August 3, 2017 Last Updated 10:01 am

Gannett reports small loss in Q2 earnings report, higher overall revenue due to acquisitions

With acquisition of ReachLocal and newspaper properties, total revenue rises 3.4 percent, but same store revenue falls 10.6 percent in the quarter

MCLEAN, Virginia — August 3, 2017 — Gannett Co., Inc. today reported second quarter 2017 financial results for the period ended June 25, 2017. Gannett also reiterated its 2017 full year revenue outlook and increased the lower end of its full year adjusted EBITDA1 guidance based on its solid first half performance.

USA Today“We made further strides during the second quarter to position Gannett for long-term, profitable growth,” said Robert J. Dickey, president and chief executive officer. “We transitioned all of our core Gannett digital marketing services clients to the ReachLocal platform, signed a new employment advertising partnership with RealMatch, and created a new digital ad format powered by a proprietary data engine.”

Mr. Dickey continued, “Moving forward, we will focus on driving audience growth and engagement through additional new product capabilities, while also expanding our marketing services to offer complete solutions for both local and national advertisers. At the same time, we will continue to maximize the economic value of our print business to allow for reinvestment to fuel our digital growth.”

Second Quarter 2017 Consolidated Results

Second quarter operating revenues increased 3.4% to $774.5 million, including a $9.1 million unfavorable foreign currency impact, compared to $748.8 million in the prior year quarter. The year-over-year increase was due to the contribution from acquired operations2. On a same store basis, operating revenues in the second quarter declined 10.6%, a slight improvement compared to a decline in the 2017 first quarter of 10.8%, as a result of improved domestic print advertising and circulation revenues. Total digital revenues in the second quarter grew 43.5% year-over-year to $242.6 million, or approximately 31% of total revenue, which includes the contribution from ReachLocal acquired in August 2016.

GAAP net loss for the second quarter was $0.5 million, including $21.8 million of after-tax restructuring, acquisition, severance, asset impairment, facility consolidation and other related costs; approximately $14.6 million of these charges were non-cash. Adjusted EBITDA for the second quarter was $83.7 million compared to $91.7 million in the prior year quarter.

Publishing Segment

Publishing segment operating revenues in the second quarter were $692.2 million compared to $748.1 million in the prior year quarter. On a same-store basis, publishing segment operating revenues in the second quarter declined 10.7%. This performance is consistent with the 2017 first quarter and reflects improved print advertising and circulation revenues, offset by declines in commercial printing and other revenue. Same store print advertising revenues in the second quarter declined 16.8%, an improvement from the 2017 first quarter decline of 17.8% driven by better domestic national retail trends. Same store circulation revenues fell 7.4%, better than the 2017 first quarter decline of 8.0% due to modest price increases implemented late in the second quarter and 59.5% year-over-year growth in digital-only subscriber volumes, which now total approximately 290,000.

Digital advertising revenues in the second quarter increased 1.3% to $99.5 million compared to the prior year quarter as contributions from acquisitions were partially offset by an unfavorable foreign currency impact of $1.6 million. On a same store basis, digital revenues increased 0.3% as continued strong growth in areas such as mobile display and branded content were offset by classified declines within the employment category. Digital revenue growth in the second quarter was reduced by approximately 2% as a result of transitioning the Gannett markets from G/O Digital to ReachLocal.

Publishing segment adjusted EBITDA for the quarter was $104.1 million, which includes $2.5 million in unfavorable foreign currency impact, compared to $114.3 million in the prior year second quarter.

ReachLocal Segment

Operating revenues for the second quarter were $85.9 million, representing 11% growth on a sequential basis versus the 2017 first quarter. The increase was attributable to the transition of the Gannett markets to the ReachLocal platform and continued strong growth in North America, partially offset by a weaker performance in the international markets.

Adjusted EBITDA was $1.2 million in the second quarter, reflecting expected dilution from the SweetIQ acquisition in April and hiring costs related to the transition of the Gannett markets.

“The second quarter was extremely busy for ReachLocal, as we migrated over 2,000 campaigns within the core Gannett markets in just three months, while also integrating SweetIQ,” said Sharon Rowlands, chief executive officer of ReachLocal. “We are already delivering improved campaign results for the migrated clients based on our superior technology platform and optimization capabilities. During the third quarter, we will be transitioning the remaining Gannett properties acquired from Journal Media Group and continuing our training efforts for all local sales professionals.”

Cash Flow

Net cash flow from operating activities for the second quarter was approximately $98.5 million compared to $67.4 million in the prior year quarter. Capital expenditures in the second quarter were approximately $15 million, primarily for technology investments and maintenance projects. During the second quarter, the company paid dividends of $18.2 million. The company did not repurchase any of its outstanding common stock during the second quarter.

At the end of the second quarter, the company had a cash balance of $126.9 million and a balance on its revolving line of credit of $385.0 million, or net debt of $258.1 million.

Alison Engel, chief financial officer, commented, “We maintained strong financial discipline throughout the organization during the second quarter as evidenced by an 11% decline in same store operating expenses from the prior year period. This reduction represents an acceleration of 200 basis points from 2017 first quarter levels, reflecting significant savings in production and distribution, lower newsprint expense and lower headcount. Our healthy operating cash flows and adjusted EBITDA enable us to invest in the growth areas of Gannett while continuing to return cash to shareholders via our dividend program.”

Outlook

The company maintains its prior revenue guidance for 2017 of $3.15 billion to $3.22 billion. Adjusted EBITDA guidance for the full year 2017 is now expected in the range of $360 million to $365 million compared to its prior guidance of $355 million to $365 million.

Additionally, for the full year 2017, the company expects the following:

  • Capital expenditures of approximately $65 to $70 million, not including real estate projects;
  • Depreciation and amortization of approximately $150 to $155 million, not including accelerated depreciation; and
  • An effective tax rate of 30% to 32%.

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