November 2, 2017 Last Updated 7:39 am

Cost cutting drives higher profits at Gannett; operating revenue falls 9.4% in Q3

Publishing segment same store print advertising revenues in the third quarter declined 18.7% year-over-year, while digital ad revenue climbs 4.1%

McLEAN, Va. — November 2, 2017 — Gannett Co., Inc.  today reported third quarter 2017 financial results for the period ended September 24, 2017.

“Throughout the quarter, we enhanced audience growth and engagement, expanded our marketing services capabilities and added new offerings to our portfolio,” said Robert J. Dickey, president and chief executive officer. “Specifically, we reached record audiences via our USA TODAY NETWORK, completed the migration of remaining properties to the ReachLocal digital marketing platform, and announced a majority investment in Grateful Ventures which provides us with an increased presence in attractive lifestyle categories.”

Mr. Dickey continued, “We delivered strong year-over-year earnings growth in the third quarter, despite challenging print advertising trends. Profitability gains were driven by improved digital performance, most notably at ReachLocal, as well as the continued realization of synergies from our 2016 local market acquisitions and other cost saving initiatives.”

Third Quarter 2017 Consolidated Results

Third quarter operating revenues were $744.3 million, including a $1.4 million negative impact from hurricanes Harvey and Irma, compared to $772.3 million in the prior year quarter. There was no material impact on revenues related to currency changes in the quarter. The year-over-year performance reflected lower print advertising and circulation revenues offset partially by higher digital advertising revenues and the contribution from acquired operations (1). On a same store basis, operating revenues in the third quarter declined 9.4% (or 10.2% when excluding $6.7 million related to the 2016 third quarter revaluation of acquired deferred revenue), an improvement compared to a decline in the 2017 second quarter of 10.6%, as a result of digital revenue growth. Total digital revenues in the third quarter increased to $245.0 million, or approximately 33% of total revenue, including the contribution from ReachLocal which was acquired in August 2016.

GAAP net income for the third quarter was $23.0 million, including a $20.1 million tax benefit offset partially by $15.4 million of after-tax severance, acquisition, asset impairment, facility consolidation and other costs; approximately $10.3 million of these charges were non-cash. Adjusted EBITDA (2) for the third quarter increased 27.3% to $73.9 million compared to $58.0 million in the prior year quarter with a 240 basis point margin improvement year-over-year, which includes the favorable comparison related to the aforementioned deferred revenue revaluation.

Publishing Segment

Publishing segment operating revenues in the third quarter were $660.3 million compared to $736.6 million in the prior year quarter. On a same store basis, publishing segment operating revenues in the third quarter declined 11.0% year-over-year. Same store print advertising revenues in the third quarter declined 18.7% year-over-year versus a 16.8% decline in the 2017 second quarter. Same store circulation revenues fell 7.6% from the prior year quarter compared to a 7.4% decline in the 2017 second quarter. Digital-only subscriber volumes grew 60% year-over-year and now total approximately 312,000 subscribers.

Digital advertising revenues in the third quarter increased 4.1% to $102.9 million compared to the prior year quarter. On a same store basis, digital revenues increased 3.7% with growth in areas such as mobile, audience extension, digital marketing services and branded content.

Publishing segment adjusted EBITDA for the quarter was $87.5 million compared to $86.4 million in the prior year third quarter reflecting continued operational efficiencies.

ReachLocal Segment

Operating revenues for the third quarter were $93.8 million, a 9% increase on a sequential basis versus the 2017 second quarter. The increase was attributable to continued strong growth in North America and the continued migration of Gannett clients onto the ReachLocal platform.

Adjusted EBITDA was $5.2 million in the 2017 third quarter, representing a 5.6% margin, a significant improvement from the 1.4% margin in the 2017 second quarter. Improved profitability in the quarter was driven by the further scaling of Gannett related revenue on the ReachLocal platform and an increase in the number of products per client in North America that is driving budget growth.

“We reached the one-year mark since being acquired by Gannett in August 2016, and we’re excited by the momentum in the business,” said Sharon Rowlands, chief executive officer of ReachLocal. “We recently completed the roll out of our digital marketing capabilities to the former Journal Media Group properties, and we are now focused on leveraging Gannett’s broad local footprint to drive market share growth of our strong digital solutions.”

Cash Flow

Net cash flow from operating activities for the third quarter was approximately $34.1 million compared to $24.6 million in the prior year quarter. Capital expenditures in the third quarter were approximately $17.1 million, primarily for technology investments and maintenance projects. During the third quarter, the company paid dividends of $18.1 million and repurchased two million shares of its outstanding common stock for $17.4 million.

At the end of the third quarter, the company had a cash balance of $110.0 million and a balance on its revolving line of credit of $375.0 million, or net debt of $265.0 million.

Outlook

The company reiterates its prior revenue guidance for 2017 of $3.15 to $3.22 billion and its Adjusted EBITDA guidance for 2017 for $360 to $365 million.

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

  • Capital expenditures of approximately $60 to $65 million, not including real estate projects;
  • Depreciation and amortization of approximately $145 to $150 million, not including accelerated depreciation; and
  • An effective tax rate of 30% to 32%, on a non-GAAP basis.

1-Acquired businesses in the last twelve months include North Jersey Media Group (“NJMG”) (part of the Publishing segment), as well as ReachLocal, Inc. (“ReachLocal”) and SweetIQ Analytics Corp. (“SweetIQ”) (both part of the ReachLocal segment).

2-The company defines adjusted EBITDA as earnings before income taxes, equity income, other non-operating items (which include interest income and interest expense, among other items), severance-related charges, asset impairment charges, depreciation and amortization. Because of the variability of these and other items as well as the impact of future events on these items, management is unable to reconcile without unreasonable effort the company’s forecasted range of adjusted EBITDA for the full year to a comparable GAAP range.

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