Improving Revenue Trends
101 million Unique Domestic Digital
Visitors
Adjusted EBITDA of $97 million, Adjusted
Diluted EPS of $0.43, Free Cash Flow of $116 million
Gannett Co., Inc. (NYSE: GCI) ("Gannett" or "company" or "we")
today reported third quarter 2015 results of operations.
Recent highlights include:
- Announced the merger of Gannett and
Journal Media Group, Inc. (JMG), expected to close in Q1 2016, is
expected to add approximately $450 million in annual revenues and
approximately $60 million in adjusted EBITDA in the first full
year. Additional $25 million of synergies targeted for year
two.
- Achieved approximately 101 million
unique domestic digital visitors. Total digital revenues for the
third quarter were $159.9 million. Digital-only subscriptions grew
37%.
- Declared dividend of $0.16 per
share.
- Continued integration of acquired
properties in Texas, New Mexico, Pennsylvania and the UK, which is
progressing ahead of plan.
Robert J. Dickey, president and chief executive officer, said,
"After our first 120 days as a public company, Gannett has made
significant progress toward several of the key initiatives that we
outlined during our analyst day in June. Cost reduction initiatives
are progressing as planned, the integration of our recently
acquired properties in Texas, New Mexico, Pennsylvania and the UK
into our "One Gannett" operating model is ahead of schedule,
investments in our digital platform are resulting in continued
growth in unique visitors and digital revenues, and the announced
merger of Gannett and Journal Media Group will add significant
scale and synergy opportunity to drive revenue and earnings
growth."
Beginning with the period post-spin from the company's former
parent and in conjunction with the execution of new agreements with
the company's former parent and certain of its affiliates, the
company began reporting wholesale fees associated with sales of
certain third party (principally Cars.com and CareerBuilder)
digital advertising products and services on a net basis, as a
reduction of the associated digital advertising revenues, rather
than in operating expenses within our consolidated statements of
operations. This change has no impact on reported operating income,
operating cash flows, net income or earnings per share.
Operating revenues for the third quarter were $701.2 million
compared to $767.3 million in the third quarter of 2014, a decrease
of $66.1 million or 8.6%. This decline is partially due to
approximately $16.2 million related to the reporting of sales of
certain third party (principally Cars.com and CareerBuilder)
digital advertising products on a net basis (as described above),
$7.6 million of prior year revenues related to exited businesses as
well as $8.4 million of unfavorable foreign currency exchange rate
changes. Excluding these items, revenues declined $33.9 million, or
4.5%, primarily attributable to ongoing advertiser demand shifts
and the impact of the unfavorable affiliate agreement change with
CareerBuilder and its impact on classified employment revenues in
the quarter. These declines were partially offset by positive
revenue trends in Gannett's digital products as well as revenues
from businesses acquired late in the second quarter.
Weighing on the underlying digital growth rate are the
unfavorable post-spin changes to the CareerBuilder affiliate
agreement and the change in reporting for third party digital
revenues. Excluding CareerBuilder revenues from all periods and the
effect of the change in reporting for third party digital revenues,
digital revenues increased $6.2 million or 3.9% in the third
quarter. This increase is across the board, with the most
meaningful increases coming from desktop display, video and
sponsored links. Overall, reported digital revenues were $159.9
million in the third quarter of 2015 compared to $173.6 million in
the third quarter of 2014, a reduction of $13.7 million or
7.9%.
Adjusted EBITDA for the third quarter was $97.0 million compared
to $102.9 million, in the third quarter of 2014, a decrease of $5.9
million or 5.7%. The decline in third quarter adjusted EBITDA was
due to a $7.6 million reduced EBITDA contribution primarily
resulting from changes to the Cars.com affiliate agreement in
October 2014 and the CareerBuilder affiliate agreement in August
2015, $2.2 million in unfavorable foreign exchange rate changes and
declines in print advertising revenues, partially offset by cost
reductions and efficiency gains in operating expenses as well as
increases in digital revenues and a full quarter of operating
results from businesses acquired during the second quarter of
2015.
Earnings per share for the third quarter, on a fully diluted
basis, were $0.33 and includes $17.5 million of pre-tax severance,
acquisition-related and other charges. Before the impact of these
charges and adjusted for taxes, adjusted earnings per share on a
fully diluted basis would be $0.43. Fully diluted earnings per
share reflect a diluted share count of 118.2 million shares,
approximately 3.2 million higher than the end of the second quarter
of 2015 due to the addition of the dilutive effect of stock based
compensation, principally converted from the former parent at the
time of the spin. Additionally, during the quarter the company
purchased no shares under its $150 million share buyback
authorization. This was due to restrictions on trading while in
possession of material non-public information regarding the
potential merger transaction with Journal Media Group.
Acquisitions and Integration
In early October, the company announced that Gannett and Journal
Media Group entered into a definitive merger agreement under which
Gannett will acquire all of the outstanding common stock of Journal
Media Group for approximately $280 million, net of acquired
cash.
Under the terms of the transaction, which was unanimously
approved by the boards of directors of both companies and is
subject to Journal Media Group shareholder approval, Journal Media
Group shareholders will receive $12.00 per share in cash. Gannett
expects to finance the transaction through a combination of cash on
hand and borrowings under Gannett’s $500 million revolving credit
facility. "The publications of both Gannett and Journal Media Group
have a rich history, a commitment to journalism, and a dedication
to informing and being active members in the communities we serve.
Our merger will combine the best of each of our organizations to
create a journalism-led, investor-focused company which will
provide substantial value to the shareholders of both companies,"
Dickey said at the time the merger was announced.
In its first full year, the transaction is expected to add
approximately $450 million to Gannett's annual revenues and
approximately $60 million in adjusted EBITDA, through a combination
of JMG's solid base business and certain quickly attainable
synergies. The company expects approximately $25 million of
additional synergy opportunities in the second year.
In June 2015, the company completed the acquisition of the
remaining 59.4% interest in the Texas-New Mexico Newspapers
Partnership (TNP) that it did not own from Digital First Media,
which includes properties in Texas, New Mexico and Pennsylvania.
The deal was completed through the assignment of Gannett’s interest
in the California Newspapers Partnership and additional cash
consideration. The company has been actively integrating the
operations of TNP into the operating infrastructure of Gannett.
Already the company has completed the consolidation of cash
management, credit and collections, procurement and payment
systems, payroll, and integration of the management structure. Over
the next few weeks the integration of the circulation systems,
customer service, design operations, and the consolidation of these
properties onto the Gannett digital platform is also expected.
Cash Flow
Net cash flow from operating activities was $126.1 million in
the quarter. Capital expenditures in the third quarter were $10.3
million, primarily for technology investments and real estate
efficiency projects. The resulting cash balance at the end of the
third quarter was $142.8 million, an increase of $70.8 million
compared to the cash balance at December 28, 2014.
At the end of the third quarter of 2015, the underfunded pension
liability was $527.0 million, compared to $770.0 million as of
December 28, 2014, a reduction of $243.0 million or 31.6%. The
significant reduction in this liability is a result of year to date
contributions of $120.1 million, mostly made during the period
pre-spin. The remaining changes were primarily associated with
actuarial changes, including an increase in the discount rate,
resulting from a revaluation of the pension plan as of the date of
the spin of Gannett from its former parent.
On October 28, 2015, the company's Board of Directors declared a
regular quarterly cash dividend of $0.16 per common share. The
dividend will be payable on January 4, 2016 to shareholders of
record at the close of business on December 4, 2015.
Outlook
"We are experiencing trends similar to what we forecast at the
end of the second quarter: specifically, revenue trends in the
second half of the year that are improved over the first half of
the year, partially as a result of the acquisitions of TNP and
Romanes, and adjusted EBITDA margins that are modestly higher in
the second half than the first half. We expect this guidance to
hold for the remainder of the year, with normal seasonal patterns
indicating that the fourth quarter will be the highest revenue and
earnings quarter of the year," Dickey concluded.
Additionally for the fourth quarter of 2015, the company expects
the following:
- Capital expenditures of $32-$35
million
- Depreciation and amortization of
approximately $28 million
- Effective tax rate for the fourth
quarter of 28-30%
* * * *
Conference Call Information
As previously announced, the company will hold an earnings
conference call at 10:00 a.m. ET today. The call can be accessed
via a live webcast through the company's investor site,
http://investors.gannett.com/, or listen-only conference lines.
U.S. callers should dial 866-293-1610 and international callers
should dial 412-455-6204 at least 10 minutes prior to the scheduled
start of the call. The confirmation code for the conference call is
60179334.
Forward Looking Statements
Certain statements in this press release may be forward looking
in nature or constitute “forward-looking statements” as defined in
the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include all statements that are not
historical facts and can typically be identified by words such as
“believe,” “expect,” “estimate,” “predict,” “target,” “potential,”
“likely,” “continue,” “ongoing,” “could,” “should,” “intend,”
“may,” “might,” “plan,” “seek,” “anticipate,” “project” and similar
expressions, as well as variations or negatives of these words.
Examples of forward-looking statements include, but are not limited
to, statements concerning the company’s business strategies, market
potential and future financial performance. Any such statements
speak only as of the date the statements were made and are not
guarantees of future performance.
The matters discussed in these forward-looking statements are
subject to a number of risks, trends, uncertainties and other
factors that could cause actual results to differ materially from
those projected, anticipated or implied in the forward-looking
statements. These factors include, among other things: (1)
competitive pressures in the markets in which we operate; (2)
increased consolidation among major retailers or other events which
may adversely affect business operations of major customers and
depress the level of local and national advertising; (3)
macroeconomic trends and conditions; (4) economic downturns leading
to a continuing or accelerated decrease in circulation or local,
national or classified advertising; (5) potential disruption or
interruption of our operations due to accidents, extraordinary
weather events, civil unrest, political events, terrorism or cyber
security attacks; (6) an accelerated decline in general print
readership and/or advertiser patterns as a result of competitive
alternative media or other factors; (7) our ability to adapt to
technological changes or grow our online business; (8) an increase
in newsprint costs over the levels anticipated; (9) labor
relations, including, but not limited to, labor disputes which may
cause revenue declines or increased labor costs; (10) risks and
uncertainties related to the proposed merger with JMG, including
uncertainty of regulatory approvals, our and JMG’s ability to
satisfy the merger agreement conditions and consummate the
transaction on a timely basis and our ability to successfully
integrate JMG’s operations and employees with our existing
business; (11) our ability to realize benefits or synergies from
other acquisitions of new businesses or dispositions of existing
businesses, or to operate businesses effectively following
acquisitions or divestitures; (12) our ability to attract and
retain employees; (13) rapid technological changes and frequent new
product introductions prevalent in electronic publishing; (14)
weakening in the British pound to U.S. dollar exchange rate; (15)
volatility in financial and credit markets which could affect our
ability to raise funds through debt or equity issuances and
otherwise affect our ability to access the credit and capital
markets at the times and in the amounts needed and on acceptable
terms; (16) changes in the regulatory environment which could
encumber or impede our efforts to improve operating results or the
value of assets; (17) adverse outcomes in proceedings with
governmental authorities or administrative agencies; (18) an other
than temporary decline in operating results and enterprise value
that could lead to non-cash goodwill, other intangible asset,
investment or property, plant and equipment impairment charges;
(19) our inability to engage in certain corporate transactions
following our separation from our former parent; and (20) any
failure to realize expected benefits from our separation from our
former parent.
A further description of these and other important risks,
trends, uncertainties and other factors are discussed in the
company’s filings with the U.S. Securities and Exchange Commission,
including the company’s registration statement on Form 10. Any
forward-looking statements should be evaluated in light of these
important risk factors. The company is not responsible for updating
or revising any forward-looking statements, whether as a result of
new information, future events or otherwise, except as required by
law.
Non-GAAP Financial Measures
This press release also contains a discussion of certain
non-GAAP financial measures that the company presents to allow
investors and analysts to measure, analyze and compare its
financial condition and results of operations in a meaningful and
consistent manner. A reconciliation of these non-GAAP financial
measures to the most directly comparable GAAP measures can be found
in the tables accompanying this press release.
About Gannett
Gannett Co., Inc. (NYSE: GCI) is a next-generation media
company committed to strengthening communities across our network.
Through trusted, compelling content and unmatched local-to-national
reach, Gannett touches the lives of more than 100 million people
monthly. With more than 110 markets internationally, it is known
for Pulitzer Prize-winning newsrooms, powerhouse brands such as USA
TODAY and specialized media properties. To connect with us, visit
www.gannett.com.
CONDENSED COMBINED STATEMENTS OF INCOME
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands (except per share
amounts)
Table No. 1 Three months
ended Nine months ended Sept. 27, 2015 Sept. 28, 2014 Sept. 27,
2015 Sept. 28, 2014
Operating revenues: Advertising $
384,149 $ 442,088 $ 1,191,902 $ 1,358,504 Circulation 265,227
274,542 802,389 829,872 Other 51,860 50,661
151,377 164,570
Total operating
revenues 701,236 767,291
2,145,668 2,352,946
Operating expenses:
Cost of sales and operating expenses 426,725 486,770 1,375,100
1,510,980 Selling, general and administrative expenses 192,668
180,550 547,881 551,020 Depreciation 25,291 24,925 73,677 73,767
Amortization 3,096 3,461 10,103 10,448 Facility consolidation and
asset impairment charges 1,343 5,390
7,989 24,413
Total operating expenses
649,123 701,096 2,014,750
2,170,628
Operating income 52,113
66,195 130,918 182,318
Non-operating income (expense): Equity income in
unconsolidated investees, net 609 2,737 11,411 9,995 Other
non-operating items (3,415 ) (1,851 ) 18,022
(1,172 )
Total non-operating income (expense)
(2,806 ) 886 29,433 8,823
Income before income taxes 49,307 67,081 160,351 191,141
Provision for income taxes 10,141 16,524
34,611 47,296
Net income $
39,166 $ 50,557 $ 125,740 $ 143,845
Earnings per share - basic $ 0.34 $ 0.44 $ 1.09 $ 1.25
Earnings per share - diluted $ 0.33 $ 0.44 $ 1.08 $ 1.25
Weighted average number of common shares outstanding:
Basic 115,186 114,959 115,035 114,959 Diluted 118,168 114,959
116,029 114,959
REVENUE COMPARISONS
Gannett Co., Inc. and Subsidiaries
Unaudited
Table No. 2 Third quarter 2015
year-over-year comparisons:
DomesticPublishing
Newsquest(in pounds)
Total(constant currency)
Total
Retail (8.7%) 2.9% (10.7%) (8.1%) National (19.3%) 10.6%
(16.6%) (17.2%) Classified (19.6%) (6.0%) (16.3%) (17.8%) Total
advertising (14.1%) (1.3%) (13.7%) (13.1%) Circulation (3.0%) 0.5%
(2.9%) (3.4%) Other revenue 6.3% (9.7%) 3.7% 2.4% Total (8.6%)
(1.5%) (8.7%) (8.6%)
Year-to-date 2015
year-over-year comparisons:
DomesticPublishing
Newsquest(in pounds)
Total(constant currency)
Total
Retail (9.3%) 1.4% (7.9%) (9.0%) National (26.4%) 2.1%
(24.0%) (24.5%) Classified (10.2%) (6.8%) (9.3%) (11.3%) Total
advertising (12.5%) (3.1%) (11.0%) (12.3%) Circulation (2.5%)
(1.7%) (2.5%) (3.3%) Other revenue (8.2%) 1.6% (6.8%) (8.0%) Total
(8.5%) (2.4%) (7.7%) (8.8%)
USE OF NON-GAAP
INFORMATION
The company uses non-GAAP financial performance and liquidity
measures to supplement the financial information presented on a
GAAP basis. These non-GAAP financial measures should not be
considered in isolation from or as a substitute for the related
GAAP measures, and should be read together with financial
information presented on a GAAP basis.
Adjusted EBITDA is a non-GAAP financial performance measure that
the company believes offers a useful view of the overall operation
of our business. The company considers adjusted EBITDA, which may
not be comparable to a similarly titled measure reported by other
companies, to be defined as net income before (1) income
taxes, (2) equity income, (3) other non-operating items,
(4) severance related charges (including early retirement
programs), (5) other transformation items, (6) asset
impairment charges, (7) depreciation and
(8) amortization. The most directly comparable GAAP financial
measure is net income.
Adjusted diluted earnings per share ("EPS") is a non-GAAP
financial performance measure that the company believes offers a
useful view of the overall operation of our business. The company
considers adjusted EPS, which may not be comparable to a similarly
titled measure reported by other companies, to be defined as EPS
before tax-effected (1) severance related charges (including
early retirement programs), (2) other transformation items,
(3) asset impairment charges and (4) acquisition related
expenses (gains). The tax impact on these non-GAAP tax deductible
adjustments is based on the estimated statutory tax rate for the
United Kingdom of 20% and the United States of 38.7%. The most
directly comparable GAAP financial measure is diluted EPS.
Free cash flow is a non-GAAP liquidity measure that adjusts our
reported GAAP results for items that we believe are critical to the
ongoing success of our business, which results in a free cash flow
figure available for use in operations, additional investment and
return to shareholders. The company considers free cash flow, which
may not be comparable to a similarly titled measure reported by
other companies, to be defined as net cash flow from (used for)
operating activities as reported on the statement of cash flows
less capital expenditures. The most directly comparable GAAP
financial measure is net cash from operating activities.
The company uses non-GAAP financial performance measures for
purposes of evaluating our performance and liquidity. Therefore,
the company believes that each of the non-GAAP measures presented
provides useful information to investors by allowing them to view
our businesses through the eyes of our management and Board of
Directors, facilitating comparison of results across historical
periods, and providing a focus on the underlying ongoing operating
performance of our business. Many of our peer group companies
present similar non-GAAP measures to better facilitate industry
comparisons.
NON-GAAP FINANCIAL INFORMATION ADJUSTED EBITDA
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands
Table No. 3 Three months
ended Nine months ended Sept. 27, 2015 Sept. 28, 2014 Sept. 27,
2015 Sept. 28, 2014 Net income (GAAP basis) $ 39,166 $
50,557 $ 125,740 $ 143,845 Provision for income taxes 10,141 16,524
34,611 47,296 Equity income in unconsolidated investees, net (609 )
(2,737 ) (11,411 ) (9,995 ) Other non-operating items 3,415
1,851 (18,022 ) 1,172
Operating income (GAAP basis) 52,113 66,195 130,918 182,318 Early
retirement program 10,572 — 18,373 — Severance related charges
5,872 2,885 25,386 13,180 Other transformation items 66 5,390 3,093
38,239 Asset impairment charges — —
3,618 — Adjusted operating income
(non-GAAP basis) 68,623 74,470 181,388 233,737 Depreciation 25,291
24,925 73,677 73,767 Amortization 3,096 3,461
10,103 10,448 Adjusted EBITDA
(non-GAAP basis) $ 97,010 $ 102,856 $ 265,168
$ 317,952
NON-GAAP FINANCIAL
INFORMATION ADJUSTED DILUTED EPS
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands (except per share
amounts)
Table No. 4 Three months
ended Nine months ended Sept. 27, 2015 Sept. 28, 2014 Sept. 27,
2015 Sept. 28, 2014 Early retirement program $ 10,572 $ — $
18,373 $ — Severance related charges 5,872 2,885 25,386 13,180
Other transformation items 66 5,390 3,093 38,239 Asset impairment
charges — — 3,618 — Acquisition related expenses (gain)
1,022 — (19,599 ) —
Pretax impact 17,532 8,275 30,871 51,419 Income tax impact of above
items (6,373 ) (2,000 ) (10,337 )
(18,500 ) Impact of items affecting comparability on net income $
11,159 $ 6,275 $ 20,534 $ 32,919
Net income $ 39,166 $ 50,557 $ 125,740 $ 143,845 Impact of items
affecting comparability on net income 11,159
6,275 20,534 32,919 Adjusted net
income $ 50,325 $ 56,832 $ 146,274 $ 176,764
Earnings per share - diluted $ 0.33 $ 0.44 $ 1.08 $
1.25 Impact of items affecting comparability on net income
0.10 0.05 0.18 0.29
Adjusted earnings per share - diluted $ 0.43 $ 0.49
$ 1.26 $ 1.54 Diluted weighted average number
of common shares outstanding 118,168 114,959 116,029 114,959
NON-GAAP FINANCIAL INFORMATION FREE CASH FLOW
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands
Table No. 5
Three months endedSept. 27, 2015
Nine months endedSept. 27, 2015
Net cash flow from operating activities $ 126,119 $ 152,814
Capital expenditures (10,328 ) (30,945 ) Free cash flow $ 115,791
$ 121,869
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version on businesswire.com: http://www.businesswire.com/news/home/20151029005767/en/
Gannett Co., Inc.For investor inquiries, contact:Michael P.
DickersonVice President, Investor
Relations703-854-6185mdickerson@gannett.comorFor media inquiries,
contact:Amber AllmanVice President, Corporate
Communications703-854-5358aallman@gannett.com
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