Q2 2020 Gannett Co Inc Earnings Call
Ladies and gentlemen, this the operator for today's call is scheduled to begin momentarily until that time or life will remain on music hold thank you for your patience.
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This time, all participants are in listen only mode.
Now I'd like to hand, the conference over to your Speaker actually Hagen head of Investor Relations. Thank you. Please go ahead.
Thank you Natalia good morning, everyone and thank you for joining our call today to discuss Gilats second quarter 2020 herself.
Presenting on today's call will be Mike Reed, Chairman, and Chief Executive Officer, and Dow Corning.
Chief Financial Officer.
During this call will be able to discuss connects financial results for the quarter.
If you navigate to they cannot website, you'll find that we have posted an earning supplement in addition to our earlier press release.
I'll be referencing it today on the call I get provides you took additional details on this quarter's performance.
Before we begin please let me remind you that this call is being recorded in addition statements made during this call with respect to future results and events are forward looking statements that are based upon current expectations.
Actual results and events could differ materially from those discussed today.
We encourage you to read the forward looking statements disclaimer in the presentation as well as the risk factors described and good that's filings made with the FCC.
In addition, we'll be discussing some non gap and pro forma financial information during the call today.
You can find reconciliations of our non-GAAP measures to the most comparable GAAP measures in the earning supplement.
The pro forma information presented legacy media and legacy do that on a consolidated basis.
Lastly, I would like to remind you that nothing on this call constitutes an offer to south or solicitation of at all.
Just any good interest in getting.
The webcast in Audiocast is copyrighted material appconnect and may not be duplicated reproduced or rebroadcasted without our consent.
With that I'd like to turn the call over to Mike Reed connects Chairman and CEO.
Thanks, Ashley good morning, everyone. Thanks for taking the time to joined our call. This morning.
When we last spoke at my other Q1 earnings call first couple of days and they were all in the sector. This.
Brand New health crisis.
The immediate faster.
Our country and.
At that time is sure to my expectations for the second quarter cautiously based on our preliminary assessment of the impact of the pandemic.
Our business through the first though five or six weeks, if we were able to see.
Fortunately, our judge proved to be largely accurate, although we did see slightly better revenue was the quarter went on and we did see slightly better expense results.
Which led to a stronger EBITDA number than.
Just stating when we spoke in early early buy so I.
I guess those good news revenues through quarter were down 28% to the prior year on the same store basis.
And pro forma for our acquisition of legacy come out.
Revenue trends improved throughout the quarter would April revenue down just over 30%.
In June revenue down about 24%, we did see sequential improvement in each month through the quarter.
Advertising revenues the hardest hit category for us, though we saw nice rebound during the quarter, which helped to drive the positive movement trend in total revenue.
On the circulation side single copy sales had a major impact on our total circulation revenues.
They were lower due to due to business closures around the country.
Folks being sheltered in place for a good part of the second quarter or single copy cells.
And then not material impact coming from the shutdown travel, which impacted our hotel and airports single copy sales for the USA today.
On the subscription side moving away from single copy, we were pleased with put subscriber trends, which held constant with our first quarter results of expectations through the second quarter.
Got a very positive note, we continued to see strong digital subscriber growth ending the quarter up over 30% to the prior year.
With over 925000 digital only subscribers.
That girls discontinued in July in fact last week was our single largest growth we paid digital subscribers this year.
We expect to pass 1 million paid digital only subscribers within the next few months.
Furthermore, we have ambitious goals and expectations for the digital subscription category.
We expect this to be a major driver of our business in the coming years.
We plan to share a lot more detail about her plans and goals in this category over the next couple of quarters and you'll hear briefly lead Robin This call how it fits into our strategic plan.
As you all know the cobot 19 crisis had an abrupt and severe impact on the economy.
One with reductions in discretionary spend for categories, such as travel and supplies and many more.
This 125 million quick quick to execute on cost savings was in addition to our synergy implementation and other previously implemented normal wait cost reduction effort.
Collectively these measures resulted in costs being down over 240 million in the quarter or 26% to the prior year.
In response to the pandemic, we prioritize the safety of our employees, while preserving our ability to produce vital news.
Asking our employees to work remotely where possible and implementing new safety procedures for our manufacturing and distribution teams, who had to continue to come to work.
In spite of these reconfigurations, we were able to continue to effectively extra cute on our synergy plants.
Which resulted in $41.2 million a savings during the second quarter.
Year to date, we have implemented over 160 million an annualized synergies.
Which exceeds the annual goal we had set for ourselves in for 2020.
We are well on our way to realizing are full $300 million target by the end of 2021.
And in fact, we believe we were exceed that target.
The quick insignificant off which we took on the cost side helped us to preserve our EBITA margin for the company and we finished the quarter with $78 million and adjusted EBITDA.
Which is I mentioned, a few minutes ago. She did our expectations as of the end of April.
Obviously, we're managing through very difficult times, and we don't know how long this will laugh.
Having said that I want to mention a few things that are company and my colleagues here that can that did very well and the second quarter.
First of all my colleagues here, if you're not worked extremely hard throughout the quarter to serve our communities. During this unprecedented time.
Everyone did their best to adjust to working from home or to new workplace safety policies.
The shift was surprisingly seamless, especially given the speed with which everyone had to with that.
I applaud my colleagues teammates for their flexibility because I wanted to express my gratitude for the many sacrifices that I know have been made to enable them to continue to perform their jobs.
Second I want to give a special thanks to our news content teams.
No time in our history has the value of high quality journalism, then as clear as it is right now.
We are at the intersection of a global pandemic and nationwide turmoil over systemic racism and inequality.
Journalists have worked tirelessly to help keep our community safe and informed well exercising the crucible of holding public officials accountable.
As digital social platforms are overtaken by the spread of misinformation <unk>.
Our readers trust us to sort through the noise with credible fat faced and fair reporting.
And we're doing that.
Since late February we have had over 885 million views of our Corona virus content.
And late May early June when social Justice protests swept the nation, we saw 45% increase an average daily visits to our local websites.
And the second quarter or digital properties averaged over 147 million unique visitors every month per comscore.
So folks are coming to us for this crucial information the demand is there.
I'd like to call. It a few specific reporting efforts from the quarter, while we're talking about our content teams.
A number one in response to the horrific death of George Florida, USA Today network explored 32 faithful police encounter since 2010, and which people said that could not breathe well being restrained.
Also the Louisville Courier Journal has continued to expose the tragic circumstances surrounding briana Taylor stuff.
Including the failure to attempt to save her life. After she was shot.
The Courier Journal also has sued the city for investigative documents that it has refused to turn it over.
Another example to clear up the misinformation about when a coven 19 vaccine could be available.
USA today put together in a school so panel prominent experts and developed a clock based visuals visualization.
<unk>, it's expert to estimate where we were alarm that timeframe.
The result, with an enterprising story that really explain the challenges companies are facing to develop a widely available to actually.
This <unk> this information will continue to be updated monthly.
And finally at the newsletter and stopped in Virginia, or journalists breads and helped uncover missing evidence that ultimately freedom man, who serve 24 years in prison.
Roger Sentras Hudson spent sent out over 50 letters to the media from his Virginia prison.
And Brad was the only reporter who responded.
After up Brad uncovered missing evidence the innocence project took it on leading to the Governor's surprise pardon last month.
Back to some of the things we did well on the quarter number three I'd like to draw attention to some of the innovative work from our business to business marketing solutions team, which drove significant month old the month improvement during the quarter.
They did so by closely partnering with businesses in our communities to help them manage through this extremely challenging economic period.
One example was a partnership with our content teams and editorial report called rebuilding America, which highlighted over 250 communities and how they were adapt into the pandemic.
This partnership [noise] <unk>.
Brought in thousands of businesses for advertisers.
And partnership with our product T.
We launched support local platform designed to connect community members with their local businesses and to help individual's find ways to support local businesses. During this crazy time.
We all know how important that is supporting Iowa businesses <unk>.
Well then our marketing solutions reached local business also showed continued strong improvement through the quarter of small businesses reopened and brought back online advertising campaigns.
Seems hard work help to end the quarter on a strong footing and we are excited about their momentum continuing into two three.
Our forward looking bookings for August and September look really strong in this business.
Fourth.
While our events business was significantly impacted during the quarter to the restrictions on in person gatherings.
They successfully pivoted and launch 91 virtual events during the quarter and almost no notice.
This enabled us to retain chief financial performance, Keith sponsorships and partnership.
I'll also creating a feel good outlet that was much needed for our communities.
While revenue was down about 37% two prior year and our events Division.
Many of our peers in the event space I've seen revenue down over 90% and the second quarter.
So we had a pretty great accomplishment there.
Although we had done some virtual events in the past this pandemic causes to dramatically increase the scope and scale of our virtual events.
My High School Sports Awards for example, where broadcast virtually on June 18th.
And 59 local markets.
[noise] event generated over 14 million social media audience engagements.
We also launched a new partnership or outdoor racy pet for outdoor race events Division with D. C Comics.
And the first races will be a wonder woman Ray series.
Since launching in June we have had over 45000 virtual registration's.
And we're targeting to double that number.
First I'd like to reiterate that we are fast approaching 1 million digital all my subscribers.
That's really proud of the work or consumer marketing team as dumb as we continue to grow at an over 30 per cent clipped to the prior year.
And lastly, our company has been highly focused on how we can better stand in solidarity with the black community as an ally in the fight against systemic racism racial injustice and discrimination in all forms <unk>.
We believe through all of our media outlets and reporting that we can keep the dialogue in our communities at the forefront.
And we can drive accountability through our reporting.
Having said that we also have much work to do entirely to drive change.
We are committed at the board level in all areas of our company to fostering a diverse inclusive an equitable worth four SEC in that.
As a company, we will be sharing our inclusion diversity and equity plan shortly and we intend to publicly measure our progress toward our goals in the coming quarters in years.
We are committed to driving change both internally and extra food.
A disappointment for us in the quarter was the drag on some of our real estate sales.
Well, we have no change in our overall expectations for real estate sales.
Did see a couple of property sales get pushed out to later this year that we thought would clothes in the second court.
As we look ahead. It is clear that we continue to face significant uncertainty for the second half of the year.
Q3, we expect revenue performance to be similar to are slightly better than our results in the month of June.
When revenue was down 24% on the same store pro forma basis.
That is a four to 500 basis points.
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From our overall trend in the second quarter.
We have seen some pick up in our July trend. So we're hopeful that the economic backdrop will permit us to sustain these improving trends.
On the expense side, we're maintaining our expense reduction measures, but we'll be phasing out the temporary measure measures such as <unk> as in wage reductions and replacing them with permanent cost reductions <unk>.
Since the economy is likely to remain challenge or under pressure until the pandemic is fully under control.
In addition to cost actions related to call. The 19th we also anticipate realizing over $50 million, a synergies and the third quarter, which annualized as to over $200 million a year.
Oh, let's move away from 22223 for a moment to talk about the bigger picture for the next couple of years.
We believe our company is undervalued right now.
In large part because it'll be uncertain economics outlook.
However, we remained very optimistic about the future.
We are highly focused on priorities that we believe will create value.
And we see a clear path to significant upside over the next several years.
There are a few T operating priorities that remain at the center of our strategy, Let me review them quickly.
First we are highly focused on improving our financial performance, both revenue and EBITDA.
There are three primary categories that will lead to improved revenue performance first category subscription income.
Two large scale growth and our digital only subscriber base along with the stabilization of our print base.
Subscription income is already has already our largest revenue category and as we accelerate digital subscriptions. We expect that this category will be a major driver topline revenue grill.
Second category is our digital marketing services business, which we expect to achieve double digit revenue grill by leveraging are footprint and reach across the U S.
This business segment already has more than $400 million in revenue.
And with the growth we foresee we expect it to be a major contributor to our overall topline review grill.
The third categories are events business.
We are meaningfully expanding a community events presence.
And our business.
And post Covid will target over 40% Grill thing.
Beyond our revenue efforts, we continue to focus on creating an efficient prudent cost structure.
Which will lead to improve EBITDA and EBITA margins.
Our second operating priority.
Over the next two years as our focus on debt repayment.
With the goal of refinancing our current term that by the end of 2021.
We intend to generate proceeds for debt repayment by executing on our financial performance plans.
As well as asset cells.
We plan to sell another hundreds of $125 million in real estate and $40 million to $50 million of nonstrategic EBITDA assets.
Before the end of 2021.
We believe that reducing leverage along with refinancing to a lower cost of capital will lead to significant upside for our shareholders.
Our final operating priorities continued integration of legacy New media and legacy getting that following our merger last November.
We have made great progress on implementing synergies and once complete our company will be well positioned for growth.
The cinergy savings is meaningful at $300 million on an annualized basis and as I mentioned earlier I think we'll do more than that.
We will also benefit from leveraging common systems and much larger datasets, which will drive product and customer grill.
Further sharing best practices across on massive footprint will further support our financial performance goals.
Through stabilizing revenue growing EBITDA and free cash flow accelerating debt repayment and refinance you to a lower cost of capital.
See it clear path to significantly higher enterprise and shareholder value.
Well I'd like to do now is during the presentation over to dogs are CFO, who will give us a detailed financial performance reviewed duck.
Thank you Mike can good morning, everyone.
For Q2 total operating revenues were $767 million, which was up 89, 7% as compared but the prior year corner as a result of the acquisition of legacy can that in Q4 of 2019.
On the same storm pro forma basis operating revenues were down 28% as compared to the prior year quarter due to the economic slowdown brought on by the pandemic.
And Justin EBIT totaled $78 million and a quarter.
That's reflects the impacted the lower revenues, which was partially offset by cost reductions and synergy savings.
Yeah, Justin EBITDA margin in the quarter was 10, 2% roughly in line with that a Q1.
And the second quarter expenses were reduced by approximately 26% on a pro forma basis, reflecting compensation savings from various cost reduction in synergy initiatives significant newsprint savings from both lower volumes as well as lower prices and continued production and distribution efficiencies.
Now, let's spend a moment on our segment results.
Within the publishing segment and the second quarter revenue was $695 million.
And within that print advertising was down 45% to the prior year on the same store pro forma basis, reflecting continued secular pressures as well as the disruption from the pen demick.
However, we we're very pleased to see approximately 15 points of year over your improvement from April to June.
Digital advertising and marketing services revenues decreased 26, 7% on the same store pro forma basis, driven by the disruption from the pandemic <unk>.
Lower demand for premium display advertising, coupled with pressure on programmatic C. P. M. S contributed to the decrease for digital media and digital classifieds products.
With that said year over year trends in digital advertising and marketing services improved each month during the quarter.
Circulation revenues decreased 13, six per cent compared to the prior year on the same store pro forma basis, which reflects the negative impact on the pandemic.
[noise] Civically on single coffee sales during the quarter.
Home delivery circulation trends remain consistent with Q1 trends and we did not see it negative impact as a result of the pandemic.
Paid digital only subscribers route 31, 3% year over year on a pro forma basis to approximately 927000 subscriptions and digital only subscriber revenue grew 38% on a pro forma basis as compared with the per year.
Adjusted EBITDA for the publishing segment totaled $92 million, representing a margin of 13, 2% and a second quarter.
In terms of the marketing solutions segment.
Total revenue in the second quarter was 94 $6 million a decrease year over year of 24% on a same store pro forma basis, and this was driven by the pandemic.
Ah reach local business saw the strongest rebound during the quarter and we plan to build upon this momentum and the second half of the year.
Oh, just did EBIT off with a marketing solutions segment total to $8 million, representing a margin of two nine per cent and the second quarter.
R Q2 gap net loss attributable to getting that was 436 $9 million.
This was driven by the non-cash goodwill and intangible impairment charge of $393.4 million that was encouraged and this was due to the impact of the pandemic on the company's operations.
Are not lost also reflects 66 $3 million up depreciation and amortization.
Additionally, the company's effective tax straight for the quarter was primarily driven by the nondeductible portion of the goodwill and a tangible parent charge as well as valuation allowances associated with our deferred tax assets related to interest expense.
We ended the quarter with $174 billion of that after paying down six $3 million during the quarter.
Our cash balance was 158 $6 million at the end of cute too, resulting in net debt of $158 billion.
Capital expenditures totaled approximately eight $4 million during cute during Q2, reflecting investments related the digital product development in real estate transactions get an ongoing facility consolidations.
In addition to our expense measures. We also preserved cash by relying on certain provisions of the charismatics, which will enable us to defer over $50 million of payments relating to arrest a pension contributions an employer FICA taxes.
We were also able to defer the timing of certain required additional pension contributions.
Originally scheduled as my payments and 2020 and 2021 those will now be made in quarterly installments beginning in Q for this year through Q3 of 2022.
We're also effectively managing R capital expenditures, which we expect to be more than 20 per cent lower for 2020, then we had originally planned.
During the quarter, we completed our first interest payment under a credit facility of approximately $125 million that payment represented interest that have accrued since our clothing in November of 2019.
Going forward, we're going to be paying approximately $50 million per quarter interest and this will decline as we continue to pay down debt.
Paying down or that continues to be our top physical priority and the second quarter. We use proceeds from real estate sales to further reduce that by six $3 million.
Some plant real estate sales are taking a bit longer to complete then we had originally hoped but we have over $15 million a property currently under contract and remain confident in our ability to sell.
100, and $125 million a property by the end of 2021.
We ended the quarter with over $158 million of cash on the balance sheet. So we are in a strong liquidity position heading into the second half of the year.
We remain very confident in our ability to satisfy our obligations under our term loan.
Later today, we plan to put in place an aftermarket equity offering program for up to $50 million of our common stock.
While we have no current intention to sell common stock current prices, we decided to put the program in place for good housekeeping and added flexibility.
More details on this program will be available in a perspective supplement which we expect to file later today in conjunction with my filing of our second quarter form 10-Q.
Actually I'll have it back to you.
Thanks, So much Dag can I could you. Please remind everyone how it to put a question for you if they have addressed.
Ladies and gentlemen, if you wish to ask a question. Please pass Star then the number one on your telephone keypad again that is star one to ask a question will follow up for just a moment to compile the Q&A roster.
Okay. There are no questions I will turn the call back over to Mister <unk>.
Thank you.
And thanks for that wrap up the quarter and.
Just to reiterate for everybody doesn't mention towards the end there that we're putting.
At the market equity awkwardly program and place and.
Obviously, we have no current intentions to sell you know stopped at these prices were just putting in in place now for future added flexibility looks like it's good housekeeping. This doesn't mentioned, but just wanted to reassure everybody.
We think we're undervalued today and that these price levels, we wouldn't happen to your attention to use it.
And then just just to wrap up.
Second quarter was significantly impacted but health and economic crisis, we moved quickly to execute additional cost savings measures that preserved are EBITA margins.
And we expect to all those actually throw two three Q for making switching them from temporary to permanent.
We do expect the remainder of the year it'd be challenged but we are encouraged by the continuous trend improvement we have seen on a revenue line.
We ended the quarter is doesn't mentioned with a strong liquidity position with over $158 million of cash on the balance sheet.
And as I, just mentioned are extending are pandemic related cost upwards to the end of the year.
Continue to reduce our outstanding debt and remain highly confident in our ability to meet our obligations under the terminal.
Despite the tough backdrop in our country, we remain confident in our ability to extra to go on our plans, including the integration of our two companies.
Repayment investment in revenue growth categories, and our overall cost reductions, we remain very optimistic about the future and our ability to create value.
Thanks for joining us this morning, and we look forward to update are you gonna three months I'm helps you three one thanks have a great day everyone.
This includes today's conference call. Thank you for your participation you may know disconnect.
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