Gannett reports higher revenue in final quarter of 2016 thanks to newspaper acquisitions
But adding new properties is not flowing down to the bottom line, with income falling slightly in Q4, and down by more than 50 percent for the full year
MCLEAN, Va. – February 9, 2017 –– Gannett Co., Inc. today reported fourth quarter 2016 results of operations. Robert J. Dickey, president and chief executive officer, said “We are pleased to end the year on a high note with both revenues and adjusted EBITDA meaningfully improved from the third quarter and exceeding the company’s expectations as a result of accelerating digital revenue trends and excellent operational management. 2016 was an important year for Gannett. We acquired and integrated businesses with annual revenues of approximately $800 million, advanced our efforts to drive the company towards a more digital future, and invested in new and promising technologies for advertisers and consumers in key areas such as VR, mobile and video.”
- Net income of $24.6 million; adjusted EBITDA of $127.0 million, an increase of $0.7 million from the prior year
- National digital advertising revenue up 19.1% (16.4% excluding acquisitions)
- Accelerating total digital advertising revenue trends led by mobile (up 43%) and video (up 37%)
- USA TODAY4 organic revenue growth of 1.4% (digital growth offsetting print declines)
- Local U.S. markets reported digital revenue growth of 7.1% (excluding acquisitions)
- Digital-only subscriptions grew 71.1%; digital-only plus Sunday grew 62.4%, topping 200,000 for the first time
- Repurchased 3.75 million common shares at an average cost of $8.71 per share
Operating revenues for the fourth quarter were $867.0 million compared to $739.3 million in the prior year fourth quarter, an increase of $127.7 million or 17.3%. The increase in revenue was primarily attributable to acquisitions1 and continued momentum in national digital advertising revenues. Revenue increases were partially offset by ongoing declines in print advertising and circulation demand. On a same-store basis2, operating revenues declined 7.7%. Further, adjusting for the year ago reclassification of certain customer credits, operating revenues declined 8.8%.
Net income for the fourth quarter was $24.6 million including $33.4 million of after-tax restructuring, acquisition, severance, asset impairment, facility consolidation and other related costs. Approximately $18.7 million of these charges were non-cash asset impairments and facility consolidation charges. Adjusted EBITDA for the quarter was $127.0 million, an increase of $0.7 million compared to $126.3 million in the prior year. The improvement in adjusted EBITDA was a result of contributions from acquired businesses1, ongoing operating efficiencies, increases in national digital advertising revenues, and the impact of approximately $8.8 million of favorable changes in certain insurance reserves. These gains were partially offset by declines in print advertising and $3.0 million due to unfavorable foreign currency exchange rate changes.
Operating revenues in the publishing segment were $790.4 million, an increase of $54.8 million or 7.5% compared to the prior year fourth quarter. Excluding $16.3 million of unfavorable foreign currency exchange rate changes and $6.7 million of selected exited operations, revenues increased $77.8 million, or 10.7%. This increase primarily reflects contributions from acquisitions1, a 1.4% increase in organic USA TODAY4 revenues and improved digital performance in local U.S. markets. These increases were partially offset by a 15.3% reduction in print advertising in the U.S. and a 14.2% reduction in print advertising in the U.K. On a same-store basis2, publishing segment revenues were down 7.4%. Further, adjusting for the prior year reclassification of certain customer credits, revenues declined 8.5%, a modest sequential improvement from the 8.7% decline in the third quarter of 2016.
Digital advertising revenues of $110.8 million were up 14.4% compared to the prior year quarter, due primarily to acquisitions1, improved local performance in the U.S. and strong growth at the USA TODAY4. Excluding acquisitions1 and the impact of a 38.7% reduction in the employment category, digital advertising revenues increased 11.9%. The increase was driven by a 41.5% increase in combined video and mobile display and a 21.1% increase in other sources of digital advertising revenues such as digital marketing services and affiliates.
Adjusted EBITDA for the quarter was $148.5 million compared to $156.7 million in the prior year fourth quarter, a decrease of $8.2 million, including $3.0 million in unfavorable foreign currency exchange rate changes. Pressure from declines in print advertising and circulation revenues in the U.S. and U.K. were only partially offset by contributions from acquired businesses1, ongoing cost reductions and efficiency gains in operating expenses, and increases in national digital advertising revenues.
Operating revenues for the quarter were $75.2 million and adjusted EBITDA was $0.9 million. Revenues and adjusted EBITDA were reduced by the $2.1 million estimated fair value adjustment to deferred revenue obligations required by U.S. GAAP. Excluding this adjustment, ReachLocal continues to perform in line with our expectations. ReachLocal is planning its entry into several Gannett markets, which should begin during the second quarter. ReachLocal’s differentiated service model continues to drive strong customer retention rates, in fact in the fourth quarter ReachLocal experienced a 76% quarter over quarter growth rate in the company’s Facebook-focused media solution called ReachSocialTM Ads.
Net cash flow from operating activities for the quarter was approximately $53.0 million. Capital expenditures were approximately $15.0 million, primarily for capacity maintenance, technology investments and real estate projects. During the quarter, the company paid dividends of $18.1 million and repurchased 3.75 million common shares at an average cost of approximately $8.71 per share.
At the end of the fourth quarter of 2016, the company had a cash balance of $114.3 million and a balance on its revolving line of credit of $400.0 million, or net debt of $285.7 million. The company’s revolving line of credit was reduced by $15 million shortly after the end of the fiscal year 2016. The company’s underfunded pension liabilities were $739.3 million, compared to $612.4 million as of December 27, 2015, an increase of $126.9 million. This increase is primarily a result of the decrease in discount rate applied to the U.S. and U.K. plan liabilities.
The company is currently in the process of finalizing its 2017 budget. Preliminarily, for 2017, the company expects a mid-single digit increase in reported revenues and a slight decrease in adjusted EBITDA margins, however we expect to be able to provide a more detailed outlook for 2017 sometime during the first quarter.