Revenues Increase Year-Over-Year
Digital-only Subscriptions Grow 40%
GAAP Diluted Earnings Per Share of $0.10,
Adjusted Diluted Earnings Per Share of $0.30
Gannett Co., Inc. (NYSE: GCI) ("Gannett" or "company" or "we")
today reported second quarter 2016 results of operations.
Recent highlights include:
- Net income of $12.3 million. Adjusted
EBITDA of $89.7 million. Adjusted EBITDA margin of 12.0%.
- National digital advertising revenue up
22.4%, up 18.5% excluding acquisitions.
- Digital-only subscriptions grew
40%.
- Completed the acquisition of Journal
Media Group, Inc. (JMG) and North Jersey Media Group.
- Announced the planned acquisition of
digital marketing solutions leader ReachLocal (NASDAQ: RLOC).
- USA TODAY NETWORK won The Native
Creatives competition for branded VR campaign.
- USA TODAY NETWORK publications The
Detroit Free Press, Milwaukee Journal-Sentinel, and Burlington Free
Press won Edward R. Morrow awards.
Robert J. Dickey, president and chief executive officer, said,
"We are pleased to report tremendous progress in our strategy to
further consolidate the U.S. publishing industry as well as make
internal and acquisition investments to drive toward a digital
future. By the end of the third quarter, we expect that annualized
revenues acquired in the last twelve months will be more than $800
million, and the annualized digital component of our revenues will
approach $1 billion. Additionally, we continue to pursue cost
improvement initiatives in our core operations as well as recently
acquired assets, particularly in the printing, packaging and
distribution channel."
"Evidence of the success of our organic investments in digital
is USA TODAY and Honda winning 'Best Breakthrough Content
Experience' in Sharethrough’s Native Creatives competition for the
VR/360-degree video created by Gannett that enabled viewers to
experience the IndyCar series race in Honda’s Indy car. Our
industry-leading VR/360-degree video content combined with new and
soon to arrive equipment options have positioned us well in the
industry, and we have recently developed VR advertising campaigns
with such global advertising juggernauts as Honda, Toyota and
Tourism Australia," Dickey concluded.
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 its 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 second quarter were $748.8 million
compared to $727.1 million in the prior year, an increase of $21.7
million or 3.0%. Negatively impacting revenues were $15.6 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), $5.7 million of
unfavorable foreign currency exchange rate changes and $9.7 million
of selected exited operations and other items. Excluding these
items, revenues increased $52.7 million, or 7.3%, compared to the
second quarter of 2015. This increase was primarily attributable to
the addition of JMG to the company's results of operations
beginning April 8, 2016 and improvements in national digital
advertising revenues, offset by ongoing advertiser demand shifts
and the impact of an unfavorable affiliate agreement change with
CareerBuilder and its negative impact on classified employment
revenues.
Net income for the second quarter was $12.3 million and included
$23.9 million of after-tax restructuring, severance and other
items. Adjusted EBITDA for the quarter was $89.7 million compared
to $97.0 million in the prior year, a decrease of $7.3 million.
Contributing to the decrease in second quarter adjusted EBITDA were
$6.9 million of reduced EBITDA contribution resulting from changes
to the CareerBuilder affiliate agreement in August 2015 and $1.3
million in unfavorable foreign exchange rate changes. Overall
declines in print advertising and circulation revenues are being
offset by ongoing cost reductions and efficiency gains in operating
expenses, increases in national digital advertising revenues,
selective subscription price optimization strategies and operating
results from acquired businesses.
Acquisitions and Integration
On April 8, 2016, Gannett completed its acquisition of all of
the outstanding common stock of JMG for approximately $261 million,
net of cash acquired. The company financed the transaction by
borrowing $250 million under its revolving credit facility and
using available cash on hand.
On June 27, 2016, Gannett announced the execution of a
definitive merger agreement whereby it would acquire all of the
outstanding shares of ReachLocal, Inc., for $4.60 per share in
cash, via a tender offer and subsequent merger. This per share
price represents a total enterprise value of approximately $156
million. The transaction has been unanimously approved by the
Boards of Directors of both companies and is expected to be
completed in the third quarter of 2016. Gannett expects this
transaction to be approximately neutral to earnings per share in
its first full year and modestly accretive in its second full
year.
On July 6, 2016, Gannett completed the acquisition substantially
all of the assets of North Jersey Media Group Inc., including The
Record (Bergen County), the Herald News, and their
affiliated digital properties. Also included in the acquisition are
the Community News Group, the Magazine Group, and the Events Group.
Gannett expects the transaction to contribute approximately $90
million in annual revenues and will approach approximately
corporate-average margins by the end of the first full year of
operations.
Cash Flow
Net cash flow from operating activities for the quarter was
approximately $67.1 million. In addition to the cash conversion of
its strong EBITDA performance in the quarter, the company generated
approximately $7 million in cash from the disposition of certain
real property resulting from its efficiency and consolidation
efforts. Capital expenditures were approximately $16.0 million,
primarily for printing and technology investments and real estate
projects. During the quarter, the company paid dividends of $37.3
million.
At the end of the second quarter of 2016, the underfunded
pension liability was $509.4 million, compared to $612.4 million as
of December 27, 2015, a reduction of $103.0 million or 16.8%.
Contributing to this reduction is the full year cash contribution
of $25 million made to the Gannett Retirement Plan during the first
quarter and the effect of foreign exchange rate changes.
Outlook
Given the continued successful implementation of the company's
acquisition strategy, the company has revised its annual guidance
and now expects year over year revenue growth for the second half
of 2016 of between 7% and 9%. As a reminder, the third quarter
tends to be a seasonally slower revenue quarter and the fourth
quarter is generally the best revenue quarter of the year. Margins
will remain under pressure, particularly in the third quarter,
driven by the impact of recently acquired businesses, in part
reflecting incremental investments being made to accelerate the
integration of these businesses and achieve the expected synergies,
as well as some other technology related investments. Also, because
of our foreign currency exposure in the U.K., we estimate that the
recent appreciation of the U.S. dollar relative to the Sterling,
will result in a reduction in reported adjusted EBITDA of
approximately $6 million for the second half of 2016.
Additionally for the second half of 2016, the company expects
the following:
- Capital expenditures of $30-$40
million, not including real estate projects.
- Depreciation and amortization of
approximately $65 million.
- Effective tax rate of 34-35%.
* * * *
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 855-462-1958
and international callers should dial 503-343-6635 at least 10
minutes prior to the scheduled start of the call. The confirmation
code for the conference call is 45771000.
Forward Looking Statements
This press release contains certain forward-looking statements
regarding business strategies, market potential, future financial
performance and other matters. Forward-looking statements include
all statements that are not historical facts. The words “believe,”
“expect,” “estimate,” “could,” “should,” “intend,” “may,” “plan,”
“seek,” “anticipate,” “project” and similar expressions, among
others, generally identify forward-looking statements, which speak
only as of the date the statements were made and are not guarantees
of future performance. Where, in any forward-looking statement, an
expectation or belief as to future results or events is expressed,
such expectation or belief is based on the current plans and
expectations of our management and expressed in good faith and
believed to have a reasonable basis, but there can be no assurance
that the expectation or belief will result or be achieved or
accomplished. Whether or not any such forward-looking statements
are in fact achieved will depend on future events, some of which
are beyond our control.
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:
- competitive pressures in the markets in
which we operate;
- 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;
- macroeconomic trends and
conditions;
- economic downturns leading to a
continuing or accelerated decrease in circulation or local,
national or classified advertising;
- potential disruption or interruption of
our operations due to accidents, extraordinary weather events,
civil unrest, political events, terrorism or cyber security
attacks;
- an accelerated decline in general print
readership and/or advertiser patterns as a result of competitive
alternative media or other factors;
- our inability to adapt to technological
changes or grow our online business;
- an increase in newsprint costs over the
levels anticipated;
- labor relations, including, but not
limited to, labor disputes which may cause revenue declines or
increased labor costs;
- risks and uncertainties related to our
ability to successfully integrate JMG’s operations and employees
with our existing business;
- risks and uncertainties related to the
satisfaction of the conditions of the merger agreement between
Gannett and ReachLocal and the consummation of the transactions
contemplated by the merger agreement on a timely basis;
- our ability to successfully integrate
ReachLocal’s operations and employees with our existing business
following the closing of the transactions contemplated by the
merger agreement;
- an inability to realize benefits or
synergies from acquisitions of new businesses or dispositions of
existing businesses, or to operate businesses effectively following
acquisitions or divestitures;
- our ability to attract and retain key
employees;
- rapid technological changes and
frequent new product introductions prevalent in electronic
publishing;
- a weakening in the Sterling compared to
the U.S. dollar exchange rate;
- 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;
- changes in the regulatory environment,
which could encumber or impede our efforts to improve operating
results or the value of assets;
- credit rating downgrades, which could
affect the availability and cost of future financing;
- adverse outcomes in proceedings with
governmental authorities or administrative agencies;
- 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;
- our dependence on our former parent and
other third parties to perform important services for us following
the separation;
- our inability to engage in certain
corporate transactions following the separation;
- any failure to realize expected
benefits from, or the possibility that we may be required to incur
unexpected costs as a result of, the separation; and
- other uncertainties relating to general
economic, political, business, industry, regulatory and market
conditions.
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 annual report on Form 10-K for fiscal year
2015 and subsequent quarterly reports on Form 10-Q. 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 120 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 CONSOLIDATED AND COMBINED
STATEMENTS OF INCOME
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands (except per share
amounts)
Table No. 1 Three months ended
Six months ended Jun. 26, 2016 Jun. 28, 2015 Jun. 26, 2016 Jun. 28,
2015
Operating revenues: Advertising $ 409,834 $
410,487 $ 761,055 $ 807,753 Circulation 287,586 265,904 550,289
537,162 Other 51,371 50,681 96,815 99,517
Total operating revenues 748,791 727,072
1,408,159 1,444,432
Operating expenses: Cost
of sales and operating expenses 486,647 468,531 906,410 948,375
Selling, general and administrative expenses 203,236 176,884
369,561 355,213 Depreciation 29,292 23,958 53,251 48,386
Amortization 1,640 3,608 2,958 7,007 Facility consolidation and
asset impairment charges 3,943 5,097 4,487
6,646
Total operating expenses 724,758 678,078
1,336,667 1,365,627
Operating income 24,033
48,994 71,492 78,805
Non-operating income
(expense): Equity income in unconsolidated investees, net 469
4,495 1,610 10,802 Other non-operating items (3,422 ) 22,895
(7,645 ) 21,437
Total non-operating income (expense) (2,953
) 27,390 (6,035 ) 32,239
Income before income
taxes 21,080 76,384 65,457 111,044 Provision for income taxes
8,806 23,057 21,891 24,470
Net income $
12,274 $ 53,327 $ 43,566 $ 86,574
Earnings per share - basic $ 0.11 $ 0.46 $ 0.37 $ 0.75
Earnings per share - diluted $ 0.10 $ 0.46 $ 0.37 $ 0.75
Weighted average number of common shares outstanding:
Basic 116,516 114,959 116,414 114,959 Diluted 118,955 114,959
118,805 114,959
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 defines adjusted EBITDA, which may not
be comparable to a similarly titled measure reported by other
companies, as net income before (1) income taxes, (2) interest
expense, (3) equity income, (4) other non-operating
items, (5) severance related charges (including early
retirement programs), (6) other transformation items,
(7) asset impairment charges, (8) depreciation and
(9) 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
defines adjusted EPS, which may not be comparable to a similarly
titled measure reported by other companies, 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%. In addition,
tax is adjusted for the impact of nondeductible acquisition costs.
The most directly comparable GAAP financial measure is diluted
EPS.
Adjusted net income is a non-GAAP financial performance measure
that the company uses for the purpose of calculating adjusted EPS.
Adjusted net income is defined as net income before the adjustments
we apply in calculating adjusted EPS, as described above. We
believe that presenting adjusted net income is useful to enable
investors to understand how we calculate adjusted EPS, which
provides a useful view of the overall operation of the company's
business. The most directly comparable GAAP financial measure is
net income.
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. The company defines free cash
flow, which may not be comparable to a similarly titled measure
reported by other companies, as net cash flow from (used for)
operating activities as reported on the statement of cash flows
less capital expenditures, which results in a figure representing
free cash flow available for use in operations, additional
investments and returns to shareholders. The most directly
comparable GAAP financial measure is net cash from operating
activities.
The company uses non-GAAP financial measures for purposes of
evaluating its 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. 2 Three months
ended Six months ended Jun. 26, 2016 Jun. 28, 2015 Jun. 26, 2016
Jun. 28, 2015 Net income (GAAP basis) $ 12,274 $ 53,327 $
43,566 $ 86,574 Provision for income taxes 8,806 23,057 21,891
24,470 Equity income in unconsolidated investees, net (469 ) (4,495
) (1,610 ) (10,802 ) Other non-operating items 3,422 (22,895
) 7,645 (21,437 ) Operating income (GAAP basis) 24,033
48,994 71,492 78,805 Early retirement program (244 ) 7,801 835
7,801 Severance related charges 18,242 7,568 20,859 19,513
Acquisition related items 12,788 — 14,639 — Other transformation
items 223 1,479 (419 ) 3,028 Asset impairment charges 3,720 3,618
3,706 3,618 Depreciation 29,292 23,958 53,251 48,386 Amortization
1,640 3,608 2,958 7,007 Adjusted EBITDA
(non-GAAP basis) $ 89,694 $ 97,026 $ 167,321 $
168,158
NON-GAAP FINANCIAL INFORMATION
ADJUSTED DILUTED EPS
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands (except per share
amounts)
Table No. 3 Three months
ended Six months ended Jun. 26, 2016 Jun. 28, 2015 Jun. 26, 2016
Jun. 28, 2015 Early retirement program $ (244 ) $ 7,801 $
835 $ 7,801 Severance related charges 18,242 7,568 20,859 19,513
Acquisition related items 12,788 (20,621 ) 14,639 (20,621 ) Other
transformation items 223 1,479 (419 ) 3,028 Asset impairment
charges 3,720 3,618 3,769 3,618 Pretax
impact 34,729 (155 ) 39,683 13,339 Income tax impact of above items
(10,864 ) 775 (12,657 ) (3,964 ) Impact of items affecting
comparability on net income $ 23,865 $ 620 $ 27,026
$ 9,375 Net income (GAAP basis) $ 12,274 $
53,327 $ 43,566 $ 86,574 Impact of items affecting comparability on
net income 23,865 620 27,026 9,375
Adjusted net income (non-GAAP basis) $ 36,139 $ 53,947
$ 70,592 $ 95,949 Earnings per share -
diluted (GAAP basis) $ 0.10 $ 0.46 $ 0.37 $ 0.75 Impact of items
affecting comparability on net income 0.20 0.01 0.22
0.08 Adjusted earnings per share - diluted (non-GAAP
basis) $ 0.30 $ 0.47 $ 0.59 $ 0.83
Diluted weighted average number of common shares outstanding
118,955 114,959 118,805 114,959
NON-GAAP FINANCIAL
INFORMATION FREE CASH FLOW
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands
Table No. 4 Three months ended Six
months ended Jun. 26, 2016 Jun. 26, 2016 Net cash flow from
operating activities (GAAP basis) $
67,111
$
81,147
Capital expenditures (15,983 ) (26,136 ) Free cash flow (non-GAAP
basis) $
51,128
$
55,011
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version on businesswire.com: http://www.businesswire.com/news/home/20160727005782/en/
Gannett Co., Inc.For investor inquiries, contact:Michael P.
DickersonVice President, Investor Relations & Real
Estate703-854-6185mdickerson@gannett.comorFor media inquiries,
contact:Amber AllmanVice President, Corporate
Communications703-854-5358aallman@gannett.com
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