ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations and quantitative and qualitative disclosures should be read in conjunction with our unaudited condensed consolidated financial statements and related notes and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission. Management's Discussion and Analysis of Financial Condition and Results of Operations contains a number of forward-looking statements that reflect our plans, estimates, and beliefs, all of which are based on our current expectations and could be affected by certain uncertainties, risks, and other factors described under Cautionary Note Regarding Forward-Looking Statements and elsewhere throughout this
Quarterly Report, as well as the factors described in our Annual Report on Form 10-K for the year ended December 31, 2020, and subsequent periodic reports filed with the Securities and Exchange Commission, particularly under "Risk Factors." Our actual results could differ materially from those discussed in the forward-looking statements.
OVERVIEW
We are a subscription-led and digitally-focused media and marketing solutions company committed to empowering communities to thrive. We aim to be the premier source for clarity, connections and solutions within our communities. Our strategy is focused on driving audience growth and engagement by delivering deeper content experiences to our consumers, while offering the products and marketing expertise our advertisers desire. The execution of this strategy is expected to allow us to continue our evolution from a more traditional print media business to a digitally-focused content platform.
Our current portfolio of media assets includes USA TODAY, local media organizations in 46 states in the U.S., and Newsquest, a wholly-owned subsidiary operating in the United Kingdom ("U.K.") with more than 120 local media brands. We also own the digital marketing services companies ReachLocal, Inc. ("ReachLocal"), UpCurve, Inc. ("UpCurve"), and WordStream, Inc. ("WordStream") which are marketed under the LOCALiQ brand, and run the largest media-owned events business in the U.S., USA TODAY NETWORK Ventures.
Through USA TODAY, our local property network, and Newsquest, we deliver high-quality, trusted content where and when consumers want to engage with it on virtually any device or platform. Additionally, we have strong relationships with hundreds of thousands of local and national businesses in both our U.S. and U.K. markets due to our large local and national sales forces and a robust advertising and digital marketing solutions product suite.
Business Trends
We have considered several industry trends when assessing our business strategy:
•Print advertising continues to decline as the audience increasingly moves to digital platforms. We look to optimize our print operations to efficiently manage for this declining print audience. We are focused on converting the growing digital audience into digital-only subscribers to our publications.
•Small and medium-sized businesses ("SMBs") are facing an increasingly complex marketing environment and need to create digital presence to capture audience online. We offer a broad suite of DMS products that offer a single, unified solution to meet their digital marketing needs.
•Consumers are looking for experience-based, emotional connections and communities. USA TODAY NETWORK Ventures was designed to celebrate local communities and create opportunities for meaningful in-person and virtual experiences.
•Digital consumer engagement has declined in comparison to such engagement at the height of the COVID-19 pandemic in the second quarter of 2020, as consumers have been able to return to their pre-pandemic routines and have fewer immediate safety concerns. In addition, the overall news cycle, specifically political coverage, has also slowed, driving less consumer engagement to our sites.
•Newsprint availability is constrained due to manufacturing facility closures and conversions to specialty paper and packaging grades. Further, transportation issues are challenging supplier deliveries.
Certain matters affecting comparability
The following items affect period-over-period comparisons from 2020 and will continue to affect period-over-period comparisons for future results:
Reclassifications
Certain amounts in the prior period condensed consolidated financial statements have been reclassified to conform to the current year presentation. In the fourth quarter of 2020, we re-aligned the breakout of the Publishing segment's Circulation revenues related to Digital-only circulation. As a result of this updated presentation, Print circulation revenues increased and Digital-only circulation revenues decreased $3.6 million and $7.5 million for the three and six months ended June 30, 2020, respectively. There was no impact on reported total Publishing segment or consolidated Circulation revenues.
2027 Notes
At the Special Meeting of stockholders of the Company held on February 26, 2021 (the "Special Meeting"), our stockholders approved the issuance of the maximum number of shares of Common Stock issuable upon conversion of the 6.0% Senior Secured Convertible Notes due 2027 (the "2027 Notes"). As a result, the conversion option can be share-settled in full and qualified for equity classification. Upon reclassification, the conversion feature was adjusted to fair value as of the stockholder approval date and the increase in the fair value resulted in a non-cash loss of $126.6 million due primarily to an increase in our stock price from December 31, 2020. The non-cash loss was recorded in Non-operating expense in the condensed consolidated statements of operations and comprehensive income (loss) for the six months ended June 30, 2021. As of June 30, 2021, the deferred tax asset related to the embedded conversion feature of the 2027 Notes was reclassified to Equity as a reduction to Additional paid-in-capital and reduced the carrying amount of the equity component of the 2027 Notes to $283.7 million.
Integration and reorganization costs
For the three and six months ended June 30, 2021, we incurred Integration and reorganization costs of $8.4 million and $21.8 million, respectively, including $1.1 million and $8.2 million, respectively, related to severance activities and $7.3 million and $13.6 million, respectively, related to other costs, including those for the purpose of consolidating operations.
For the three and six months ended June 30, 2021, we ceased operations of two and ten printing operations, respectively, as part of the synergy and ongoing cost reduction programs. As a result, we recognized accelerated depreciation of $1.1 million and $10.3 million during the three and six months ended June 30, 2021, respectively.
For the three and six months ended June 30, 2020, we incurred Integration and reorganization costs of $32.3 million and $60.6 million, respectively, including $25.7 million and $47.5 million, respectively, related to severance activities and $6.6 million and $13.0 million, respectively, related to other costs, including those for the purpose of consolidating operations.
For the three and six months ended June 30, 2020, we ceased operations of ten and 24 printing operations, respectively, as part of the ongoing cost reduction programs. As a result, we recognized accelerated depreciation of $11.0 million and $35.8 million during the three and six months ended June 30, 2020, respectively.
Goodwill and intangible impairment
During the second quarter of 2021, we (i) compared the fair value of each reporting unit to its carrying amount, which resulted in the fair value of all the reporting groups being in excess of their carrying values and (ii) compared the fair value of each indefinite-lived asset to its carrying amount, which resulted in the fair value of each indefinite-lived asset being in excess of its carrying value. As such, for the three and six months ended June 30, 2021, we did not incur any goodwill and intangible impairments in connection with our annual impairment analysis.
For the three and six months ended June 30, 2020, we incurred goodwill and intangible impairments of $393.4 million, primarily due to the impact of the COVID-19 pandemic on our operations.
Foreign currency
Our U.K. publishing operations are conducted through our Newsquest subsidiary. In addition, our ReachLocal subsidiary has foreign operations in regions such as Canada, Australia/New Zealand and India. Earnings from operations in foreign regions are translated into U.S. dollars at average exchange rates prevailing during the period, and assets and liabilities are translated at exchange rates in effect at the balance sheet date. Translation fluctuations impact revenue, expense, and operating income results for international operations.
Outlook for 2021
Strategy
Our areas of strategic focus for 2021 include:
Accelerating digital subscriber growth
The broad reach of our newsroom network, linking leading national journalism at USA TODAY, our local property network in 46 states in the U.S., and Newsquest in the U.K. with more than 120 local media brands, gives us the ability to deepen our relationships with consumers at both the national and local levels. We bring consumers local news and information that impacts their day-to-day lives while keeping them informed of the national events that impact their country. We believe this local content is not readily obtainable elsewhere, and we are able to deliver that content to our customers across multiple print and digital platforms. As such, a key element of our consumer strategy is growing our paid digital-only subscriber base to 10 million subscribers over the next five years. We expect to do this through expansion of our current subscription products as well as through the launch of new digital subscription offerings tailored to specific users.
Driving digital marketing services growth by engaging more clients in a subscriber relationship
We are now of significant digital scale, with unique reach at both the national and local community levels. We expect to leverage our integrated sales structure and lead generation strategy to continue to aggressively expand our digital marketing services business into our local markets, both domestically and internationally. Given our extensive client base and volume of digital campaigns, we will also use data and insights to inform new and dynamic advertising products that we believe will deliver superior results.
Optimizing our traditional businesses across print and advertising
We will continue to drive the profitability of our traditional print operations through economies of scale, process improvements, and optimizations. We are focused on optimizing our pricing and improving customer service for our print subscribers. Print advertising continues to offer a compelling branding opportunity across our network due to our scale and unique reach at both the national and local community levels.
Prioritizing investments into growth businesses that have significant potential and support our vision
By leveraging our unique footprint, trusted brands, and media reach, we identify, experiment, and invest in potential growth businesses. USA TODAY NETWORK Ventures is a strong example of one such experiment that has grown significantly since its founding in 2015. During 2020, USA TODAY NETWORK Ventures was able to successfully pivot to holding its events virtually, hosting over 250 events. This success has continued in 2021, with over 90 events held through the end of the second quarter of 2021. While live events have resumed in 2021, the majority of events remain virtual. In addition, in connection with our company-wide priority to explore online gaming, in July 2021, we entered into an exclusive agreement with Tipico USA Technology, Inc. ("Tipico"), a U.S.-based subsidiary of European-based Tipico Group of Companies, the leading sports betting provider in Germany, utilizing their Tipico Sportsbook brand.
Impacts of the COVID-19 pandemic
As a result of the COVID-19 pandemic, we experienced a significant decline in Advertising and marketing services revenues, which accelerated the secular declines that we continue to experience. We continue to experience constraints on the sales of single copy newspapers, largely tied to business travel and in-person events. While we have seen operating trends improve since the second quarter of 2020, which represents the quarter that was most significantly impacted by the pandemic, we expect that the COVID-19 pandemic will continue to have a negative impact on our business and results of operations in the near-term, including lower revenues associated with in-person events and sales of single copy newspapers as a result of continued restrictions and reduced business travel. If the COVID-19 pandemic were to revert to conditions that existed during 2020, including measures to help mitigate and control the spread of the virus, we would expect to experience further negative impacts in Advertising and marketing services revenues.
We have implemented, and continue to implement, measures to reduce costs and preserve cash flow. These measures include, evaluating and applying for all governmental relief programs for which we are eligible, including the Paycheck
Protection Program ("PPP"), suspension of the quarterly dividend and refinancing of our debt, as well as reductions in discretionary spending. In addition, we are continuing with our previously disclosed plan to monetize non-core assets.
In connection with the CARES Act, we have received $16.4 million in PPP funding in support of certain of our locations that were meaningfully affected by the COVID-19 pandemic. As of June 30, 2021, PPP loans of $16.4 million are included in Other long-term liabilities in the condensed consolidated balance sheets and in Operating activities in the condensed consolidated statement of cash flows for the six months ended June 30, 2021. Interest expense related to PPP funding was immaterial for the three and six months ended June 30, 2021. Management intends to apply for forgiveness of the PPP loans in accordance with applicable guidelines.
Seasonality
Our revenues are subject to moderate seasonality, due primarily to fluctuations in advertising volumes. Advertising and marketing services revenues for our Publishing segment are typically highest in the fourth quarter, due to holiday and seasonal advertising, and lowest in the first quarter, following the holiday season. The volume of advertising sales in any period is also impacted by other external factors such as competitors' pricing, advertisers' decisions to increase or decrease their advertising expenditures in response to anticipated consumer demand, and general economic conditions.
RESULTS OF OPERATIONS
Consolidated Summary
A summary of our segment results is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
In thousands, except per share amounts
|
|
|
|
|
Change
|
|
|
|
|
|
Change
|
|
2021
|
|
2020
|
|
$
|
|
%
|
|
2021
|
|
2020
|
|
$
|
|
%
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Publishing
|
$
|
724,545
|
|
|
$
|
695,893
|
|
|
$
|
28,652
|
|
|
4
|
%
|
|
$
|
1,424,130
|
|
|
$
|
1,554,043
|
|
|
$
|
(129,913)
|
|
|
(8)
|
%
|
|
Digital Marketing Solutions
|
110,037
|
|
|
94,563
|
|
|
15,474
|
|
|
16
|
%
|
|
212,318
|
|
|
215,844
|
|
|
(3,526)
|
|
|
(2)
|
%
|
|
Corporate and other
|
1,705
|
|
|
2,398
|
|
|
(693)
|
|
|
(29)
|
%
|
|
4,779
|
|
|
5,407
|
|
|
(628)
|
|
|
(12)
|
%
|
|
Intersegment eliminations
|
(32,012)
|
|
|
(25,854)
|
|
|
(6,158)
|
|
|
24
|
%
|
|
(59,868)
|
|
|
(59,611)
|
|
|
(257)
|
|
|
—
|
%
|
|
Total operating revenues
|
804,275
|
|
|
767,000
|
|
|
37,275
|
|
|
5
|
%
|
|
1,581,359
|
|
|
1,715,683
|
|
|
(134,324)
|
|
|
(8)
|
%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Publishing
|
654,255
|
|
|
1,045,492
|
|
|
(391,237)
|
|
|
(37)
|
%
|
|
1,311,485
|
|
|
1,876,021
|
|
|
(564,536)
|
|
|
(30)
|
%
|
|
Digital Marketing Solutions
|
105,035
|
|
|
140,403
|
|
|
(35,368)
|
|
|
(25)
|
%
|
|
206,139
|
|
|
263,135
|
|
|
(56,996)
|
|
|
(22)
|
%
|
|
Corporate and other
|
31,552
|
|
|
44,583
|
|
|
(13,031)
|
|
|
(29)
|
%
|
|
70,217
|
|
|
103,586
|
|
|
(33,369)
|
|
|
(32)
|
%
|
|
Intersegment eliminations
|
(32,012)
|
|
|
(25,854)
|
|
|
(6,158)
|
|
|
24
|
%
|
|
(59,868)
|
|
|
(59,611)
|
|
|
(257)
|
|
|
—
|
%
|
|
Total operating expenses
|
758,830
|
|
|
1,204,624
|
|
|
(445,794)
|
|
|
(37)
|
%
|
|
1,527,973
|
|
|
2,183,131
|
|
|
(655,158)
|
|
|
(30)
|
%
|
|
Operating income (loss)
|
45,445
|
|
|
(437,624)
|
|
|
483,069
|
|
|
***
|
|
53,386
|
|
|
(467,448)
|
|
|
520,834
|
|
|
***
|
|
Non-operating expenses, net
|
13,044
|
|
|
34,483
|
|
|
(21,439)
|
|
|
(62)
|
%
|
|
172,795
|
|
|
76,286
|
|
|
96,509
|
|
|
***
|
|
Income (loss) before income taxes
|
32,401
|
|
|
(472,107)
|
|
|
504,508
|
|
|
***
|
|
(119,409)
|
|
|
(543,734)
|
|
|
424,325
|
|
|
(78)
|
%
|
|
Provision (benefit) for income taxes
|
17,692
|
|
|
(34,276)
|
|
|
51,968
|
|
|
***
|
|
8,583
|
|
|
(25,297)
|
|
|
33,880
|
|
|
***
|
|
Net income (loss)
|
14,709
|
|
|
(437,831)
|
|
|
452,540
|
|
|
***
|
|
(127,992)
|
|
|
(518,437)
|
|
|
390,445
|
|
|
(75)
|
%
|
|
Net loss attributable to redeemable noncontrolling interests
|
(406)
|
|
|
(938)
|
|
|
532
|
|
|
(57)
|
%
|
|
(791)
|
|
|
(1,392)
|
|
|
601
|
|
|
(43)
|
%
|
|
Net income (loss) attributable to Gannett
|
$
|
15,115
|
|
|
$
|
(436,893)
|
|
|
$
|
452,008
|
|
|
***
|
|
$
|
(127,201)
|
|
|
$
|
(517,045)
|
|
|
$
|
389,844
|
|
|
(75)
|
%
|
|
Income (loss) per share attributable to Gannett - basic
|
$
|
0.11
|
|
|
$
|
(3.32)
|
|
|
$
|
3.43
|
|
|
***
|
|
$
|
(0.95)
|
|
|
$
|
(3.95)
|
|
|
$
|
3.00
|
|
|
(76)
|
%
|
|
Income (loss) per share attributable to Gannett - diluted
|
$
|
0.10
|
|
|
$
|
(3.32)
|
|
|
$
|
3.42
|
|
|
***
|
|
$
|
(0.95)
|
|
|
$
|
(3.95)
|
|
|
$
|
3.00
|
|
|
(76)
|
%
|
*** Indicates an absolute value percentage change greater than 100.
Intersegment eliminations in the preceding table represent digital advertising marketing services revenues and expenses associated with products sold by our U.S. local publishing sales teams but fulfilled by our DMS segment. When discussing segment results, these revenues and expenses are presented gross but are eliminated in consolidation.
Operating revenues
Total Operating revenues were $804.3 million and $1.581 billion for three and six months ended June 30, 2021, respectively, an increase of $37.3 million and a decrease of $134.3 million compared to the three and six months ended June 30, 2020, respectively, for the reasons described below.
For the Publishing segment, Operating revenues increased $28.7 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020, reflecting higher Advertising and marketing services revenues of $49.2 million, including both print and digital, and higher Other revenues of $11.8 million, partially offset by lower Circulation revenues of $32.4 million. For the six months ended June 30, 2021, Operating revenues decreased $129.9 million compared to the six months ended June 30, 2020 due to lower Advertising and marketing services revenues of $40.1 million, reflecting lower print and higher digital revenues, lower Circulation revenues of $81.7 million, and lower Other revenues of $8.1 million. Advertising and marketing services revenues are generated by the sale of local, national, and classified print advertising products, digital advertising offerings such as digital classified advertisements, digital media such as display advertisements run on our platforms as well as third-party sites, and digital marketing services delivered by our DMS segment. Circulation revenues are derived from home delivery, digital distribution and single copy sales of our publications. Other revenues are derived mainly from commercial printing, distribution arrangements, revenues from our events business, digital content syndication and affiliate revenues and third party newsprint sales.
For the DMS segment, Operating revenues increased $15.5 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020, reflecting higher Advertising and marketing services revenues of $20.2 million, partially offset by lower Other revenues of $4.8 million. For the six months ended June 30, 2021, Operating revenues decreased $3.5 million compared to the six months ended June 30, 2020, reflecting higher Advertising and marketing services revenues of $5.3 million, which were more than offset by lower Other revenues of $8.8 million. Our DMS segment generates Advertising and marketing services revenues through multiple services, including search advertising, display advertising, search optimization, social media, website development, web presence products, customer relationship management, and software-as-a-service solutions.
For the Corporate and other category, Operating revenues decreased $0.7 million and $0.6 million during the three and six months ended June 30, 2021, respectively, compared to the three and six months ended June 30, 2020. Revenues at our Corporate and other category are primarily driven by cloud offerings and software licensing.
Operating expenses
Total Operating expenses were $758.8 million and $1.528 billion for the three and six months ended June 30, 2021, respectively, a decrease of $445.8 million and $655.2 million compared to the three and six months ended June 30, 2020, respectively. Operating expenses consist primarily of the following:
•Operating costs at the Publishing segment include labor, newsprint and delivery costs and at the DMS segment include the cost of online media acquired from third parties and costs to manage and operate our marketing solutions and technology infrastructure;
•Selling, general and administrative expenses include labor, payroll, outside services, benefits costs and bad debt expense;
•Depreciation and amortization;
•Integration and reorganization costs include severance charges and other costs, including those for the purpose of consolidating our operations (i.e., facility consolidation expenses and integration-related costs);
•Other operating expenses include third-party debt expenses as well as acquisition-related costs;
•Gains or losses on the sale or disposal of assets; and
•Impairment charges, including costs incurred related to goodwill, intangible assets and property, plant and equipment.
For the three months ended June 30, 2021, Operating expenses at our Publishing segment decreased $391.2 million compared to the three months ended June 30, 2020, reflecting a decrease in Operating costs of $6.7 million, a decrease in Depreciation and amortization of $20.1 million, a decrease in Integration and reorganization costs of $20.8 million, a decrease in Asset impairments of $6.9 million, and a decrease in Goodwill and intangible impairments of $352.9 million, partially offset by an increase in Selling, general and administrative expenses of $9.9 million and an increase in Loss on the sale or disposal of
assets of $6.3 million. For the six months ended June 30, 2021, Operating expenses at our Publishing segment decreased $564.5 million compared to the six months ended June 30, 2020, reflecting a decrease in Operating costs of $93.8 million, a decrease in Selling, general and administrative expenses of $54.7 million, a decrease in Depreciation and amortization of $40.7 million, a decrease in Integration and reorganization costs of $26.8 million, a decrease in Asset impairments of $6.0 million, and a decrease in Goodwill and intangible impairments of $352.9 million, partially offset by an increase in Loss on the sale or disposal of assets of $10.4 million.
For the three months ended June 30, 2021, Operating expenses at our DMS segment decreased $35.4 million compared to the three months ended June 30, 2020, reflecting a decrease in Goodwill and intangible impairments of $40.5 million, a decrease in Selling, general and administrative expenses of $6.1 million, a decrease in Integration and reorganization costs of $2.8 million and a decrease in Loss on the sale or disposal of assets of $1.0 million, partially offset by an increase in Operating costs of $11.2 million, and an increase in Depreciation and amortization of $3.8 million. For the six months ended June 30, 2021, Operating expenses at our DMS segment decreased $57.0 million compared to the six months ended June 30, 2020, reflecting a decrease in Goodwill and intangible impairments of $40.5 million, a decrease in Selling, general and administrative expenses of $23.0 million, a decrease in Integration and reorganization costs of $4.0 million and a decrease in Loss on the sale or disposal of assets of $1.1 million, partially offset by an increase in Operating costs of $7.2 million and an increase in Depreciation and amortization of $4.3 million.
For the three months ended June 30, 2021, Operating expenses at Corporate and other decreased $13.0 million compared to the three months ended June 30, 2020, reflecting a decrease in Selling, general and administrative expenses of $9.1 million, a decrease in Depreciation and amortization of $1.8 million, and a decrease in Other operating expenses of $1.6 million. For the six months ended June 30, 2021, Operating expenses at Corporate and other decreased $33.4 million compared to the six months ended June 30, 2020, due to a decrease in Selling, general and administrative expenses of $24.8 million, a decrease in Integration and reorganization costs of $7.9 million, a decrease in Depreciation and amortization of $1.6 million, and a decrease in Operating costs of $1.9 million, partially offset by an increase in Other operating expenses of $3.0 million.
Refer to the discussion of segment results below for further information.
Non-operating (income) expense
Interest expense: For the three and six months ended June 30, 2021, Interest expense was $35.3 million and $74.8 million, respectively, compared to $57.9 million and $115.8 million for the three and six months ended June 30, 2020, respectively. The decrease in interest expense for the three and six months ended June 30, 2021 was mainly due to a lower effective interest rate driven by the refinancing of our five-year, senior-secured 11.5% term loan facility with Apollo Capital Management, L.P. (the "Acquisition Term Loan") in the first quarter of 2021 and a lower debt balance compared to the same period in 2020.
Loss on early extinguishment of debt: For the three and six months ended June 30, 2021, Loss on early extinguishment of debt was $2.8 million and $22.2 million, respectively. For the three and six months ended June 30, 2020, Loss on early extinguishment of debt was $0.4 million and $1.2 million, respectively. The increase in loss for the three months ended June 30, 2021 was mainly due to early prepayments on our five-year, senior-secured term loan facility (the "5-Year Term Loan"). The increase in loss for the six months ended June 30, 2021 was mainly due to the payoff of the Acquisition Term Loan in the first quarter of 2021.
Non-operating pension income: For the three and six months ended June 30, 2021, Non-operating pension income was $23.9 million and $47.8 million, respectively, compared to $17.6 million and $36.1 million for the three and six months ended June 30, 2020, respectively. The increase in non-operating pension income for the three and six months ended June 30, 2021 was primarily due to an increase in the expected return on plan assets held by the Gannett Retirement Plan and lower interest costs on benefit obligations.
Loss on Convertible notes derivative: For the six months ended June 30, 2021, Loss on Convertible notes derivative was $126.6 million, due to the increase in the fair value of the derivative liability as a result of the increase in the Company's stock price.
Provision (benefit) for income taxes
The following table summarizes our Loss before income taxes and income tax accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
In thousands
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Income (loss) before income taxes
|
$
|
32,401
|
|
|
$
|
(472,107)
|
|
|
$
|
(119,409)
|
|
|
$
|
(543,734)
|
|
|
Provision (benefit) for income taxes
|
17,692
|
|
|
(34,276)
|
|
|
8,583
|
|
|
(25,297)
|
|
|
Effective tax rate
|
54.6
|
%
|
|
7.3
|
%
|
|
(7.2)
|
%
|
|
4.7
|
%
|
The provision for income taxes for the three months ended June 30, 2021 was mainly driven by pre-tax income and is impacted by the creation of valuation allowances on non-deductible interest expense carryforwards in combination with the U.K. enacted legislation to increase the statutory tax rate from 19% to 25%, effective April 1, 2023. While the U.K. corporate tax rate change does not impact 2021 or 2022 tax filings, the rate change impacts the tax effected value of the U.K. deferred tax liabilities. The provision was calculated using the estimated annual effective tax rate of 49.6%. The estimated annual effective tax rate is based on a projected tax expense for the full year.
The tax provision for the six months ended June 30, 2021 was mainly impacted by the pre-tax net loss generated during the first quarter of 2021. The tax provision is mainly impacted by the derivative revaluation, which is nondeductible for tax purposes, partially offset by the creation of valuation allowances on non-deductible interest expense carryforwards as well as state income tax and foreign tax expense.
As of June 30, 2021, we reclassified $32.5 million as tax effected in connection with the retirement of the deferred tax asset related to the embedded conversion feature associated with the Company’s 2027 Notes. The retirement of the deferred tax asset resulted from the reclassification of the embedded conversion feature from a derivative liability to Equity as a reduction to Additional paid-in-capital during the first quarter of 2021. See Note 7 - Debt for additional information about the Company's 2027 Notes.
The benefit for income taxes for the three months ended June 30, 2020 was caused largely by the pre-tax net loss generated during the second quarter of 2020. The benefit from income taxes was reduced due to non-deductible asset impairments, non-deductible officers' compensation, and the creation of a valuation allowance against deferred tax assets arising from non-deductible interest carryforwards. These non-deductible expenses resulted in an estimated annual effective tax rate lower than the statutory federal rate of 21%. The benefit for income taxes for the three months ended June 30, 2020 was calculated using the estimated annual effective tax rate of 6.8%. The estimated annual effective tax rate is based on a projected tax benefit for the year.
Several COVID-19 pandemic-related economic relief bills have been enacted into law in 2020 and 2021. We continue to monitor the applicability of federal and state legislation to the Company, as well as regulatory interpretations of enacted legislation that provides economic relief in response to the pandemic and expect to utilize these provisions as we determine necessary or desirable.
Net income (loss) attributable to Gannett and diluted income (loss) per share attributable to Gannett
For the three months ended June 30, 2021, Net income attributable to Gannett and diluted income per share attributable to Gannett were $15.1 million and $0.10, respectively, compared to Net loss attributable to Gannett and diluted loss per share attributable to Gannett of $436.9 million and $3.32 for the three months ended June 30, 2020, respectively. For the six months ended June 30, 2021, Net loss attributable to Gannett and diluted loss per share attributable to Gannett were $127.2 million and $0.95, respectively, compared to $517.0 million and $3.95 for the six months ended June 30, 2020, respectively. The change for the three and six months ended June 30, 2021 reflects the various items discussed above.
Publishing segment
A summary of our Publishing segment results is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
Change
|
|
In thousands
|
2021
|
|
2020
|
|
$
|
|
%
|
|
2021
|
|
2020
|
|
$
|
|
%
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and marketing services
|
$
|
341,481
|
|
|
$
|
292,252
|
|
|
$
|
49,229
|
|
|
17
|
%
|
|
$
|
655,791
|
|
|
$
|
695,888
|
|
|
$
|
(40,097)
|
|
|
(6)
|
%
|
|
Circulation
|
310,258
|
|
|
342,645
|
|
|
(32,387)
|
|
|
(9)
|
%
|
|
635,694
|
|
|
717,365
|
|
|
(81,671)
|
|
|
(11)
|
%
|
|
Other
|
72,806
|
|
|
60,996
|
|
|
11,810
|
|
|
19
|
%
|
|
132,645
|
|
|
140,790
|
|
|
(8,145)
|
|
|
(6)
|
%
|
|
Total operating revenues
|
724,545
|
|
|
695,893
|
|
|
28,652
|
|
|
4
|
%
|
|
1,424,130
|
|
|
1,554,043
|
|
|
(129,913)
|
|
|
(8)
|
%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs
|
426,216
|
|
|
432,920
|
|
|
(6,704)
|
|
|
(2)
|
%
|
|
858,017
|
|
|
951,779
|
|
|
(93,762)
|
|
|
(10)
|
%
|
|
Selling, general and administrative expenses
|
185,930
|
|
|
176,043
|
|
|
9,887
|
|
|
6
|
%
|
|
352,133
|
|
|
406,856
|
|
|
(54,723)
|
|
|
(13)
|
%
|
|
Depreciation and amortization
|
36,416
|
|
|
56,553
|
|
|
(20,137)
|
|
|
(36)
|
%
|
|
82,803
|
|
|
123,510
|
|
|
(40,707)
|
|
|
(33)
|
%
|
|
Integration and reorganization costs
|
(197)
|
|
|
20,619
|
|
|
(20,816)
|
|
|
***
|
|
7,129
|
|
|
33,927
|
|
|
(26,798)
|
|
|
(79)
|
%
|
|
Asset impairments
|
—
|
|
|
6,859
|
|
|
(6,859)
|
|
|
(100)
|
%
|
|
833
|
|
|
6,859
|
|
|
(6,026)
|
|
|
(88)
|
%
|
|
Goodwill and intangible impairments
|
—
|
|
|
352,947
|
|
|
(352,947)
|
|
|
(100)
|
%
|
|
—
|
|
|
352,947
|
|
|
(352,947)
|
|
|
(100)
|
%
|
|
Net (gain) loss on sale or disposal of assets
|
5,890
|
|
|
(449)
|
|
|
6,339
|
|
|
***
|
|
10,570
|
|
|
143
|
|
|
10,427
|
|
|
***
|
|
Total operating expenses
|
654,255
|
|
|
1,045,492
|
|
|
(391,237)
|
|
|
(37)
|
%
|
|
1,311,485
|
|
|
1,876,021
|
|
|
(564,536)
|
|
|
(30)
|
%
|
|
Operating income (loss)
|
$
|
70,290
|
|
|
$
|
(349,599)
|
|
|
$
|
419,889
|
|
|
***
|
|
$
|
112,645
|
|
|
$
|
(321,978)
|
|
|
$
|
434,623
|
|
|
***
|
*** Indicates an absolute value percentage change greater than 100.
Operating revenues
The following table provides the breakout of Operating revenues by category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
Change
|
|
In thousands
|
2021
|
|
2020
|
|
$
|
|
%
|
|
2021
|
|
2020
|
|
$
|
|
%
|
|
Local and national print
|
$
|
127,600
|
|
|
$
|
117,666
|
|
|
$
|
9,934
|
|
|
8
|
%
|
|
$
|
244,999
|
|
|
$
|
290,836
|
|
|
$
|
(45,837)
|
|
|
(16)
|
%
|
|
Classified print
|
73,325
|
|
|
70,229
|
|
|
3,096
|
|
|
4
|
%
|
|
149,122
|
|
|
164,678
|
|
|
(15,556)
|
|
|
(9)
|
%
|
|
Print advertising
|
200,925
|
|
|
187,895
|
|
|
13,030
|
|
|
7
|
%
|
|
394,121
|
|
|
455,514
|
|
|
(61,393)
|
|
|
(13)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital media
|
94,549
|
|
|
65,314
|
|
|
29,235
|
|
|
45
|
%
|
|
174,106
|
|
|
151,811
|
|
|
22,295
|
|
|
15
|
%
|
|
Digital marketing services
|
33,221
|
|
|
23,640
|
|
|
9,581
|
|
|
41
|
%
|
|
61,574
|
|
|
54,179
|
|
|
7,395
|
|
|
14
|
%
|
|
Digital classified
|
12,786
|
|
|
15,403
|
|
|
(2,617)
|
|
|
(17)
|
%
|
|
25,990
|
|
|
34,384
|
|
|
(8,394)
|
|
|
(24)
|
%
|
|
Digital advertising and marketing services
|
140,556
|
|
|
104,357
|
|
|
36,199
|
|
|
35
|
%
|
|
261,670
|
|
|
240,374
|
|
|
21,296
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and marketing services
|
341,481
|
|
|
292,252
|
|
|
49,229
|
|
|
17
|
%
|
|
655,791
|
|
|
695,888
|
|
|
(40,097)
|
|
|
(6)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Print circulation
|
286,252
|
|
|
325,459
|
|
|
(39,207)
|
|
|
(12)
|
%
|
|
588,509
|
|
|
684,377
|
|
|
(95,868)
|
|
|
(14)
|
%
|
|
Digital-only circulation
|
24,006
|
|
|
17,186
|
|
|
6,820
|
|
|
40
|
%
|
|
47,185
|
|
|
32,988
|
|
|
14,197
|
|
|
43
|
%
|
|
Circulation
|
310,258
|
|
|
342,645
|
|
|
(32,387)
|
|
|
(9)
|
%
|
|
635,694
|
|
|
717,365
|
|
|
(81,671)
|
|
|
(11)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
72,806
|
|
|
60,996
|
|
|
11,810
|
|
|
19
|
%
|
|
132,645
|
|
|
140,790
|
|
|
(8,145)
|
|
|
(6)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
$
|
724,545
|
|
|
$
|
695,893
|
|
|
$
|
28,652
|
|
|
4
|
%
|
|
$
|
1,424,130
|
|
|
$
|
1,554,043
|
|
|
$
|
(129,913)
|
|
|
(8)
|
%
|
For the three months ended June 30, 2021, Print advertising revenues increased $13.0 million, mainly due to an improvement in operating trends since the second quarter of 2020, which was the quarter most significantly impacted by the
COVID-19 pandemic. For the three months ended June 30, 2021, Local and national print advertising revenues increased $9.9 million, compared to the three months ended June 30, 2020, primarily due to higher advertising volumes and an increase in advertiser inserts. For the three months ended June 30, 2021, Classified print advertising revenues increased $3.1 million, compared to the three months ended June 30, 2020, due to increased spend in classified advertisements, including legal, employment and real estate. For the six months ended June 30, 2021, the overall decline in Print advertising revenues of $61.4 million was driven by secular industry trends impacting all categories. For the six months ended June 30, 2021, Local and national print advertising revenues decreased $45.8 million compared to the six months ended June 30, 2020, due to lower advertising volume and a decline in advertiser inserts. For the six months ended June 30, 2021, Classified print advertising revenues decreased $15.6 million compared to the six months ended June 30, 2020, due to reduced spend in classified advertisements, including legal, real estate and automotive.
For the three months ended June 30, 2021, Digital advertising and marketing services revenues increased $36.2 million, due to an increase of $29.2 million in Digital media revenues, an increase of $9.6 million in Digital marketing services revenues, and a decrease of $2.6 million in Digital classified revenues, compared to the three months ended June 30, 2020. For the six months ended June 30, 2021, Digital advertising and marketing services revenues increased $21.3 million, due to an increase of $22.3 million in Digital media revenues across both owned and operated sites as well as third-party sites, an increase of $7.4 million in Digital marketing services revenues, and a decrease of $8.4 million Digital classified revenues compared to the six months ended June 30, 2020. For both the three and six months ended June 30, 2021, the overall increase in Digital advertising and marketing services revenues was due to an increase in Digital media spend and Digital marketing services revenues as well as an improvement in operating trends since the second quarter of 2020, which was the quarter most significantly impacted by the COVID-19 pandemic. The increase in Digital media revenues for the three and six months ended June 30, 2021 was driven by a higher mix of premium media sold as well as an overall increase in rate. The increase in Digital marketing services revenues for the three and six months ended June 30, 2021 was due to higher client counts and higher average revenue per customer for digital marketing services sold primarily as a result of focusing on strategic initiatives across our local marketing sales force. The decrease in Digital classified revenues for the three and six months ended June 30, 2021 was due to reductions in spend in automotive, employment and obituary classified advertisements.
For the three and six months ended June 30, 2021, Print circulation revenues decreased $39.2 million and $95.9 million, respectively, compared to the three and six months ended June 30, 2020, driven by a reduction in the volume of home delivery subscribers and a decline in single copy sales reflecting the overall secular trends impacting the industry as well as the impact of the COVID-19 pandemic on business travel and overall consumer activity. For the three and six months ended June 30, 2021, Digital-only circulation revenues increased $6.8 million and $14.2 million, respectively, compared to the three and six months ended June 30, 2020, driven by an increase of 41% in paid digital-only subscribers, including those subscribers on introductory subscription offers, to approximately 1.4 million compared to the prior year as well as a slight increase in average revenue per customer.
For the three months ended June 30, 2021, Other revenues increased $11.8 million compared to the three months ended June 30, 2020, primarily due to commercial print customer retention and growth in local markets, as well as an increase in digital content syndication volume compared to the second quarter of 2020, which was the quarter most impacted by the COVID-19 pandemic. For the six months ended June 30, 2021, Other revenues decreased $8.1 million compared to the six months ended June 30, 2020, primarily due to a decline in event revenues due to fewer in-person events during the six months ended June 30, 2021 compared to the same period in the prior year as a result of the COVID-19 pandemic, as well as declines in the commercial print and delivery business, driven by secular trends impacting the industry, partially offset by an increase digital content syndication volume.
Operating expenses
For the three and six months ended June 30, 2021, Operating costs decreased $6.7 million and $93.8 million, respectively, compared to the three and six months ended June 30, 2020. The following table provides the breakout of the decrease in Operating costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
Change
|
|
In thousands
|
2021
|
|
2020
|
|
$
|
|
%
|
|
2021
|
|
2020
|
|
$
|
|
%
|
|
Newsprint and ink
|
$
|
23,713
|
|
|
$
|
29,542
|
|
|
$
|
(5,829)
|
|
|
(20)
|
%
|
|
$
|
51,984
|
|
|
$
|
69,847
|
|
|
$
|
(17,863)
|
|
|
(26)
|
%
|
|
Distribution
|
112,446
|
|
|
100,627
|
|
|
11,819
|
|
|
12
|
%
|
|
208,551
|
|
|
207,579
|
|
|
972
|
|
|
—
|
%
|
|
Compensation and benefits
|
137,775
|
|
|
144,246
|
|
|
(6,471)
|
|
|
(4)
|
%
|
|
284,893
|
|
|
325,354
|
|
|
(40,461)
|
|
|
(12)
|
%
|
|
Outside services
|
88,918
|
|
|
78,641
|
|
|
10,277
|
|
|
13
|
%
|
|
157,682
|
|
|
164,473
|
|
|
(6,791)
|
|
|
(4)
|
%
|
|
Other
|
63,364
|
|
|
79,864
|
|
|
(16,500)
|
|
|
(21)
|
%
|
|
154,907
|
|
|
184,526
|
|
|
(29,619)
|
|
|
(16)
|
%
|
|
Total operating costs
|
$
|
426,216
|
|
|
$
|
432,920
|
|
|
$
|
(6,704)
|
|
|
(2)
|
%
|
|
$
|
858,017
|
|
|
$
|
951,779
|
|
|
$
|
(93,762)
|
|
|
(10)
|
%
|
For the three and six months ended June 30, 2021, Newsprint and ink costs decreased $5.8 million and $17.9 million, respectively, compared to the three and six months ended June 30, 2020, mainly due to lower print circulation driven by the decline in volume of home delivery and single copy sales, and for the six months ended June 30, 2021 due to declines in print advertising volumes.
For the three months ended June 30, 2021, Distribution costs increased $11.8 million compared to the three months ended June 30, 2020, primarily driven by an increase in distribution postage, an increase in costs associated with distribution employees and contractors related to overtime costs resulting from labor shortages as well as activity in our commercial print business during the quarter. For the six months ended June 30, 2021, Distribution costs were essentially flat compared to the six months ended June 30, 2020 as the increases for the three months ended June 30, 2021 were offset by the decline in print circulation and print advertising volumes incurred in the first quarter of 2021.
For the three and six months ended June 30, 2021, Compensation and benefits costs decreased $6.5 million and $40.5 million, respectively, compared to the three and six months ended June 30, 2020, due to the benefit in 2021 of cost containment initiatives implemented in the second half of 2020 in connection with the COVID-19 pandemic, as well as a reduction in costs associated with ongoing integration efforts, including headcount reductions, offset by the absence of the temporary reduction of expenses in the prior year, such as furloughs and wage reductions in response to the COVID-19 pandemic.
For the three months ended June 30, 2021, Outside services costs, which includes outside printing, professional services fulfilled by third parties, paid search and ad serving, feature services, and credit card fees, increased $10.3 million compared to the three months ended June 30, 2020, due to higher costs associated with the increase in Digital media and Digital marketing services revenues, including paid search fees and affiliate revenue share as well as other related costs, offset by the benefits in 2021 of cost containment initiatives implemented in the second half of 2020 in connection with the COVID-19 pandemic and a reduction in costs associated with ongoing integration efforts. For the six months ended June 30, 2021, Outside services costs decreased $6.8 million compared to the six months ended June 30, 2020, due to the benefit in 2021 of cost containment initiatives implemented in the second half of 2020 in connection with the COVID-19 pandemic and a reduction in costs associated with ongoing integration efforts, offset by higher costs associated with the increase in Digital media and Digital marketing services revenues, including paid search fees and affiliate revenue share as well as other related costs.
For the three and six months ended June 30, 2021, Other costs, which primarily includes travel, and facility and equipment costs, decreased $16.5 million and $29.6 million, respectively, compared to the three and six months ended June 30, 2020, due to a reduction in costs associated with ongoing integration efforts and cost containment initiatives.
For the three and six months ended June 30, 2021, Selling, general and administrative expenses increased $9.9 million and decreased $54.7 million, respectively, compared to the three and six months ended June 30, 2020. The following table provides the breakout of the decrease in Selling, general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
Change
|
|
In thousands
|
2021
|
|
2020
|
|
$
|
|
%
|
|
2021
|
|
2020
|
|
$
|
|
%
|
|
Compensation and benefits
|
$
|
100,403
|
|
|
$
|
88,423
|
|
|
$
|
11,980
|
|
|
14
|
%
|
|
$
|
190,113
|
|
|
$
|
201,950
|
|
|
$
|
(11,837)
|
|
|
(6)
|
%
|
|
Outside services and other
|
85,527
|
|
|
87,620
|
|
|
(2,093)
|
|
|
(2)
|
%
|
|
162,020
|
|
|
204,906
|
|
|
(42,886)
|
|
|
(21)
|
%
|
|
Total Selling, general and administrative expenses
|
$
|
185,930
|
|
|
$
|
176,043
|
|
|
$
|
9,887
|
|
|
6
|
%
|
|
$
|
352,133
|
|
|
$
|
406,856
|
|
|
$
|
(54,723)
|
|
|
(13)
|
%
|
For the three months ended June 30, 2021, Compensation and benefits costs increased $12.0 million compared to the three months ended June 30, 2020, due to the negative impact of higher commission expenses driven by the growth in Advertising and marketing services revenues as well as a difficult comparison to the second quarter of 2020 due to the temporary reduction of expenses in the prior year quarter, such as furloughs and wage reductions, related to cost containment initiatives driven by the COVID-19 pandemic. For the six months ended June 30, 2021, Compensation and benefits costs decreased $11.8 million compared to the six months ended June 30, 2020, due to the benefit in 2021 of cost containment initiatives implemented in the second half of 2020 in connection with the COVID-19 pandemic, as well as a reduction in costs associated with ongoing integration efforts, including headcount reductions, partially offset by the negative impact of higher payroll and commission expenses driven by the growth in Advertising and marketing services revenues and the absence of the temporary reduction of expenses in the prior year, such as furloughs and wage reductions.
For the three and six months ended June 30, 2021, Outside services and other costs, which includes services fulfilled by third parties, decreased $2.1 million and $42.9 million, respectively, compared to the three and six months ended June 30, 2020, due to lower facility related costs, lower bad debt expense and the benefit in 2021 of cost containment initiatives implemented in the second half of 2020 in connection with the COVID-19 pandemic.
For the three and six months ended June 30, 2021, Depreciation and amortization expenses decreased $20.1 million and $40.7 million, respectively, compared to the three and six months ended June 30, 2020, due to a decrease in accelerated depreciation of $9.9 million and $25.5 million, respectively, as a result of fewer print facility shutdowns and strategic dispositions of real estate during the period related to ongoing cost reduction programs.
For the three and six months ended June 30, 2021, Integration and reorganization costs decreased $20.8 million and $26.8 million, respectively, compared to the three and six months ended June 30, 2020 due to a decrease in severance costs of $17.7 million and $23.2 million, respectively, as well as a decrease in other costs, including those for the consolidation of operations of $3.1 million and $3.6 million, respectively. For the three and six months ended June 30, 2021, severance costs were primarily related to facility consolidation activities. For the three and six months ended June 30, 2020, severance costs were related to acquisition-related synergies and the consolidation of the business due to our acquisition of Gannett Co., Inc. (which was renamed Gannett Media Corp. and is referred to as "Legacy Gannett") in the fourth quarter of 2019.
For the three and six months ended June 30, 2021, we did not incur any goodwill and intangible impairments. For the three and six months ended June 30, 2020, we recorded a goodwill and intangible impairment charge of $352.9 million at the Publishing segment, primarily due to the impact of the COVID-19 pandemic on our operations.
For the three and six months ended June 30, 2021, Loss on the sale or disposal of assets increased $6.3 million and $10.4 million, respectively, compared to the three and six months ended June 30, 2020, driven by the sale of assets in 2021 as part of our plan to monetize non-core assets.
Publishing segment Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
Change
|
|
In thousands
|
2021
|
|
2020
|
|
$
|
|
%
|
|
2021
|
|
2020
|
|
$
|
|
%
|
|
Net income (loss) attributable to Gannett
|
$
|
96,431
|
|
|
$
|
(328,207)
|
|
|
$
|
424,638
|
|
|
***
|
|
$
|
162,655
|
|
|
$
|
(281,213)
|
|
|
$
|
443,868
|
|
|
***
|
|
Interest expense
|
—
|
|
|
92
|
|
(92)
|
|
|
(100)
|
%
|
|
—
|
|
|
110
|
|
|
(110)
|
|
|
(100)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating pension income
|
(23,906)
|
|
|
(17,480)
|
|
(6,426)
|
|
|
37
|
%
|
|
(47,784)
|
|
|
(35,953)
|
|
|
(11,831)
|
|
|
33
|
%
|
|
Other non-operating income, net
|
(1,829)
|
|
|
(3,066)
|
|
|
1,237
|
|
|
(40)
|
%
|
|
(1,435)
|
|
|
(3,530)
|
|
|
2,095
|
|
|
(59)
|
%
|
|
Depreciation and amortization
|
36,416
|
|
|
56,553
|
|
|
(20,137)
|
|
|
(36)
|
%
|
|
82,803
|
|
|
123,510
|
|
|
(40,707)
|
|
|
(33)
|
%
|
|
Integration and reorganization costs
|
(197)
|
|
|
20,619
|
|
|
(20,816)
|
|
|
***
|
|
7,129
|
|
|
33,927
|
|
|
(26,798)
|
|
|
(79)
|
%
|
|
Asset impairments
|
—
|
|
|
6,859
|
|
|
(6,859)
|
|
|
(100)
|
%
|
|
833
|
|
|
6,859
|
|
|
(6,026)
|
|
|
(88)
|
%
|
|
Goodwill and intangible impairments
|
—
|
|
|
352,947
|
|
|
(352,947)
|
|
|
(100)
|
%
|
|
—
|
|
|
352,947
|
|
|
(352,947)
|
|
|
(100)
|
%
|
|
Net (gain) loss on sale or disposal of assets
|
5,890
|
|
|
(449)
|
|
|
6,339
|
|
|
***
|
|
10,570
|
|
|
143
|
|
|
10,427
|
|
|
***
|
|
Other items
|
1,384
|
|
|
4,123
|
|
|
(2,739)
|
|
|
(66)
|
%
|
|
1,626
|
|
|
6,214
|
|
|
(4,588)
|
|
|
(74)
|
%
|
|
Adjusted EBITDA (non-GAAP basis)
|
$
|
114,189
|
|
|
$
|
91,991
|
|
|
$
|
22,198
|
|
|
24
|
%
|
|
$
|
216,397
|
|
|
$
|
203,014
|
|
|
$
|
13,383
|
|
|
7
|
%
|
|
Net income (loss) attributable to Gannett margin
|
13.3
|
%
|
|
(47.2)
|
%
|
|
|
|
|
|
11.4
|
%
|
|
(18.1)
|
%
|
|
|
|
|
|
Adjusted EBITDA margin (non-GAAP basis)(a)
|
15.8
|
%
|
|
13.2
|
%
|
|
|
|
|
|
15.2
|
%
|
|
13.1
|
%
|
|
|
|
|
*** Indicates an absolute value percentage change greater than 100.
(a)We define Adjusted EBITDA margin as Adjusted EBITDA divided by total Operating revenues.
Adjusted EBITDA for our Publishing segment was $114.2 million and $216.4 million for the three and six months ended June 30, 2021, respectively, an increase of $22.2 million and $13.4 million compared to the three and six months ended June 30, 2020, respectively. The increase for the three and six months ended June 30, 2021 was primarily attributable to the changes discussed above.
Digital Marketing Solutions segment
A summary of our Digital Marketing Solutions segment results is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
Change
|
|
In thousands
|
2021
|
|
2020
|
|
$
|
|
%
|
|
2021
|
|
2020
|
|
$
|
|
%
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and marketing services
|
$
|
110,037
|
|
|
$
|
89,809
|
|
|
$
|
20,228
|
|
|
23
|
%
|
|
$
|
211,413
|
|
|
$
|
206,092
|
|
|
$
|
5,321
|
|
|
3
|
%
|
|
Other
|
—
|
|
|
4,754
|
|
|
(4,754)
|
|
|
(100)
|
%
|
|
905
|
|
|
9,752
|
|
|
(8,847)
|
|
|
(91)
|
%
|
|
Total operating revenues
|
110,037
|
|
|
94,563
|
|
|
15,474
|
|
|
16
|
%
|
|
212,318
|
|
|
215,844
|
|
|
(3,526)
|
|
|
(2)
|
%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs
|
74,429
|
|
|
63,264
|
|
|
11,165
|
|
|
18
|
%
|
|
143,707
|
|
|
136,519
|
|
|
7,188
|
|
|
5
|
%
|
|
Selling, general and administrative expenses
|
23,079
|
|
|
29,158
|
|
|
(6,079)
|
|
|
(21)
|
%
|
|
46,910
|
|
|
69,892
|
|
|
(22,982)
|
|
|
(33)
|
%
|
|
Depreciation and amortization
|
7,850
|
|
|
4,004
|
|
|
3,846
|
|
|
96
|
%
|
|
15,679
|
|
|
11,335
|
|
|
4,344
|
|
|
38
|
%
|
|
Integration and reorganization costs
|
204
|
|
|
2,962
|
|
|
(2,758)
|
|
|
(93)
|
%
|
|
370
|
|
|
4,351
|
|
|
(3,981)
|
|
|
(91)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and intangible impairments
|
—
|
|
|
40,499
|
|
|
(40,499)
|
|
|
***
|
|
—
|
|
|
40,499
|
|
|
(40,499)
|
|
|
***
|
|
Net (gain) loss on sale or disposal of assets
|
(527)
|
|
|
516
|
|
|
(1,043)
|
|
|
***
|
|
(527)
|
|
|
539
|
|
|
(1,066)
|
|
|
***
|
|
Total operating expenses
|
105,035
|
|
|
140,403
|
|
|
(35,368)
|
|
|
(25)
|
%
|
|
206,139
|
|
|
263,135
|
|
|
(56,996)
|
|
|
(22)
|
%
|
|
Operating income (loss)
|
$
|
5,002
|
|
|
$
|
(45,840)
|
|
|
$
|
50,842
|
|
|
***
|
|
$
|
6,179
|
|
|
$
|
(47,291)
|
|
|
$
|
53,470
|
|
|
***
|
*** Indicates an absolute value percentage change greater than 100.
Operating revenues
For the three and six months ended June 30, 2021, Advertising and marketing services revenues increased $20.2 million and $5.3 million compared to the three and six months ended June 30, 2020. The increase for the three months ended June 30, 2021 was primarily driven by growth in the core ReachLocal business and an improvement in operating trends since the second quarter of 2020, which was the quarter most significantly impacted by the COVID-19 pandemic. The increase for the six months ended June 30, 2021 was primarily due to growth in the core ReachLocal business, partially offset by the absence of $10.4 million of revenues in 2021 as a result of the change in media rebate programs, as well as the absence of revenues associated with a business we divested in the third quarter of 2020.
For the three and six months ended June 30, 2021, Other revenues decreased $4.8 million and $8.8 million, respectively, compared to the three and six months ended June 30, 2020, primarily due to the absence of revenues related to systems integration services associated with a business we divested in the fourth quarter of 2020.
Operating expenses
For the three and six months ended June 30, 2021, Operating costs increased $11.2 million and $7.2 million, respectively, compared to the three and six months ended June 30, 2020. The following table provides the breakout of Operating costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
Change
|
|
In thousands
|
2021
|
|
2020
|
|
$
|
|
%
|
|
2021
|
|
2020
|
|
$
|
|
%
|
|
Compensation and benefits
|
$
|
7,680
|
|
|
$
|
10,594
|
|
|
$
|
(2,914)
|
|
|
(28)
|
%
|
|
$
|
15,815
|
|
|
$
|
24,223
|
|
|
$
|
(8,408)
|
|
|
(35)
|
%
|
|
Outside services
|
64,400
|
|
|
48,927
|
|
|
15,473
|
|
|
32
|
%
|
|
123,091
|
|
|
103,934
|
|
|
19,157
|
|
|
18
|
%
|
|
Other
|
2,349
|
|
|
3,743
|
|
|
(1,394)
|
|
|
(37)
|
%
|
|
4,801
|
|
|
8,362
|
|
|
(3,561)
|
|
|
(43)
|
%
|
|
Total operating costs
|
$
|
74,429
|
|
|
$
|
63,264
|
|
|
$
|
11,165
|
|
|
18
|
%
|
|
$
|
143,707
|
|
|
$
|
136,519
|
|
|
$
|
7,188
|
|
|
5
|
%
|
For the three and six months ended June 30, 2021, Compensation and benefits costs decreased $2.9 million and $8.4 million, respectively, compared to the three and six months ended June 30, 2020, due to the benefit in 2021 of cost containment initiatives implemented in the second half of 2020 in connection with the COVID-19 pandemic, as well as a reduction in costs
associated with ongoing integration efforts, including headcount reductions, offset by the absence of the temporary reduction of expenses in the prior year, such as furloughs and wage reductions.
For the three and six months ended June 30, 2021, Outside services costs, which includes professional services fulfilled by third parties, media fees and other digital costs, increased $15.5 million and $19.2 million, respectively, compared to the three and six months ended June 30, 2020, due to an increase in expenses associated with third-party media fees driven by an increase in corresponding revenue.
For the three and six months ended June 30, 2021, Selling, general and administrative expenses decreased $6.1 million and $23.0 million, respectively, compared to the three and six months ended June 30, 2020. The following table provides the breakout of the decrease in Selling, general and administrative expenses by category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
Change
|
|
In thousands
|
2021
|
|
2020
|
|
$
|
|
%
|
|
2021
|
|
2020
|
|
$
|
|
%
|
|
Compensation and benefits
|
$
|
17,175
|
|
|
$
|
27,947
|
|
|
$
|
(10,772)
|
|
|
(39)
|
%
|
|
$
|
35,237
|
|
|
$
|
63,720
|
|
|
$
|
(28,483)
|
|
|
(45)
|
%
|
|
Outside services and other
|
5,904
|
|
|
1,211
|
|
|
4,693
|
|
|
***
|
|
11,673
|
|
|
6,172
|
|
|
5,501
|
|
|
89
|
%
|
|
Total Selling, general and administrative expenses
|
$
|
23,079
|
|
|
$
|
29,158
|
|
|
$
|
(6,079)
|
|
|
(21)
|
%
|
|
$
|
46,910
|
|
|
$
|
69,892
|
|
|
$
|
(22,982)
|
|
|
(33)
|
%
|
*** Indicates an absolute value percentage change greater than 100.
For the three and six months ended June 30, 2021, Compensation and benefits costs decreased $10.8 million and $28.5 million, respectively, compared to the three and six months ended June 30, 2020, due to the benefit in 2021 of cost containment initiatives implemented in the second half of 2020 in connection with the COVID-19 pandemic, as well as a reduction in costs associated with ongoing integration efforts, including headcount reductions, offset by the absence of the temporary reduction of expenses in the prior year, such as furloughs and wage reductions.
For the three and six months ended June 30, 2021, Outside services and other costs increased $4.7 million and $5.5 million, respectively, compared to the three and six months ended June 30, 2020, due to an increase in various miscellaneous expenses.
For the three and six months ended June 30, 2021, Integration and reorganization costs decreased $2.8 million and $4.0 million, respectively, compared to the three and six months ended June 30, 2020 due to lower severance costs of $2.8 million and $4.2 million, respectively. For the three and six months ended June 30, 2020, severance costs were related to acquisition-related synergies and the consolidation of the business due to our acquisition of Legacy Gannett in the fourth quarter of 2019.
For the three and six months ended June 30, 2021, we did not incur any goodwill and intangible impairments. For the three and six months ended June 30, 2020, we recorded a goodwill and intangible impairment charge of $40.5 million at the DMS segment, primarily due to the impact of the COVID-19 pandemic on our operations.
Digital Marketing Solutions segment Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
Change
|
|
In thousands
|
2021
|
|
2020
|
|
$
|
|
%
|
|
2021
|
|
2020
|
|
$
|
|
%
|
|
Net income (loss) attributable to Gannett
|
$
|
4,904
|
|
|
$
|
(43,226)
|
|
|
$
|
48,130
|
|
|
***
|
|
$
|
5,985
|
|
|
$
|
(48,301)
|
|
|
$
|
54,286
|
|
|
***
|
|
Other non-operating expense (income), net
|
98
|
|
|
(2,614)
|
|
|
2,712
|
|
|
***
|
|
194
|
|
|
1,010
|
|
|
(816)
|
|
|
(81)
|
%
|
|
Depreciation and amortization
|
7,850
|
|
|
4,004
|
|
|
3,846
|
|
|
96
|
%
|
|
15,679
|
|
|
11,335
|
|
|
4,344
|
|
|
38
|
%
|
|
Integration and reorganization costs
|
204
|
|
|
2,962
|
|
|
(2,758)
|
|
|
(93)
|
%
|
|
370
|
|
|
4,351
|
|
|
(3,981)
|
|
|
(91)
|
%
|
|
Goodwill and intangible impairments
|
—
|
|
|
40,499
|
|
|
(40,499)
|
|
|
***
|
|
—
|
|
|
40,499
|
|
|
(40,499)
|
|
|
***
|
|
Net (gain) loss on sale or disposal of assets
|
(527)
|
|
|
516
|
|
|
(1,043)
|
|
|
***
|
|
(527)
|
|
|
539
|
|
|
(1,066)
|
|
|
***
|
|
Other items
|
—
|
|
|
643
|
|
|
(643)
|
|
|
***
|
|
—
|
|
|
1,235
|
|
|
(1,235)
|
|
|
***
|
|
Adjusted EBITDA (non-GAAP basis)
|
$
|
12,529
|
|
|
$
|
2,784
|
|
|
$
|
9,745
|
|
|
***
|
|
$
|
21,701
|
|
|
$
|
10,668
|
|
|
$
|
11,033
|
|
|
***
|
|
Net income (loss) attributable to Gannett margin
|
4.5
|
%
|
|
(45.7)
|
%
|
|
|
|
|
|
2.8
|
%
|
|
(22.4)
|
%
|
|
|
|
|
|
Adjusted EBITDA margin (non-GAAP basis)(a)
|
11.4
|
%
|
|
2.9
|
%
|
|
|
|
|
|
10.2
|
%
|
|
4.9
|
%
|
|
|
|
|
*** Indicates an absolute value percentage change greater than 100.
(a)We define Adjusted EBITDA margin as Adjusted EBITDA divided by total Operating revenues.
Adjusted EBITDA for our Digital Marketing Solutions segment was $12.5 million and $21.7 million for the three and six months ended June 30, 2021, respectively, compared to $2.8 million and $10.7 million in three and six months ended June 30, 2020, respectively, primarily attributable to the changes discussed above.
Corporate and other category
For the three months ended June 30, 2021, Corporate and other operating revenues were $1.7 million compared to $2.4 million for the three months ended June 30, 2020. For the six months ended June 30, 2021, Corporate and other operating revenues were $4.8 million compared to $5.4 million for the six months ended June 30, 2020.
For the three and six months ended June 30, 2021, Corporate and other operating expenses decreased $13.0 million and $33.4 million, respectively, compared to the three and six months ended June 30, 2020. The following table provides the breakout of the decrease in Corporate and Other operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
Change
|
|
In thousands
|
2021
|
|
2020
|
|
$
|
|
%
|
|
2021
|
|
2020
|
|
$
|
|
%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs
|
$
|
4,539
|
|
|
$
|
4,691
|
|
|
$
|
(152)
|
|
|
(3)
|
%
|
|
$
|
8,495
|
|
|
$
|
10,439
|
|
|
$
|
(1,944)
|
|
|
(19)
|
%
|
|
Selling, general and administrative expenses
|
13,895
|
|
|
22,997
|
|
|
(9,102)
|
|
|
(40)
|
%
|
|
28,164
|
|
|
52,947
|
|
|
(24,783)
|
|
|
(47)
|
%
|
|
Depreciation and amortization
|
3,976
|
|
|
5,770
|
|
|
(1,794)
|
|
|
(31)
|
%
|
|
7,863
|
|
|
9,507
|
|
|
(1,644)
|
|
|
(17)
|
%
|
|
Integration and reorganization costs
|
8,437
|
|
|
8,725
|
|
|
(288)
|
|
|
(3)
|
%
|
|
14,349
|
|
|
22,282
|
|
|
(7,933)
|
|
|
(36)
|
%
|
|
Other operating expenses
|
774
|
|
|
2,379
|
|
|
(1,605)
|
|
|
(67)
|
%
|
|
11,350
|
|
|
8,348
|
|
|
3,002
|
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss on sale or disposal of assets
|
(69)
|
|
|
21
|
|
|
(90)
|
|
|
***
|
|
(4)
|
|
|
63
|
|
|
(67)
|
|
|
***
|
|
Total operating expenses
|
$
|
31,552
|
|
|
$
|
44,583
|
|
|
$
|
(13,031)
|
|
|
(29)
|
%
|
|
$
|
70,217
|
|
|
$
|
103,586
|
|
|
$
|
(33,369)
|
|
|
(32)
|
%
|
*** Indicates an absolute value percentage change greater than 100.
For the three months ended June 30, 2021, Corporate and other operating expenses decreased $13.0 million compared to the three months ended June 30, 2020 due to a decrease in Selling, general and administrative expenses of $9.1 million, mainly consisting of cost containment initiatives, offset by the absence of the temporary reduction of expenses in the prior year, such as
furloughs and wage reductions, a decrease in Depreciation and amortization of $1.8 million, and a decrease in Other operating expenses of $1.6 million, which was primarily due to $0.7 million of third-party fees related to the 5-Year Term Loan (defined below) expensed during the three months ended June 30, 2021 compared to $2.4 million of Acquisition costs incurred during the three months ended June 30, 2020.
For the six months ended June 30, 2021, Corporate and other operating expenses decreased $33.4 million due to a decrease in Selling, general and administrative expenses of $24.8 million, mainly consisting of cost containment initiatives, offset by the absence of the temporary reduction of expenses in the prior year, such as furloughs and wage reductions, a decrease in Integration and reorganization costs of $7.9 million, driven by a decrease in severance of $11.8 million, offset by an increase of $3.9 million in costs associated with systems implementation and outsourcing of corporate functions. These decreases were offset by an increase in Other operating expenses of $3.0 million, which was primarily due to $10.9 million of third-party fees related to the 5-Year Term Loan expensed during the six months ended June 30, 2021 compared to $8.3 million of Acquisition costs incurred during the six months ended June 30, 2020.
LIQUIDITY AND CAPITAL RESOURCES
Our primary cash requirements are for working capital, debt obligations, and capital expenditures.
We expect to fund our operations through cash provided by operating activities. We expect we will have adequate capital resources and liquidity to meet our ongoing working capital needs, borrowing obligations, and all required capital expenditures.
Details of our cash flows are included in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
In thousands
|
2021
|
|
2020
|
|
Net cash provided by operating activities
|
$
|
92,587
|
|
|
$
|
24,640
|
|
|
Net cash provided by (used for) investing activities
|
7,185
|
|
|
(3,026)
|
|
|
Net cash used for financing activities
|
(120,979)
|
|
|
(20,331)
|
|
|
Effect of currency exchange rate change on cash
|
625
|
|
|
(780)
|
|
|
(Decrease) increase in cash, cash equivalents and restricted cash
|
$
|
(20,582)
|
|
|
$
|
503
|
|
Cash flows provided by operating activities: Our largest source of cash provided by our operations is Advertising revenues primarily generated from Local and national advertising and marketing services revenues (retail, classified, and online). Additionally, we generate cash through circulation subscribers, commercial printing and delivery services to third parties, and events. Our primary uses of cash from our operating activities include compensation, newsprint, delivery, and outside services.
Our net cash flow provided by operating activities was $92.6 million for the six months ended June 30, 2021, compared to net cash provided by operating activities of $24.6 million for the six months ended June 30, 2020. The increase in net cash flow provided by operating activities was primarily due to a decrease in interest paid on debt of $75.4 million, a decrease in severance payments of $22.1 million, $16.4 million in PPP funding received in support of certain of our locations that were meaningfully affected by the COVID-19 pandemic and an increase in tax refunds of $7.0 million. These increases were partially offset by a decrease in working capital of $30.0 million due to the overall timing of payments, including accrued compensation and accounts receivable collections, and an increase in contributions to our pension and other postretirement benefit plans of $16.8 million.
Cash flows provided by (used for) investing activities: Cash flows provided by investing activities totaled $7.2 million for the six months ended June 30, 2021 compared to $3.0 million used for investing activities in the six months ended June 30, 2020. This increase was primarily due to a decrease in purchases of property, plant and equipment of $6.3 million and an increase in proceeds from the sale of real estate and other assets of $5.5 million.
Cash flows used for financing activities: Cash flows used for financing activities totaled $121.0 million for the six months ended June 30, 2021 compared to $20.3 million for the six months ended June 30, 2020. This increase was primarily due to an increase in net repayments under term loans of $65.6 million and payments of debt issuance costs of $33.9 million.
Senior Secured 5-Year Term Loan
On February 9, 2021, we entered into a five-year, senior-secured term loan facility with the lenders from time to time party thereto and Citibank, N.A., as collateral agent and administrative agent for the lenders, in an aggregate principal amount of $1.045 billion (the "5-Year Term Loan"). The 5-Year Term Loan matures on February 9, 2026 and, at the Company's option, bears interest at the rate of the London Interbank Offered Rate plus a margin equal to 7.00% per annum or an alternate base rate plus a margin equal to 6.00% per annum. Accordingly, we are required to dedicate a substantial portion of cash flow from operations to fund interest payments. Interest on the 5-Year Term Loan is payable every three months in arrears, beginning in May 2021.
The proceeds from the 5-Year Term Loan were used to repay the remaining principal balance and accrued interest of $1.043 billion and $13.3 million, respectively, on the Acquisition Term Loan (the "Payoff") and to pay fees and expenses incurred to obtain the 5-Year Term Loan.
There were certain lenders that participated in both the Acquisition Term Loan and the new 5-Year Term Loan and their balances in the Acquisition Term Loan were deemed to be modified. The Company will continue to defer, over the new term, the deferred financing fees and original issue discount from the Acquisition Term Loan of $1.5 million and $34.7 million, respectively, related to those lenders. Further, certain lenders in the Acquisition Term Loan did not participate in the new 5-Year Term Loan and their balances in the Acquisition Term Loan were deemed to be extinguished. As a result, the Company recognized a Loss on early extinguishment of debt of $17.2 million as a result of the write-off of the remaining original issue discount and deferred financing fees related to those lenders. Third party fees of approximately $13.0 million were allocated to the new lenders in the 5-Year Term Loan on a pro-rata basis, and $20.9 million of original issue discount were capitalized and will be amortized over the term of the 5-Year Term Loan using the effective interest method. Third party fees of $0.7 million and $10.9 million, which were allocated to the lenders whose balances were deemed to be modified, were expensed and recorded in Other operating expenses in the condensed consolidated statements of operations and comprehensive income (loss) for the three and six months ended June 30, 2021, respectively.
The 5-Year Term Loan will amortize in equal quarterly installments at a rate of 10% per annum (or, if the ratio of Total Indebtedness secured on an equal priority basis with the 5-Year Term Loan (net of Unrestricted Cash) to Consolidated EBITDA (as such terms are defined in the 5-Year Term Loan) is equal to or less than a specified ratio, 5% per annum) (the "Quarterly Amortization Installment"), beginning September 30, 2021. In addition, we will be required to repay the 5-Year Term Loan from time to time with (i) the proceeds of non-ordinary course asset sales and casualty and condemnation events, (ii) the proceeds of indebtedness that is not otherwise permitted under the 5-Year Term Loan and (iii) the aggregate amount of cash and cash equivalents on hand in excess of $100 million at the end of each fiscal year. The 5-Year Term Loan is subject to a requirement to have minimum unrestricted cash of $30 million as of the last day of each fiscal quarter. As of June 30, 2021, we were in compliance with all of the covenants and obligations under the 5-Year Term Loan.
As of June 30, 2021, we had $990.5 million in aggregate principal outstanding under the 5-Year Term Loan with an effective interest rate of 9.5%.
Under the 5-Year Term Loan, the Company is contractually obligated to make prepayments with the proceeds from asset sales and may elect to make optional payments with excess free cash flow from operations. For the three and six months ended June 30, 2021, we made prepayments totaling $45.8 million and $54.5 million, respectively, which were classified as financing activities in the condensed consolidated statements of cash flows. These amounts are inclusive of both mandatory and optional prepayments.
Senior Secured Convertible Notes due 2027
On November 17, 2020, the Company entered into an Exchange Agreement with certain of the lenders (the "Exchanging Lenders") under the Acquisition Term Loan pursuant to which the Company and the Exchanging Lenders agreed to exchange $497.1 million in aggregate principal amount of the Company’s newly issued 6.0% Senior Secured Convertible Notes due 2027 (the "2027 Notes") for the retirement of an equal amount of term loans under the Acquisition Term Loan (the "Exchange"). The 2027 Notes were issued pursuant to an Indenture (the "Indenture") dated as of November 17, 2020, between the Company and U.S. Bank National Association, as trustee. The Indenture, as supplemented by the Second Supplemental Indenture, includes affirmative and negative covenants that are substantially consistent with the 5-Year Term Loan, as well as customary events of default.
In connection with the Exchange, the Company entered into an Investor Agreement with the holders of the 2027 Notes (the "Holders") establishing certain terms and conditions concerning the rights and restrictions on the Holders with respect to the Holders' ownership of the 2027 Notes.
Interest on the 2027 Notes is payable semi-annually in arrears. The 2027 Notes mature on December 1, 2027, unless earlier repurchased or converted. The 2027 Notes may be converted at any time by the holders into cash, shares of the Company’s Common Stock or any combination of cash and Common Stock, at the Company's election. The initial conversion rate is 200 shares of Common Stock per $1,000 principal amount of the 2027 Notes, which is equal to a conversion price of $5.00 per share of Common Stock (the "Conversion Price").
The conversion rate is subject to customary adjustment provisions as provided in the Indenture. In addition, the conversion rate will be subject to adjustment in the event of any issuance or sale of Common Stock (or securities convertible into Common Stock) at a price equal to or less than the Conversion Price in order to ensure that following such issuance or sale, the 2027 Notes would be convertible into approximately 42% of the Common Stock after giving effect to such issuance or sale assuming the initial principal amount of the 2027 Notes remains outstanding.
Upon the occurrence of a "Make-Whole Fundamental Change" (as defined in the Indenture), the Company will in certain circumstances increase the conversion rate for a specified period of time. If a "Fundamental Change" (as defined in the Indenture) occurs, the Company will be required to offer to repurchase the 2027 Notes at a repurchase price of 110% of the principal amount thereof.
Holders of the 2027 Notes will have the right to put up to approximately $100 million of the 2027 Notes at par on or after the date that is 91 days after the maturity date of the 5-Year Term Loan.
Under the Indenture, the Company can only pay cash dividends up to an agreed-upon amount, provided the ratio of consolidated debt to EBITDA (as such terms are defined in the Indenture) does not exceed a specified ratio. In addition, the Indenture provides that, at any time that the Company’s Total Gross Leverage Ratio (as defined in the Indenture) exceeds 1.5 and the Company approves the declaration of a dividend, the Company must offer to purchase a principal amount of 2027 Notes equal to the proposed amount of the dividend.
Until the four-year anniversary of the issuance date, the Company will have the right to redeem for cash up to approximately $99.4 million of the 2027 Notes at a redemption price of 130% of the principal amount thereof, with such amount reduced ratably by any principal amount of 2027 Notes that has been converted by the holders or redeemed or purchased by the Company.
The 2027 Notes are guaranteed by Gannett Holdings LLC and any subsidiaries of the Company (collectively, the "Guarantors") that guarantee the 5-Year Term Loan. The Notes are secured by the same collateral securing the 5-Year Term Loan. The 2027 Notes rank as senior secured debt of the Company and are secured by a second priority lien on the same collateral package securing the indebtedness incurred in connection with the 5-Year Term Loan.
For the six months ended June 30, 2021, no shares were issued upon conversion, exercise, or satisfaction of the required conditions. Refer to Note 10 — Supplemental equity information to the condensed consolidated financial statements for details on the convertible debt's impact to diluted earnings per share under the if-converted method.
Senior Convertible Notes due 2024
The $3.3 million principal value of the remaining 4.75% convertible senior notes due 2024 (the "2024 Notes") outstanding is reported as convertible debt in the condensed consolidated balance sheets. The effective interest rate on the 2024 Notes was 6.05% as of June 30, 2021.
Additional information
We continue to evaluate our results of operations, liquidity and cash flows, and as part of these measures, we have taken steps to manage cash outflow by rationalizing expenses and implementing various cost containment initiatives. The Company does not presently pay a quarterly dividend and has no current intention to reinstate the dividend. In addition, the terms of our indebtedness, including our credit facility, the 5-Year Term Loan, and the Indenture for the 2027 Notes have terms that restrict our ability to pay dividends.
The CARES Act, enacted March 27, 2020, provided various forms of relief to companies impacted by the COVID-19 pandemic. As part of the relief available under the CARES Act, we deferred remittance of our 2020 Federal Insurance Contributions Act taxes as allowed by the legislation. The Company was able to defer $41.6 million of the employer portion of FICA taxes for payroll paid between March 27, 2020 and December 31, 2020. The Company will have until December 31, 2021, to pay 50% of the FICA deferral with the remaining 50% to be remitted on or before December 31, 2022.
For the Gannett Retirement Plan in the U.S., we have deferred our contractual contribution and negotiated a contribution payment plan of $5.0 million per quarter through September 30, 2022.
We expect our capital expenditures for the remainder of 2021 to total approximately $24.1 million. These capital expenditures are anticipated to be primarily comprised of projects related to digital product development, costs associated with our print and technology systems, and system upgrades.
Our leverage may adversely affect our business and financial performance and restricts our operating flexibility. The level of our indebtedness and our ongoing cash flow requirements may expose us to a risk that a substantial decrease in operating cash flows due to, among other things, continued or additional adverse economic developments or adverse developments in our business, could make it difficult for us to meet the financial and operating covenants contained in our 5-Year Term Loan. In addition, our leverage may limit cash flow available for general corporate purposes such as capital expenditures and our flexibility to react to competitive, technological, and other changes in our industry and economic conditions generally.
Although we currently forecast sufficient liquidity, a resurgence of the COVID-19 pandemic and related counter-measures could have a material negative impact on our liquidity and our ability to meet our ongoing obligations, including obligations under the 5-Year Term Loan. The Company continues to closely monitor the COVID-19 pandemic and will continue to take the steps necessary to appropriately manage liquidity.
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
See our most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2020 for a discussion of our critical accounting policies and use of estimates. There have been no material changes to our critical accounting policies and use of estimates discussed in such report.
NON-GAAP FINANCIAL MEASURES
A non-GAAP financial measure is generally defined as one that purports to measure historical or future financial performance, financial position, or cash flows, but excludes or includes amounts that would not be so excluded or included in the most comparable U.S. GAAP measure.
Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett are non-GAAP financial measures we believe offer a useful view of the overall operation of our businesses and may be different than similarly-titled measures used by other companies. We define Adjusted EBITDA as Net income (loss) attributable to Gannett before (1) Income tax expense (benefit), (2) Interest expense, (3) Gains or losses on the early extinguishment of debt, (4) Non-operating pension income (expense), (5) Loss on Convertible notes derivative, (6) Other non-operating items, including equity income, (7) Depreciation and amortization, (8) Integration and reorganization costs, (9) Asset impairments, (10) Goodwill and intangible impairments, (11) Gains or losses on the sale or disposal of assets, (12) Share-based compensation, (13) Other operating expenses, including third-party debt expenses and acquisition costs, (14) Gains or losses on the sale of investments and (15) certain other non-recurring charges. We define Adjusted EBITDA margin as Adjusted EBITDA divided by total Operating revenues. We define Adjusted Net income (loss) attributable to Gannett before (1) Gains or losses on the early extinguishment of debt, (2) Loss on Convertible notes derivative, (3) Integration and reorganization costs, (4) Other operating expenses, including third-party debt expenses and acquisition costs, (5) Asset impairments, (6) Goodwill and intangibles impairments, (7) Gains or losses on the sale or disposal of assets, and (8) the tax impact of the above items.
Management’s use of Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett
Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett are not measurements of financial performance under GAAP and should not be considered in isolation or as an alternative to income from operations, net income (loss), or any other measure of performance or liquidity derived in accordance with U.S. GAAP. We believe these non-GAAP financial measures, as we have defined them, are helpful in identifying trends in our day-to-day performance because the items excluded have little or no significance on our day-to-day operations. These measures provide an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current financial goals as well as to achieve optimal financial performance.
Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett provide us with measures of financial performance, independent of items that are beyond the control of management in the short-term, such as
depreciation and amortization, taxation, non-cash impairments, and interest expense associated with our capital structure. These metrics measure our financial performance based on operational factors that management can impact in the short-term, namely the cost structure or expenses of the organization. Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett are metrics we use to review the financial performance of our business on a monthly basis.
We use Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett as measures of our day-to-day operating performance, which is evidenced by the publishing and delivery of news and other media and excludes certain expenses that may not be indicative of our day-to-day business operating results.
Limitations of Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett
Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett have limitations as an analytical tool. They should not be viewed in isolation or as a substitute for U.S. GAAP measures of earnings or cash flows. Material limitations in making the adjustments to our earnings to calculate Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett and using these non-GAAP financial measures as compared to U.S. GAAP net income (loss) include: the cash portion of interest/financing expense, income tax (benefit) provision, and charges related to asset impairments, which may significantly affect our financial results.
Management believes these items are important in evaluating our performance, results of operations, and financial position. We use non-GAAP financial measures to supplement our U.S. GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.
Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett are not alternatives to net income and margin as calculated and presented in accordance with U.S. GAAP. As such, they should not be considered or relied upon as a substitute or alternative for any such U.S. GAAP financial measures. We strongly urge you to review the reconciliation of Net income (loss) attributable to Gannett to Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett along with our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. We also strongly urge you to not rely on any single financial measure to evaluate our business. In addition, because Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett are not measures of financial performance under U.S. GAAP and are susceptible to varying calculations, the Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett measures as presented in this report may differ from and may not be comparable to similarly titled measures used by other companies.
The table below shows the reconciliation of Net income (loss) attributable to Gannett to Adjusted EBITDA and Net income (loss) attributable to Gannett margin to Adjusted EBITDA margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
In thousands
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Net income (loss) attributable to Gannett
|
$
|
15,115
|
|
|
$
|
(436,893)
|
|
|
$
|
(127,201)
|
|
|
$
|
(517,045)
|
|
|
Provision (benefit) for income taxes
|
17,692
|
|
|
(34,276)
|
|
|
8,583
|
|
|
(25,297)
|
|
|
Interest expense
|
35,264
|
|
|
57,928
|
|
|
74,767
|
|
|
115,827
|
|
|
Loss on early extinguishment of debt
|
2,834
|
|
|
369
|
|
|
22,235
|
|
|
1,174
|
|
|
Non-operating pension income
|
(23,906)
|
|
|
(17,553)
|
|
|
(47,784)
|
|
|
(36,099)
|
|
|
Loss on Convertible notes derivative
|
—
|
|
|
—
|
|
|
126,600
|
|
|
—
|
|
|
Other non-operating income, net
|
(1,148)
|
|
|
(6,261)
|
|
|
(3,023)
|
|
|
(4,616)
|
|
|
Depreciation and amortization
|
48,242
|
|
|
66,327
|
|
|
106,345
|
|
|
144,352
|
|
|
Integration and reorganization costs
|
8,444
|
|
|
32,306
|
|
|
21,848
|
|
|
60,560
|
|
|
Other operating expenses
|
774
|
|
|
2,379
|
|
|
11,350
|
|
|
8,348
|
|
|
Asset impairments
|
—
|
|
|
6,859
|
|
|
833
|
|
|
6,859
|
|
|
Goodwill and intangible impairments
|
—
|
|
|
393,446
|
|
|
—
|
|
|
393,446
|
|
|
Net loss on sale or disposal of assets
|
5,294
|
|
|
88
|
|
|
10,039
|
|
|
745
|
|
|
Share-based compensation expense
|
5,779
|
|
|
7,391
|
|
|
9,202
|
|
|
18,968
|
|
|
Other items
|
1,385
|
|
|
5,908
|
|
|
2,440
|
|
|
9,862
|
|
|
Adjusted EBITDA (non-GAAP basis)
|
$
|
115,769
|
|
|
$
|
78,018
|
|
|
$
|
216,234
|
|
|
$
|
177,084
|
|
|
Net income (loss) attributable to Gannett margin
|
1.9
|
%
|
|
(57.0)
|
%
|
|
(8.0)
|
%
|
|
(30.1)
|
%
|
|
Adjusted EBITDA margin (non-GAAP basis)
|
14.4
|
%
|
|
10.2
|
%
|
|
13.7
|
%
|
|
10.3
|
%
|
The table below shows the reconciliation of Net income (loss) attributable to Gannett to Adjusted Net income (loss) attributable to Gannett:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
In thousands
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Net income (loss) attributable to Gannett
|
$
|
15,115
|
|
|
$
|
(436,893)
|
|
|
$
|
(127,201)
|
|
|
$
|
(517,045)
|
|
|
Loss on early extinguishment of debt
|
2,834
|
|
|
369
|
|
|
22,235
|
|
|
1,174
|
|
|
Loss on Convertible notes derivative
|
—
|
|
|
—
|
|
|
126,600
|
|
|
—
|
|
|
Integration and reorganization costs
|
8,444
|
|
|
32,306
|
|
|
21,848
|
|
|
60,560
|
|
|
Other operating expenses
|
774
|
|
|
2,379
|
|
|
11,350
|
|
|
8,348
|
|
|
Asset impairments
|
—
|
|
|
6,859
|
|
|
833
|
|
|
6,859
|
|
|
Goodwill and intangible impairments
|
—
|
|
|
393,446
|
|
|
—
|
|
|
393,446
|
|
|
Net loss on sale or disposal of assets
|
5,294
|
|
|
88
|
|
|
10,039
|
|
|
745
|
|
|
Subtotal
|
32,461
|
|
|
(1,446)
|
|
|
65,704
|
|
|
(45,913)
|
|
|
Tax impact of above items
|
(2,403)
|
|
|
(3,734)
|
|
|
(21,009)
|
|
|
(35,915)
|
|
|
Adjusted Net income (loss) attributable to Gannett (non-GAAP basis)
|
$
|
30,058
|
|
|
$
|
(5,180)
|
|
|
$
|
44,695
|
|
|
$
|
(81,828)
|
|