
(6,087)
$
56,464
***
$
117,125
$
19,471
$
97,654
***
***
Indicates an absolute value percentage change greater than 100.
Operating revenues
The following table provides the breakout of Operating revenues by category:
Three
months ended September 30,
Nine months ended September 30,
Change
Change
In thousands
2023
2022
$
%
2023
2022
$
%
Local
and national print
$
77,194
$
92,957
$
(15,763)
(17)
%
$
245,457
$
301,422
$
(55,965)
(19)
%
Classified
print
59,960
66,367
(6,407)
(10)
%
188,926
204,873
(15,947)
(8)
%
Print advertising
137,154
159,324
(22,170)
(14)
%
434,383
506,295
(71,912)
(14)
%
Digital
media
67,643
67,886
(243)
—
%
201,771
223,916
(22,145)
(10)
%
Digital marketing
services
38,092
36,177
1,915
5
%
110,009
103,873
6,136
6
%
Digital classified
13,115
14,892
(1,777)
(12)
%
40,693
44,158
(3,465)
(8)
%
Digital
advertising and marketing services
118,850
118,955
(105)
—
%
352,473
371,947
(19,474)
(5)
%
Advertising
and marketing services
256,004
278,279
(22,275)
(8)
%
786,856
878,242
(91,386)
(10)
%
Print
circulation
187,065
230,200
(43,135)
(19)
%
588,275
730,827
(142,552)
(20)
%
Digital-only
subscription
40,039
34,532
5,507
16
%
113,726
97,131
16,595
17
%
Circulation
227,104
264,732
(37,628)
(14)
%
702,001
827,958
(125,957)
(15)
%
Other
(a)
84,432
89,995
(5,563)
(6)
%
253,581
262,069
(8,488)
(3)
%
Total
operating revenues
$
567,540
$
633,006
$
(65,466)
(10)
%
$
1,742,438
$
1,968,269
$
(225,831)
(11)
%
(a)For the three and nine months ended September 30, 2023, Other revenues included Other Digital revenues, including digital syndication, affiliate, and production revenues of $19.4 million and $55.3 million, respectively, compared to $18.0 million and $53.9 million for the three and nine months ended September 30, 2022, respectively.
For the three and nine months ended September 30, 2023, Local and national print advertising revenues decreased
compared to the three and nine months ended September 30, 2022, primarily due to a decrease in advertiser inserts, mainly due to volume declines, and a decrease in local 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. In addition, the decrease in Local and national print advertising revenues for the three and nine months ended September 30, 2023, was also due to the absence in 2023 of revenues of $5.3 million and $21.5 million, respectively, associated with non-core products and divestitures which were sunset in 2023 and 2022. For the three and nine months ended September 30, 2023, Classified print advertising revenues decreased compared to the three and nine months ended September
30, 2022, primarily due to lower spend on classified advertisements, mainly driven by lower spend on obituary notifications and real estate advertisements, partially offset by an increase in spend on employment advertisements. In addition, the decrease in Classified print advertising revenues for the three and nine months ended September 30, 2023, was also due to the absence in 2023 of revenues of $1.3 million and $5.0 million, respectively, associated with non-core products which were sunset in 2023 and 2022.
For the three and nine months ended September 30, 2023, Digital media revenues decreased compared to the three and nine months ended September 30, 2022, driven by decreases in both domestic national and local revenue volumes and
a reduction in digital advertising demand as a result of a more challenging macroeconomic environment, including declining CPMs (cost per thousand impressions), partially offset by an acquisition in 2022 by our U.K. subsidiary. For the three and nine months ended September 30, 2023, Digital marketing services revenues increased compared to the three and nine months ended September 30, 2022, primarily due to an increase in rates, partially offset by a decrease in client counts.For the three and nine months ended September 30, 2023, Digital classified revenues decreased compared to the three and nine months ended September 30, 2022, primarily due to lower spend on employment and obituary notifications, partially offset by higher
spend on automotive advertisements.
For the three and nine months ended September 30, 2023, Print circulation revenues decreased compared to the three and nine months ended September 30, 2022, due to a decline in home delivery 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 due to a reduction in volume, and for the nine months ended September 30, 2023, also due to increased price sensitivity. In addition, the decrease in Print circulation revenues for the three and nine months ended September 30, 2023, was due to the absence in 2023 of revenues of $1.6 million and $5.8 million, respectively, associated with
non-core products which were sunset in 2023 and 2022. For the three and nine months ended September 30, 2023, Digital-only subscription revenues increased compared to the three and nine months ended September 30, 2022, primarily driven by an increase in Digital-only subscription average revenue per user ("Digital-only ARPU") of 14.0% and 6.0%, respectively, mainly due to product mix. Refer to "Key Performance Indicators" below for further discussion of Digital-only ARPU.
For the three and nine months ended September 30, 2023, Other revenues decreased compared to the three and nine months ended September 30, 2022, primarily due to a decline in commercial print volume and a decline
in digital syndication, partially offset by an increase in event revenues, mainly driven by an increase in registration fees and higher merchandising revenues, driven by higher attendance, partially offset by fewer events due to a shift in timing, as well as an increase in digital revenues related to affiliate agreements.
Operating expenses
For the three and nine months ended September 30, 2023, Operating costs decreased $48.9 million and $154.0 million, respectively, compared to the three and nine months ended September 30, 2022. The following table provides the breakout of Operating costs:
For the three and nine months ended September 30, 2023, Newsprint and ink costs decreased compared to the three and nine months ended September 30, 2022, primarily due to a decline associated with lower revenues, and for the nine months ended September 30, 2023, these decreases were partially offset by an increase of $5.3 million in the price of newsprint.
For the three and nine months ended September 30, 2023, Distribution costs decreased compared to the same periods in the prior year, primarily due to a decrease of $11.8 million and $41.6 million, respectively, associated with lower home delivery
and single copy revenues, partially offset by an increase of $1.4 million and $2.9 million, respectively, driven by higher postage costs primarily due to conversion to mail delivery in multiple markets. Included in the decline of Distribution costs was the absence of expenses of $3.8 million and $14.6 million during the three and nine months ended September 30, 2023, respectively, of costs associated with both businesses divested and non-core products which were sunset in 2023 and 2022.
For the three and nine months ended September 30, 2023, Compensation and benefits costs decreased compared to the same periods in the prior year, primarily due to lower payroll expense of $18.1 million and $61.2 million, respectively, driven by a decrease in headcount tied to ongoing cost control initiatives,
including facility closures and conversion to mail delivery in multiple markets, and to a lesser extent, lower employee benefit costs of $6.2 million and $21.4 million, respectively, mainly due to a decrease in insurance costs due to a decrease in headcount and a decline in employer 401(k) matching contributions, which were suspended in the third quarter of 2022.
For the three and nine months ended September 30, 2023, Outside services costs, which includes professional services fulfilled by third parties, media fees and other digital costs, and paid search and ad serving services, decreased compared to the same periods in the prior year, primarily due to a decrease of $5.0 million and $12.1 million, respectively, in various expenses, including costs related to news and editorial, professional services, outside printing, and software licensing,
partially offset by an increase of $1.4 million and $6.2 million, respectively, in third-party media fees.
For the three months ended September 30, 2023, Other costs remained essentially flat compared to the three months ended September 30, 2022, and for the nine months ended September 30, 2023, Other costs decreased compared to the nine months ended September 30, 2022, primarily due to lower promotion expenses and lower facility related expenses associated with real estate sales.
For the three and nine months ended September 30, 2023, Selling, general and administrative
expenses decreased $25.2 million and $85.1 million, respectively, compared to the three and nine months ended September 30, 2022. The following table provides the breakout of Selling, general and administrative expenses:
Three
months ended September 30,
Nine months ended September 30,
Change
Change
In thousands
2023
2022
$
%
2023
2022
$
%
Compensation
and benefits
$
75,618
$
84,709
$
(9,091)
(11)
%
$
224,482
$
263,052
$
(38,570)
(15)
%
Outside
services and other
75,986
92,097
(16,111)
(17)
%
227,928
274,418
(46,490)
(17)
%
Total
selling, general and administrative expenses
$
151,604
$
176,806
$
(25,202)
(14)
%
$
452,410
$
537,470
$
(85,060)
(16)
%
For
the three and nine months ended September 30, 2023, Compensation and benefits costs decreased compared to the same periods in the prior year, primarily due to lower payroll expense of $6.1 million and $29.3 million, respectively, driven by a decrease in headcount tied to ongoing cost control initiatives, lower commissions related to revenue performance, and to a lesser extent, lower employee benefit costs of $3.0 million and $9.3 million, respectively, mainly due to a decrease in employer 401(k) matching contributions, which were suspended in the third quarter of 2022.
For the three and nine months ended September 30, 2023, Outside services and other costs, which include services fulfilled by third parties, decreased compared to the three and
nine months ended September 30, 2022, due to a decrease in costs related to technology, promotions, and professional services.
For the three and nine months ended September 30, 2023, Depreciation and amortization expense decreased compared to the three and nine months ended September 30, 2022, reflecting the impact of fewer print facilities in 2023 compared to 2022.
For the three and nine months ended September 30, 2023, Integration and reorganization costs decreased compared to the three and nine months ended September 30, 2022, mainly due to a decrease in severance
costs of $10.8 million and $18.8 million, respectively, and a decrease in other costs of $18.1 million and $19.9 million, respectively. The decrease in other costs
for the three and nine months ended September 30, 2023 was primarily due to the reversal of withdrawal liabilities related to multiemployer pension plans of $4.3 million and $6.4 million, respectively, based on settlement of the withdrawal liability, and the absence of an accrual of $8.6 million related to a multiemployer pension plan in both the three and nine months ended September 30, 2022, as well as
lower facility and consolidation costs for the three and nine months ended September 30, 2023, compared to the same periods in the prior year.
For the three and nine months ended September 30, 2023, we recognized net gains on the sale of assets of $23.5 million and $39.7 million, respectively, primarily related to sales of domestic production facilities as part of our plan to monetize non-core assets. For the three and nine months ended September 30, 2022, we recognized net gains on the sale of assets of $7.2 million and $9.8 million, respectively, primarily related to sales of real estate, partially offset by losses on the sales of non-core products which were divested.
Gannett
Media segment Adjusted EBITDA
Three
months ended September 30,
Nine months ended September 30,
Change
Change
In thousands
2023
2022
$
%
2023
2022
$
%
Net
income attributable to Gannett
$
54,537
$
9,774
$
44,763
***
$
125,489
$
71,733
$
53,756
75
%
Non-operating
pension income
(2,929)
(14,990)
12,061
(80)
%
(7,007)
(51,363)
44,356
(86)
%
Depreciation and amortization
29,944
32,821
(2,877)
(9)
%
93,209
108,810
(15,601)
(14)
%
Integration
and reorganization costs (reversal)
(3,539)
25,378
(28,917)
***
3,420
42,140
(38,720)
(92)
%
Other operating expenses (income)
139
(48)
187
***
139
727
(588)
(81)
%
Asset
impairments
188
71
117
***
1,370
1,010
360
36
%
Gain
on sale or disposal of assets, net
(23,465)
(7,171)
(16,294)
***
(39,653)
(9,786)
(29,867)
***
Other items
(615)
188
(803)
***
375
2,256
(1,881)
(83)
%
Adjusted
EBITDA (non-GAAP basis)(a)
$
54,260
$
46,023
$
8,237
18
%
$
177,342
$
165,527
$
11,815
7
%
Net
income attributable to Gannett margin
9.6
%
1.5
%
7.2
%
3.6
%
Adjusted EBITDA margin (non-GAAP basis)(a)(b)
9.6
%
7.3
%
10.2
%
8.4
%
***
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 Operating revenues.
For the three and nine months ended September 30, 2023, the increase in Adjusted EBITDA compared to the three and nine months ended September 30, 2022, was primarily attributable to the changes discussed above.
A summary of our DMS segment results is presented below:
Three
months ended September 30,
Nine months ended September 30,
Change
Change
In thousands
2023
2022
$
%
2023
2022
$
%
Operating
revenues:
Advertising and marketing services
$
121,919
$
120,049
$
1,870
2
%
$
357,525
$
347,771
$
9,754
3
%
Total
operating revenues
121,919
120,049
1,870
2
%
357,525
347,771
9,754
3
%
Operating
expenses:
Operating costs
86,348
82,216
4,132
5
%
250,537
239,657
10,880
5
%
Selling,
general and administrative expenses
21,996
22,143
(147)
(1)
%
66,260
66,938
(678)
(1)
%
Depreciation
and amortization
6,015
7,252
(1,237)
(17)
%
17,802
20,539
(2,737)
(13)
%
Integration
and reorganization costs
630
431
199
46
%
602
875
(273)
(31)
%
Loss
on sale or disposal of assets, net
131
2
129
***
232
178
54
30
%
Total operating expenses
115,120
112,044
3,076
3
%
335,433
328,187
7,246
2
%
Operating
income
$
6,799
$
8,005
$
(1,206)
(15)
%
$
22,092
$
19,584
$
2,508
13
%
***
Indicates an absolute value percentage change greater than 100.
Operating revenues
For the three and nine months ended September 30, 2023, Advertising and marketing services revenues increased compared to the three and nine months ended September 30, 2022, 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 5.0% and 8.0% for the three and nine months ended September 30, 2023, respectively, partially offset by the impact of the sunset of non-core products. Refer to "Key Performance
Indicators" below for further discussion of Core platform ARPU.
Operating expenses
For the three and nine months ended September 30, 2023, Operating costs increased $4.1 million and $10.9 million, respectively, compared to the three and nine months ended September 30, 2022. The following table provides the breakout of Operating costs:
Three
months ended September 30,
Nine months ended September 30,
Change
Change
In thousands
2023
2022
$
%
2023
2022
$
%
Outside
services
$
75,498
$
72,016
$
3,482
5
%
$
219,615
$
209,281
$
10,334
5
%
Compensation
and benefits
9,212
8,530
682
8
%
26,263
24,333
1,930
8
%
Other
1,638
1,670
(32)
(2)
%
4,659
6,043
(1,384)
(23)
%
Total
operating costs
$
86,348
$
82,216
$
4,132
5
%
$
250,537
$
239,657
$
10,880
5
%
For
the three and nine months ended September 30, 2023, 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 and nine months ended September 30, 2022, due to an increase in expenses associated with third-party media fees, driven by a corresponding increase in revenues.
For the three and nine months ended September 30, 2023, Compensation and benefits costs increased compared to the three and nine months ended September 30, 2022, primarily due to an increase in payroll expense driven by higher headcount.
For
the three months ended September 30, 2023, Other costs remained essentially flat compared to the three months ended September 30, 2022, and for the nine months ended September 30, 2023, Other costs decreased compared to the nine months ended September 30, 2022, primarily due to lower facility related expenses, mainly as a result of exiting space associated with the sunset of non-core products.
For the three and nine months
ended September 30, 2023, Selling, general and administrative expenses decreased $0.1 million and $0.7 million, respectively, compared to the three and nine months ended September 30, 2022. The following table provides the breakout of Selling, general and administrative expenses:
Three
months ended September 30,
Nine months ended September 30,
Change
Change
In thousands
2023
2022
$
%
2023
2022
$
%
Compensation
and benefits
$
19,355
$
19,258
$
97
1
%
$
57,593
$
56,691
$
902
2
%
Outside
services and other
2,641
2,885
(244)
(8)
%
8,667
10,247
(1,580)
(15)
%
Total
selling, general and administrative expenses
$
21,996
$
22,143
$
(147)
(1)
%
$
66,260
$
66,938
$
(678)
(1)
%
For
the three and nine months ended September 30, 2023, Compensation and benefits costs increased compared to the same periods in the prior year, primarily due to an increase in payroll expense of $0.5 million and $2.2 million, respectively, driven by a higher bonus accrual, partially offset by lower employee benefit costs of $0.4 million and $1.3 million, respectively, mainly due to a decline in employer 401(k) matching contributions, which were suspended in the third quarter of 2022.
For the three and nine months ended September 30, 2023, Outside services and other costs decreased compared to the three and nine months ended September 30, 2022, due to a decrease in various miscellaneous expenses, including lower outsourcing costs and lower facility
related expenses.
For the three and nine months ended September 30, 2023, Depreciation and amortization expense decreased compared to the three and nine months ended September 30, 2022, primarily due to a decrease in amortization expense, resulting from 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.
DMS segment Adjusted EBITDA
Three
months ended September 30,
Nine months ended September 30,
Change
Change
In thousands
2023
2022
$
%
2023
2022
$
%
Net
income attributable to Gannett
$
5,902
$
5,385
$
517
10
%
$
20,798
$
14,948
$
5,850
39
%
Depreciation
and amortization
6,015
7,252
(1,237)
(17)
%
17,802
20,539
(2,737)
(13)
%
Integration
and reorganization costs
630
431
199
46
%
602
875
(273)
(31)
%
Loss
on sale or disposal of assets, net
131
2
129
***
232
178
54
30
%
Other items
897
2,620
(1,723)
(66)
%
1,294
4,636
(3,342)
(72)
%
Adjusted
EBITDA (non-GAAP basis)(a)
$
13,575
$
15,690
$
(2,115)
(13)
%
$
40,728
$
41,176
$
(448)
(1)
%
Net
income attributable to Gannett margin
4.8
%
4.5
%
5.8
%
4.3
%
Adjusted EBITDA margin (non-GAAP basis)(a)(b)
11.1
%
13.1
%
11.4
%
11.8
%
***
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.
For the three and nine months ended September 30, 2023, the decrease in Adjusted EBITDA compared to the three and nine months ended September 30, 2022, was primarily attributable to the changes discussed above. In addition, for the three and nine months ended September 30, 2023, Other items decreased compared to the same periods in the prior year, mainly
due to a decrease in foreign currency losses.
For the three and nine months ended September 30, 2023, Corporate and other operating revenues were $1.5 million and $4.6 million, respectively, compared to $1.3 million and $4.0 million for the three and nine months ended September 30, 2022, respectively.
For
the three and nine months ended September 30, 2023, Corporate and other operating expenses decreased $4.6 million and $16.0 million, respectively, compared to the three and nine months ended September 30, 2022. The following table provides the breakout of Corporate and other operating expenses:
Three
months ended September 30,
Nine months ended September 30,
Change
Change
In thousands
2023
2022
$
%
2023
2022
$
%
Operating
expenses:
Operating costs
$
5,583
$
2,372
$
3,211
***
$
17,853
$
2,589
$
15,264
***
Selling,
general and administrative expenses
11,314
13,524
(2,210)
(16)
%
30,761
57,738
(26,977)
(47)
%
Depreciation
and amortization
4,685
4,705
(20)
—
%
13,115
12,742
373
3
%
Integration
and reorganization costs
1,954
7,502
(5,548)
(74)
%
14,437
17,439
(3,002)
(17)
%
Gain
on sale or disposal of assets, net
—
(11)
11
(100)
%
(1,448)
(4)
(1,444)
***
Other operating expenses
231
297
(66)
(22)
%
689
938
(249)
(27)
%
Total
operating expenses
$
23,767
$
28,389
$
(4,622)
(16)
%
$
75,407
$
91,442
$
(16,035)
(18)
%
***
Indicates an absolute value percentage change greater than 100.
For the three and nine months ended September 30, 2023, Corporate and other operating expenses decreased compared to the three and nine months ended September 30, 2022, primarily due to a decrease in Selling, general and administrative expenses, mainly driven by a decrease of $6.6 million and $25.0 million, respectively, in payroll and employee benefit costs, as well as a decrease in Integration and reorganization costs, primarily due to a decrease in severance costs of $3.9 million for the three months ended September 30, 2023, and a decrease in other costs of $1.7 million and $3.1 million for the three and nine months ended September
30, 2023, respectively, mainly due to a decrease in system integration costs. These decreases were partially offset by an increase in Operating costs. In addition, the nine months ended September 30, 2023 also reflected a $1.4 million gain on the sale of intellectual property.
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:
Nine months ended September 30,
In thousands
2023
2022
Cash provided by operating activities
$
73,417
$
32,982
Cash
provided by investing activities
54,068
19,081
Cash used for financing activities
(112,943)
(58,044)
Effect of currency exchange rate change on cash
688
(1,447)
Increase (decrease) in cash, cash equivalents and restricted cash
$
15,230
$
(7,428)
Cash
flows provided by operating activities: Our largest source of cash provided by our operations is Advertising revenues, primarily generated from Local and national advertising and marketing services revenues (retail, classified, and online). 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 flow provided by operating activities was $73.4 million for the nine months ended September 30, 2023, compared to $33.0 million for the nine months ended September 30, 2022. The increase in cash flow provided by operating activities was primarily due to a decrease in contributions
to our pension and other postretirement benefit plans, lower inventory and lower compensation costs, partially offset by lower cash receipts related to deferred revenues, a decrease in accounts payable due to timing, a change in receivables due to timing of payments and collections and an increase in severance payments.
Cash flows provided by investing activities: Cash flows provided by investing activities was $54.1 million for the nine months ended September 30, 2023, compared to $19.1 million for the nine months ended September 30, 2022. The change 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 assets
of $12.8 million and a decrease in purchases of property, plant and equipment of $6.2 million.
Cash flows used for financing activities: Cash flows used for financing activities was $112.9 million for the nine months ended September 30, 2023, compared to $58.0 million for the nine months ended September 30, 2022. The increase in cash flows used for financing activities was primarily due to the absence of new borrowings, offset by lower repayments of long-term debt.
Debt
As of September
30, 2023, the carrying value of our outstanding debt totaled $1.063 billion, which consisted of $353.1 million related to the Senior Secured Term Loan, $293.7 million related to the 2026 Senior Notes, $412.5 million related to the 2027 Notes (defined below), and $3.3 million related to the remaining 4.75% convertible senior notes due April 15, 2024 (the
The Senior Secured Term Loan bears interest at a per annum rate equal to 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. 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). For the three and nine months ended September 30, 2023, we made $31.7 million and $78.1 million, respectively, 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. During the three and nine months ended September 30, 2023, we entered into privately negotiated agreements with certain holders of our 2026 Senior Notes, and repurchased $33.5 million and $39.6 million, respectively, of principal of our outstanding 2026 Senior Notes at a discount to par value.
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 nine months ended September 30, 2023, 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 September 30, 2023, we were in compliance with all such covenants and obligations.
Refer
to Note 6 — Debt 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 and nine months ended September 30, 2023, we did not repurchase any shares of Common Stock under the Stock Repurchase Program. As of September 30, 2023, 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 fourth quarter of 2023.
Beginning with the quarter ended December 31, 2022, and ending with the quarter ending September 30, 2024, the GR Plan's appointed actuary 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 million of contractual contributions subsequent to June 30, 2022. As of September 30, 2023, the GR Plan was more than 100% funded.
We expect our capital expenditures for the remainder of 2023 to total approximately $10 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. The level of capital expenditures may vary based on investment decisions associated with further opportunities to consolidate systems, improve
our product offerings, and other initiatives designed to improve the Company's operating efficiency.
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, 2022 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 measures we believe offer 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-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. We define Adjusted EBITDA margin as Adjusted EBITDA divided by total Operating 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), 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 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. 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 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 Net income (loss) attributable to Gannett and margin 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 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 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 attributable to Gannett to Adjusted EBITDA and Net loss attributable to Gannett margin to Adjusted EBITDA margin:
Three
months ended September 30,
Nine months ended September 30,
In thousands
2023
2022
2023
2022
Net loss attributable to Gannett
$
(2,566)
$
(54,114)
$
(4,899)
$
(110,769)
Provision
for income taxes
16,144
18,098
148
32,649
Interest expense
27,918
27,750
84,807
79,840
(Gain)
loss on early extinguishment of debt
(2,717)
(1,228)
(3,213)
2,264
Non-operating pension income
(2,929)
(14,990)
(7,007)
(51,363)
Depreciation
and amortization
40,644
44,778
124,126
142,091
Integration and reorganization costs (reversal)
(955)
33,311
18,459
60,454
Other
operating expenses
370
249
828
1,665
Asset impairments
188
71
1,370
1,010
Gain
on sale or disposal of assets, net
(23,334)
(7,180)
(40,869)
(9,612)
Share-based compensation expense
3,944
4,499
12,727
13,277
Other
items
2,817
665
7,100
5,425
Adjusted EBITDA (non-GAAP basis)
$
59,524
$
51,909
$
193,577
$
166,931
Net
loss attributable to Gannett margin
(0.4)
%
(7.5)
%
(0.2)
%
(5.0)
%
Adjusted EBITDA margin (non-GAAP basis)
9.1
%
7.2
%
9.7
%
7.5
%
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, 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 both the Gannett Media and DMS segments:
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk, including from changes in interest rates 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 September
30, 2023, we had variable and fixed-rate debt totaling $360.3 million and $794.2 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 150 basis points would have increased our interest expense related to our variable-rate debt and likewise decreased our income and cash flows by approximately $1.4 million and $4.1 million, respectively, for the three and nine months ended September 30, 2023. See Note 6 — Debt to our condensed consolidated financial statements for further discussion of our debt.
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.
At September 30, 2023 and 2022, cumulative foreign currency translation losses reported as part of equity were $10.0 million and $35.8 million, respectively. The fluctuation in cumulative foreign currency translation 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 and
nine months ended September 30, 2023.
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 September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
There have been no material developments with respect to the information previously reported under Part I, Item 3 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
ITEM 1A. RISK FACTORS
In addition to the other information set forth
in this Quarterly Report on Form 10-Q, you should consider the risks described in Part I, Item 1A, "Risk Factors" of our Annual Report on Form 10-K for the 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. 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.
Risks Related to Artificial Intelligence
We use artificial intelligence and may use new technologies in our business, and challenges
with properly managing their use by us or third parties could result in reputational harm, competitive harm, and legal liability, and adversely affect our results of operations.
We have incorporated and may continue to incorporate artificial intelligence ("AI") solutions and other new technologies into our platform, offerings, services and features, and these applications may become important in our operations over time. Our competitors or other third parties may incorporate AI into their products more quickly or more successfully than us, which could impair our ability to compete effectively and adversely affect our results of operations. If our competitors and other third parties adopt AI applications that use our content without end users visiting our network of websites,
our digital advertising revenue could be reduced and we could lose additional monetization opportunities. The introduction of AI applications into our business may disrupt our relationship with employees if the AI tools are viewed as displacing work from newsrooms, which could adversely affect our business and results of operations. Additionally, if the content, analyses, or recommendations that AI applications assist in producing are or are alleged to be deficient, inaccurate, or biased, our reputation, business, financial condition, and results of operations may be adversely affected.
The use of AI applications has resulted
in, and may in the future result in, cybersecurity incidents that implicate the personal data of end users of such applications. Any such cybersecurity incidents related to our use of AI applications could adversely affect our reputation and results of operations. AI applications also introduce risks to our ability to protect our intellectual property, to the extent large language models have used our content to train AI tools. Similarly, if we use open-source AI applications, we could be subject to claims of infringement of others’ intellectual property, which could adversely affect our business and results of operations.
AI also presents emerging ethical issues and if our use of AI becomes controversial, we may experience brand or reputational harm, competitive harm, or legal liability. The rapid evolution of AI, including potential government regulation of AI, will require significant resources
to develop, test and maintain our platform, offerings, services, and features to help us implement AI ethically in order to minimize unintended, harmful impact.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
The following financial information from Gannett Co., Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, 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.
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.
