GCI New Gannett Co Inc

Strong Improvement in Digital Advertising Revenues

Gannett Co., Inc. (NYSE: GCI) ("Gannett" or "company" or "we" or "our") today reported first quarter 2018 financial results for the period ended March 31, 2018. Our first quarter 2018 comprised 90 days, one less day (Sunday) than our first quarter 2017.

"We are pleased with the momentum we saw this quarter in digital advertising revenues, which reached 43.6% of total advertising revenues in the quarter," said Robert J. Dickey, president and chief executive officer. "Overall, first quarter results were ahead of our expectations driven by solid growth in digital advertising revenues, especially within the digital marketing services category."

"We also experienced lower than expected costs in the quarter primarily driven by favorable savings in compensation and benefits," said Ali Engel, senior vice president and chief financial officer. "This quarter's strong results are a testament to our continued focus on efficiencies to drive steady cash flow, while also investing for our future. Finally, we were pleased to complete a $200 million convertible debt financing in early April that provides us continued flexibility to execute on our strategic transformation."

First Quarter 2018 Consolidated Results

• Operating revenues were $723.0 million, compared to $773.5 million in the first quarter of 2017.
• Favorable changes in foreign currency exchange rates benefited revenues by $7.5 million.
• Same store, day adjusted (1) operating revenues declined 7.2%, an improvement compared to the 8.8% decline in the fourth quarter of 2017. The improvement was due to stronger digital advertising revenue and our strategic subscriber pricing initiatives.
• Total digital revenues increased 9% to $255.5 million, or approximately 35% of total revenue.
• GAAP net losses were $0.4 million, including $14.4 million of after-tax restructuring, asset impairment charges and other costs.
• Adjusted EBITDA (2) totaled $55.1 million compared to $69.7 million in the first quarter of 2017.

First Quarter 2018 Publishing Segment

• Publishing segment operating revenues were $638.7 million compared to $694.9 million in the first quarter of 2017. On a same store, day adjusted basis, segment revenues declined 8.6%.
• Same store, day adjusted print advertising revenues declined 17.2% year-over-year, an improvement from the 18.5% decline in the fourth quarter of 2017. The improvement reflects the benefit from an earlier Easter and a revenue lift associated with the redesign of our obituary sections.
• Digital advertising revenues increased 7.3% to $101.5 million compared to the prior year quarter. On a same store, day adjusted basis, digital advertising revenues increased 5.5%, a strong improvement from the 0.7% gain in the fourth quarter.
  • Digital marketing services advertising revenues of $17.1 million rose 44.3%, on a same store, day adjusted basis, driven by higher client counts and higher average revenue per client.
  • Digital media advertising revenues of $64.4 million rose 6.2%, on a same store, day adjusted basis, due to strong growth in both on- and off-platform revenues.
  • Digital classified advertising revenues of $20.0 million fell 16.2%, on a same store, day adjusted basis, largely reflecting expected declines in the challenged employment category.

• Same store, day adjusted circulation revenues fell 5.1% from the prior year quarter, an improvement from the 6.7% decline in the fourth quarter of 2017 reflecting our full access subscriber pricing initiatives, offset by expected declines in single copy.
• Digital-only subscriber volumes grew 51.0% year-over-year and now total approximately 382,000.
• Publishing segment Adjusted EBITDA was $77.8 million compared to $91.7 million in the prior year quarter.

First Quarter 2018 ReachLocal Segment

• Operating revenues were $96.5 million, up 24.4% year-over-year.
  • The increase was attributable to the migration of Gannett clients onto the ReachLocal platform, the addition of SweetIQ, and organic growth in North America and Latin America.
• Adjusted EBITDA was $6.2 million, nearly doubling from the year ago level and representing a 6.4% margin as compared to 4.1% in the first quarter of 2017.
  • Improved profitability in the quarter was driven by solid growth in average revenue per client due to more successful cross-selling and the migration of Gannett clients onto the ReachLocal platform.

First Quarter 2018 Cash Flow

• Net cash flow from operating activities was approximately $65.2 million compared to $31.4 million in the prior year quarter.
• Capital expenditures were approximately $13.5 million, primarily for product development, technology investments, and maintenance projects.
• The company paid dividends of $18.1 million; there were no share repurchases.
• As of the end of the first quarter, the company had a cash balance of $145.9 million and $305.0 million drawn on its revolver, or net debt of $159.1 million.
  • At the beginning of May, the company's revolver balance had been reduced to $40.0 million with proceeds from its $201.3 million convertible note offering and cash on hand.

Outlook

For 2018, the company reiterates the following:

• Consolidated revenues of $2.93-3.03 billion.
• Consolidated Adjusted EBITDA outlook of $330-340 million.
• Capital expenditures of $65-75 million.
• Depreciation and amortization of $140-150 million, excluding accelerated depreciation related to facility consolidations.
• The non-operating cost associated with our pension plans, recorded in other non-operating items, is currently estimated to be a credit of $5-10 million as compared to an expense of $21 million in 2017.
• An effective tax rate of 25-27%.

  1 The company defines same store, day adjusted revenue as same store revenue assuming 2017 first quarter results only had 90 days.   2 The company defines adjusted EBITDA as earnings before income taxes, interest expense, equity income, other non-operating items, restructuring costs, acquisition-related expenses, asset impairment charges, depreciation, amortization and other items. 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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Conference Call Information

The company will hold a conference call at 10:00 a.m. ET today to discuss its first quarter results. 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 4367227. A conference call replay will be available through June 5, 2018. U.S. callers should dial 855-859-2056 and international callers should dial 404-537-3406.

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:

• our ability to achieve our strategic transformation;
• an accelerated decline in general print readership and/or advertiser patterns as a result of competitive alternative media or other factors;
• an inability to adapt to technological changes or grow our digital businesses;
• risks associated with the operation of an increasingly digital business, such as rapid technological changes, frequent new product introductions, declines in web traffic levels, technical failures and proliferation of ad blocking technologies;
• macroeconomic trends and conditions;
• competitive pressures in the markets in which we operate;
• increases in newsprint costs over the levels anticipated or declines in newsprint supply;
• potential disruption or interruption of our IT systems due to accidents, extraordinary weather events, civil unrest, political events, terrorism or cyber security attacks;
• variability in the exchange rate relative to the U.S. dollar of currencies in foreign jurisdictions in which we operate;
• risks and uncertainties related to strategic acquisitions or investments, including distraction of management attention, incurrence of additional debt, integration challenges, and failure to realize expected benefits or synergies or to operate businesses effectively following acquisitions;
• risks and uncertainties associated with our ReachLocal segment, including its significant reliance on Google for media purchases, its international operations and its ability to develop and gain market acceptance for new products or services;
• our ability to protect our intellectual property or defend successfully against infringement claims;
• our ability to attract and retain employees;
• labor relations, including, but not limited to, labor disputes which may cause business interruptions, revenue declines or increased labor costs;
• risks associated with our underfunded pension plans;
• adverse outcomes in litigation or proceedings with governmental authorities or administrative agencies, or changes in the regulatory environment, any of which could encumber or impede our efforts to improve operating results or the value of assets;
• volatility in financial and credit markets which could affect the value of retirement plan assets and 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;
• risks to our liquidity related to the redemption, conversion and similar features of our convertible notes; 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 is provided 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 2017. 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 an innovative, digitally focused media and marketing solutions company committed to strengthening communities across our network. With an unmatched local-to-national reach, Gannett touches the lives of more than 110 million people monthly with our Pulitzer-Prize winning content, consumer experiences and benefits, and advertiser products and services. Gannett brands include USA TODAY NETWORK with the iconic USA TODAY and more than 100 local media brands, digital marketing services companies ReachLocal and SweetIQ, and U.K. media company Newsquest. To connect with us, visit www.gannett.com.

  CONSOLIDATED STATEMENTS OF INCOME (LOSS)

Gannett Co., Inc. and Subsidiaries

Unaudited, in thousands (except per share amounts)

          Table No. 1   Three months ended

March 31,2018

March 26,2017

  Operating revenues: Advertising $ 399,525 $ 435,515 Circulation 266,586 283,286 Other 56,840   54,656   Total operating revenues 722,951   773,457     Operating expenses: Cost of sales and operating expenses 456,984 499,718 Selling, general and administrative expenses 212,999 209,560 Depreciation and amortization 40,252 46,817 Restructuring costs 9,299 12,551 Asset impairment charges 3,756   3,778   Total operating expenses 723,290   772,424   Operating income (loss) (339 ) 1,033     Non-operating expenses: Interest expense (4,478 ) (4,255 ) Other non-operating items, net 4,311   (3,887 ) Total non-operating expenses (167 ) (8,142 )   Loss before income taxes (506 ) (7,109 ) Benefit for income taxes (129 ) (5,030 ) Net loss $ (377 ) $ (2,079 )   Loss per share - basic $ (0.00 ) $ (0.02 ) Loss per share - diluted $ (0.00 ) $ (0.02 )   Weighted average number of common shares outstanding: Basic 112,756 113,495 Diluted 112,756 113,495     SEGMENT INFORMATION

Gannett Co., Inc. and Subsidiaries

Unaudited, in thousands

          Table No. 2   Three months ended

March 31,2018

March 26,2017

  Operating revenues: Publishing $ 638,660 $ 694,924 ReachLocal 96,488 77,565 Corporate and Other 1,976 968 Intersegment eliminations (14,173 ) —   Total $ 722,951   $ 773,457     Adjusted EBITDA: Publishing $ 77,758 $ 91,664 ReachLocal 6,209 3,146 Corporate and Other (28,899 ) (25,129 ) Total $ 55,068   $ 69,681     Depreciation and amortization: Publishing $ 26,289 $ 33,425 ReachLocal 8,513 7,875 Corporate and Other 5,450   5,517   Total $ 40,252   $ 46,817     Capital expenditures: Publishing $ 4,109 $ 9,496 ReachLocal 3,508 3,686 Corporate and Other 5,931   1,858   Total $ 13,548   $ 15,040       SAME STORE REVENUE DETAIL

Gannett Co., Inc. and Subsidiaries

Unaudited, in thousands

              Table No. 3   Three months ended

March 31,2018

March 26,2017

% Change

  Reported revenue $ 722,951 $ 773,457 (6.5 %) Acquired revenues (11,181 ) — *** Currency impact (7,507 ) — *** Day-adjusted impacts —   (14,612 ) ***   Same store revenue $ 704,263   $ 758,845   (7.2 %)   Reported advertising revenue $ 399,525 $ 435,515 (8.3 %) Acquired revenues (4,794 ) — *** Currency impact (4,970 ) — *** Day-adjusted impacts —   (8,435 ) ***   Same store advertising revenue $ 389,761   $ 427,080   (8.7 %)   Reported circulation revenue $ 266,586 $ 283,286 (5.9 %) Acquired revenues (1,343 ) — *** Currency impact (2,177 ) — *** Day-adjusted impacts —   (5,994 ) ***   Same store circulation revenue $ 263,066   $ 277,292   (5.1 %)     PUBLISHING REVENUE DETAIL

Gannett Co., Inc. and Subsidiaries

Unaudited, in thousands

              Table No. 4   Three months ended

March 31,2018

March 26,2017

% Change   Publishing revenue detail Print advertising: Local $ 99,630 $ 119,255 (16.5 %) Classified 78,400 91,115 (14.0 %) National 47,483   60,108   (21.0 %) Total print advertising 225,513   270,478   (16.6 %) Digital advertising: Digital media 64,386 59,419 8.4 % Digital classified 19,982 23,216 (13.9 %) Digital marketing services 17,109   11,972   42.9 % Total digital advertising 101,477   94,607   7.3 % Total advertising 326,990   365,085   (10.4 %)   Circulation 266,586 283,286 (5.9 %)   Other 45,084 46,553 (3.2 %)       Total Publishing revenue $ 638,660   $ 694,924   (8.1 %)  

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, which may not be comparable to similarly titled measures reported by other companies, 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.

The company defines its non-GAAP measures as follows:

• 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 as net income before (1) income taxes, (2) interest expense, (3) equity income, (4) other non-operating items, (5) restructuring costs, (6) acquisition-related expenses (including certain integration expenses), (7) asset impairment charges, (8) other items (including certain business transformation costs, litigation expenses, multi-employer pension withdrawals, and gains or losses on certain investments), (9) depreciation, and (10) amortization. The most directly comparable GAAP financial measure is net income.
• Adjusted net income is a non-GAAP financial performance measure that the company uses for calculating adjusted earnings per share ("EPS"). Adjusted net income is defined as net income before the adjustments we apply in calculating adjusted EPS, as described below. We believe 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.
• Adjusted diluted 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 as EPS before tax-effected (1) restructuring costs, (2) asset impairment charges, (3) acquisition-related expenses (including certain integration expenses), (4) non-operating (gains) losses, and (5) other items (including certain business transformation expenses, litigation expenses, multi-employer pension withdrawals and gains or losses on certain investments). The tax impact on these non-GAAP tax deductible adjustments is based on the estimated statutory tax rates for the United Kingdom of 19.0% and the United States of 25.5%. In addition, tax is adjusted for the impact of non-deductible acquisition costs, a tax benefit related to a worthless stock and debt deduction, tax expense associated with new tax rates in the U.S. Tax Cuts and Jobs Act, and revaluation of a deferred tax asset associated with a deferred intercompany transaction. 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. The company defines free cash flow as cash flow from 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, debt obligations, 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. 5   Three months ended March 31, 2018 Publishing ReachLocal

Corporate andOther

ConsolidatedTotal

  Net loss (GAAP basis) $ (377 ) Benefit for income taxes (129 ) Interest expense 4,478 Other non-operating items, net (4,311 ) Operating income (loss) (GAAP basis) $ 39,165 $ (2,926 ) $ (36,578 ) $ (339 ) Depreciation and amortization 26,289 8,513 5,450 40,252 Restructuring costs 8,277 539 483 9,299 Asset impairment charges 3,756 — — 3,756 Acquisition-related items — 16 908 924 Other items 271   67   838   1,176   Adjusted EBITDA (non-GAAP basis) $ 77,758   $ 6,209   $ (28,899 ) $ 55,068         Three months ended March 26, 2017 Publishing ReachLocal

Corporate andOther

ConsolidatedTotal

  Net loss (GAAP basis) $ (2,079 ) Benefit for income taxes (5,030 ) Interest expense 4,255 Other non-operating items, net 3,887   Operating income (loss) (GAAP basis) $ 43,519 $ (4,772 ) $ (37,714 ) $ 1,033 Depreciation and amortization 33,425 7,875 5,517 46,817 Restructuring costs 11,121 — 1,430 12,551 Asset impairment charges 3,778 — — 3,778 Acquisition-related items (333 ) 43 1,313 1,023 Other items 154   —   4,325   4,479   Adjusted EBITDA (non-GAAP basis) $ 91,664   $ 3,146   $ (25,129 ) $ 69,681       NON-GAAP FINANCIAL INFORMATION

ADJUSTED DILUTED EPS

Gannett Co., Inc. and Subsidiaries

Unaudited, in thousands (except per share amounts)

          Table No. 6   Three months ended

March 31,2018

March 26,2017

  Restructuring costs (including accelerated depreciation) $ 14,460 $ 22,332 Asset impairment charges 3,756 3,778 Acquisition-related items 924 1,023 Non-operating losses 134 158 Other items 714   1,504   Pretax impact 19,988 28,795 Income tax impact of above items (4,926 ) (11,038 ) Impact of items affecting comparability on net income $ 15,062   $ 17,757     Net loss (GAAP basis) $ (377 ) $ (2,079 ) Impact of items affecting comparability on net income (loss) 15,062   17,757   Adjusted net income (non-GAAP basis) $ 14,685   $ 15,678     Loss per share - diluted (GAAP basis) $ (0.00 ) $ (0.02 ) Impact of items affecting comparability on net income (loss) 0.13   0.16   Adjusted earnings per share - diluted (non-GAAP basis) $ 0.13   $ 0.14     Diluted weighted average number of common shares outstanding (GAAP basis) 112,756 113,495 Diluted weighted average number of common shares outstanding (non-GAAP basis) 115,851 115,273     NON-GAAP FINANCIAL INFORMATION

FREE CASH FLOW

Gannett Co., Inc. and Subsidiaries

Unaudited, in thousands

      Table No. 7  

Three months endedMarch 31, 2018

  Net cash flow from operating activities (GAAP basis) $ 65,153 Capital expenditures (13,548 ) Free cash flow (non-GAAP basis) $ 51,605    

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Gannett Co., Inc.For investor inquiries:Stacy Cunningham, 703-854-3168VP, Financial Planning & Investor Relationsinvestors@gannett.comorThe Blueshirt GroupBrinlea Johnsoninvestors@gannett.comorFor media inquiries:Amber Allman, 703-854-5358Vice President, Corporate Events & Communicationsaallman@gannett.com