Q3 2020 Gannett Co Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the <unk> third quarter earnings Conference call.
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I would like to hand, the conference over to your speaker today actually Hagen from Investor Relations. Please go ahead.
Thank you Marcella good morning, everyone and thank you for joining our call today to discuss <unk> third quarter 2020 result.
Presenting on today's call will be Mike Reed, Chairman and Chief Executive Officer.
And Dow Corning's, Chief Financial Officer.
During this call we will discuss <unk> financial results for the quarter.
If you navigate to the <unk> website, you will find that we have posted an earnings supplement in addition to our earlier press release.
Well, you're referencing it today on the call as it provides us with additional detail 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.
Forward looking statements that are based upon current expectations actually.
Actual results and events could differ materially from those discussed today, we encourage you to read the forward looking statement disclaimer in the presentation as well as the risk factors described in cats filings made with the FTC.
In addition, we will be discussing non-GAAP 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 earnings supplement.
Pro forma information presents legacy media and legacy connect on a consolidated basis.
Lastly, I would like to remind you that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase any interest in doing that.
Webcast and audio cast are copyrighted material disconnect and may not be duplicated reproduced or rebroadcasted without our consent.
With that I would like to turn the call over to Mike Reed Getz, Chairman and CEO.
Thanks, Ashley good morning, everyone, a happy election day.
We have some very positive updates to share with you. This morning as it relates to financial performance the balance sheet debt pay down.
And our general operating performance, especially as it relates to our.
Near term and long term growth categories. So we're excited to talk to you about all this morning, let's start with the third quarter financial performance, which we were pleased to see showed a strong rebound from the second quarter for.
For both revenue EBITDA.
Both from an absolute dollar perspective, and a trend perspective.
In the third quarter revenues were down 19.6% on a same store basis to the prior year.
Well formed before our acquisition of legacy to that this is a significant improvement from the second quarter, which was down 20%.
The improvement was driven predominantly by a resurgence in advertising revenue.
With especially strong performance on the digital side.
Our national sales team had a great quarter with 8% growth over the prior year driven by strong digital display sells at the USA today and continued interest from national advertisers in reaching local customers across our network.
At USA today, our advertising revenue is now over 90% digital.
And just grown annually for the past three years.
Additionally, we were very pleased to see our reachlocal core sales to return to year over year.
Wilson revenue within the third quarter, one of the metrics, we have been watching closely throughout the pandemic at the local level.
The percentage of digital marketing campaigns coming from our small business customers.
That have been paused.
Recall that this level was 3% to 4% of total campaigns are pretty small.
At the height of the locked out in the spring we saw this percentage like to as high as 23%.
At the end of the third quarter.
We're pleased to see that that person just fallen back to approximately 5%.
And pause campaigns have continued to decline during the fourth quarter.
We are very encouraged by this measurement and our ability to grow Reachlocal digital marketing service revenues over the prior year in Q4 and beyond.
Within the paid subscription category, we achieved an important milestone during the quarter unless you're passing over 1 million paid digital only subscribers grew.
Growth was over 30 was 31% over the prior year in the quarter.
And as I highlighted on our last earnings call is highly focused on transitioning to a subscription led business model.
For both B to C and B to B, and we continue to see a significant opportunity for further growth.
Our digital only subscription business.
We expect to accelerate growth and 2021.
Bob the low 30% trend range, we are seeing.
I would also like to highlight the impressive performance of our events business in the third quarter.
Hosted 63 virtual events during the quarter.
We continue to see high engagement smart communities for these events, despite being virtual with over 41000 race registrations in the quarter and over 18000 paid viewers of our communities Choice Awards.
While we continue to see many other rebel companies announcing revenue impacts at 75% or more as compared to the prior year.
Our teams revenue is down less than 10% to the prior year when comparing year to date revenue to the prior year comparable period.
[noise]. This demonstrates the quick pivot our events team made as well as our ability to drive revenue through virtual events.
We believe the necessary pivot to virtual will also benefit and enhance future growth as we returned to live events as we can to bind the virtual experience with the live experience and create additional consumer and business revenues as a result, we.
We believe this will increase our previous growth expert expectations in this category.
Turning to expenses, we maintained our focus on expense management, which resulted in operating expenses being down over 19% to the prior year.
This includes our synergies implementation a regular way cost reduction efforts and additional called the 19 specific measures.
Over the course of the third quarter, we replaced certain temporary measures.
Including furloughs and wage reductions with more permanent cost savings.
Improvement we saw in the quarter from a revenue standpoint, however did contribute to higher cost of goods sold than we saw in the second quarter.
We remain vigilant on finding efficiencies in our cost structure and we continue to navigate the uncertainties of the current economic environment.
Environment.
It has been nearly a year since new media acquired going up and we are very pleased with the progress we've made on synergies implementation.
Through the end of the third quarter, we have realized over a 115 million in synergies year to date with.
With any quarter savings of 54, and a half million.
This annualizes to over 200 million of savings for two thirds of the target we set when we announced the United acquisition last November.
We expect to realize 60 to 65 million in additional cost reductions from synergies in the fourth quarter.
We remain confident in our ability to exceed our stated goal of 300 million in annualized synergies and we are well within our tied pretty stated timeframe will be until 2021.
The combination of improved revenue performance and continued rigorous expense management led to a strong EBITDA performance of 88 million in the third quarter up from 78 million in the second quarter.
Excluding a noncash shrink adjustment taken in the third quarter EBITDA was actually 90 million.
Represents 15% growth over the second quarter.
And as many of you know the third quarter is typically smaller than the second quarter driven by seasonality in advertising spend.
We expect pretty significant uplift in Q4 from both a revenue and EBITDA standpoint based on what we have seen through the first month of the fourth quarter.
Turning to the balance sheet, we remain highly focused on quickly paying down debt, both through non strategic and real estate asset sales as well as free cash flow.
During the third quarter, we paid down 8.6 million predominantly with proceeds from real estate sales.
However, in the fourth quarter, we accelerated the pace of bass itself was about 100 million of non core and real estate asset sales through the first five weeks of the quarter will.
We'll use the proceeds from these asset sales to pay down debt.
Looking ahead, we're targeting additional debt repayment for both asset sales and excess cash flow and we expect to end the year with net debt of between 1.4 and 1.5 billion.
Our liquidity position has remained very strong with 189 million of cash.
On the balance sheet at the end of the third quarter.
Before I turn the call over to Doug for some more detailed review I want to highlight some of the incredible journalism work on news from Sept produced during the third quarter.
First a few weeks ago, the USA today launch deadly discrimination, a six part investigative series on policies that fuel hi, COVID-19 deaths in communities of color.
Second the Detroit Free press with contributions from reporters across Michigan, and Wisconsin dominated coverage of the rest of the group. The F.B.I. says plotted to kidnap Michigan Governor Gretchen Witmer from her vacation home.
15 staffers contributed to a wide ranging investigation that drew 1 million visitors in the first weekend of reporting.
Third to support newsroom election coverage. The video team partnered with USA today to launch a weekly news and politics show called States of America hosted by National political correspondent Philippines.
Short form clips from states of America Premier across our web site and on social accounts during the week with the full like 30 minute program on Friday mornings on Youtube and our own Chichi TV channels.
And then an unprecedented partnership newsrooms from the USA today network and Lee Enterprises collaborated to publish I will mourn. The project that tells the stories of more than 1400 Islands died cold at night team.
In order to provide transparency around today's election results, our content and product teams have partner to make results available real time for the presidential congressional and state races.
Our USA today elections, 2020 web page you should check it out today.
[noise] for broader list of newsroom highlights you can find the listing with digital links in our Investor supplement published today on our Investor Relations website.
In addition to the great journalism work.
In the quarter a highlight in the quarter forgetting that was to have our USA today's.
Washington Bureau, Chief Susan page moderate the vice presidential debate between Vice President, Mike Pence, and Senator Tom What Harris.
I thought you did an incredible job and she was widely widely commended for insights incisive question.
We were very proud of Susan and her work on this very important debate.
[noise] related the related leave for the three debates. This season, we ran real time onscreen back checking and attracted between two and 3 million views per debate [noise].
Lastly, I wanted to welcome my or group, our new Chief marketing strategy Officer, who joined US early in September you.
He had previously served as a member of our board of directors and we're thrilled that he has joined our executive leadership team.
His background includes marketing leadership positions at spot a fight and lastly, Andy.
And he brings a wealth of consumer subscription experience, which will help to guide us in our transition to a digital subscription blood business model.
Look forward to having him join us on future calls to discuss our strategy and vision for doing that.
Now I'd like to turn the call over to Doug to discuss our financial performance in more detail Doug.
Thank you, Mike and good morning, everyone.
For Q3 total operating revenues were $814.5 million up 116.3% as compared with the prior year quarter. As a result of the acquisition of legacy going out in Q4 2019.
On a same store and pro forma basis operating revenues were down 19.6% as compared with the prior year quarter due to the continued secular decline in print advertising and home delivery as well as the economic slowdown brought on by the pandemic.
Adjusted EBITDA totaled $88 million in the quarter. This reflects the impact of lower revenues, which was partially offset by cost reductions and synergy savings.
It's important to note that during the quarter adjusted EBITDA was burdened by approximately $2 million of a negative impact associated with a true up with a company shrink reserves related to a single copy distribution channel.
The adjusted EBITDA margin in the quarter was 10.8%, which was slightly improved from Q2 and in the third quarter expenses were reduced by approximately 19% on a pro forma basis, reflecting ongoing expense measures taken in response to the pandemic as well as continued synergies from integration initiatives as well as regular.
Already cost reductions.
Notably as Mike mentioned, we saw strong improvement in both revenue and adjusted EBITDA sequentially compared with the second quarter.
Now moving onto our segments. The publishing segment revenue in the second quarter was $732.2 million within that total print advertising revenue decreased 30.9% compared to the prior year on a same store a pro forma basis, reflecting the continued secular pressures as well as the disruption from the pandemic.
However, we were very pleased to see approximately 14 points of year over year improvement from the second quarter to the third quarter.
Digital advertising and marketing services revenues decreased 13.5% on a same store pro forma basis, driven by the disruption from the pandemic. This.
This is over a 13 points of improvement as compared to the second quarter trend and that reflects improved demand for digital display advertising and digital marketing services.
But the digital display advertising, we saw year over year growth in National digital as a result of premium digital sales as well as the rebounding a programmatic demand.
Circulation revenues decreased 13.2% compared to the prior year on a same store pro forma basis and this reflects the ongoing pressure of the pandemic on single copy sales during the quarter, which remained negatively impacted as a result of lower travel and consumer activity.
Our home delivery circulation trends remain consistent with Q2 trends and we still have not seen that negative impact as a result of the pandemic in terms of home delivery.
Paid digital only subscribers grew 31.1% year over year on a pro forma basis to approximately 1.029 million subscriptions digital only subscriber revenue grew 48.7% on a pro forma basis as compared with the prior year.
Adjusted EBITDA for the publishing segment total totaled $108.8 million, representing a margin of 14.9% for the third quarter, which compares favorably to 13.2% margin we saw in Q2.
For the marketing solution segment.
Total revenue in the second.
Yes.
In the third quarter was 105.4 million.
Decrease year over year of 17.4% on a same store a pro forma basis, which is a significant improvement from the 24% decrease we experienced in Q2.
The Q3 improvement was driven by our core Reachlocal business, where we continue to see clients reactivating their marketing campaigns. Following the temporary pauses during the height of the COVID-19 Lockdowns.
Adjusted EBITDA for the marketing solutions segment totaled $4.2 million, representing a margin of 4% in the third quarter, which is more than 100 basis point improvement from the Q2 margin.
Our Q3, GAAP net loss attributable to getting that was $31.3 million, which reflects $61.4 million of depreciation and amortization and $18.3 million of non operating pension income.
Both of which are noncash items, the company's effective tax rate for the quarter was primarily driven by a small decrease to the companys annual effective tax rate, which had the impact of slightly reducing the benefit associated with the goodwill and intangible charges recognized in the second quarter.
We ended the quarter with $1.732 billion of debt after paying down $8.6 million during the quarter cash.
Cash balance was $189 million at the end of Q3, resulting in net debt of 1 billion 543 40.
$43 million.
Capital expenditures totaled $6.8 million during the quarter, reflecting investments related to digital product development real estate projects as well as ongoing facility consolidations.
During the quarter, we paid approximately $51 million in interest and our debt service burden will decline as we continue to pay down debt.
As Mike discussed earlier paying down debt continues to be our top fiscal priority.
Subsequent to September Thirtyth, we successfully closed on approximately $95 million, a noncore asset sales and approximately $5 million or real estate sales and we will use these proceeds to pay down our debt.
We also plan to pay off an additional $15 million during the fourth quarter under our debt facility.
As a result of all of these actions our debt outstanding under our credit facility will have been reduced to 1.615 billion from the $1.728 billion as of the end of the third quarter.
Additionally, we have over $50 million of real estate currently under contract and we remain confident in our ability to sell $100 million to $125 million a property by the end of 2021.
We are in a strong liquidity position and we remain very confident in our ability to satisfy our obligations under our term loan.
Operator, you can now open the line for questions.
At this time I'd like to remind everyone in order to ask a question. Please press star and the number one on your telephone keypad well pause for just a moment to compile the <unk> roster.
Your first question comes from the line of Jason Bazinet from Citi. Your line is open.
Good morning, guys.
Interesting okay.
Just had a quick question I got the commentary on that.
Debt reduction target by the end of the year at the end of 21 down to that and I think you said 1.4 to 1.5 billion. What do you think that this year, but.
By the end of this year and then you talked about this 100 and 125 million of.
Potential asset sales in real estate sales and 21 should we just assume that the debt reduction just continues and you just keep chipping away at the debt balance or do you or something else isn't yet Jason great question. So we think.
We think we're going to be closer to 1.4, you know as we said 1.4 to 1.5 billion that up by the end of this year.
We have an additional 100 225 million a real estate sale to pay down debt next year, but we'll also have cash flow.
Debt pay downs as well so our plan from a year ago to refinance the current term loan B and 2021 remains our plan.
The asset itself that Ben had a piece for us, which is great and with the combination of excess cash flow and liquidity sweeps, we still feel confident in our ability to refinance which you know as we lower our leverage will also lower our cost of interest expense as well so it should be up.
Boost for 2021, as we get through a refinancing and we have a lower debt.
Absolute dollar number as well as a lower cost of that yes.
And can I just ask one follow up in terms of the circuit in terms of the circulation trends I mean, you all to understand what's going on with the AD market, but can you just provide maybe a little bit of color in terms of the same store circulation trends. It seems like those didnt improve as much as ads did sort of sequentially.
Can you just provide a little bit of color in terms of what you think is reasonable as we move into next year.
Yeah. So the digital the digital side, we grew digital paid grew about 30, 31% and our revenue as Doug mentioned grew closer to 50%, we expect those trends to accelerate in 2021 on the digital side, that's where are our primary investment goes but you know we're also focused.
Retention and customer service on the print side.
To moderate those trends what had the biggest impact from a negative standpoint, Jason on print trends in single copy. So they've got a traffic how out picking up single copy has been down, especially with the USA today, which right. It's a big reliance on airports and.
Hotels, and so I'd say I think you'll see our circulation trends I think we said on the print side, we were down 13% in the in the third quarter I actually do think you'll see those trends come in and get better and 2021 as we cycle. The downturn, we've seen single copy spot primarily from the USA today and.
With that we'd like to try to get those trends inside of down 10% and 22 Ryan Super.
Super helpful. Thank you.
There are no further questions at this time I'll turn the call back over to the presenters.
Yes. Thank you so in closing we're pleased with our third quarter results and the.
Rebound, we saw revenue EBITDA and our improved EBITDA margins.
We ended the quarter as just mentioned and a good liquidity position with 189 billion of cash on the balance sheet.
And also as just mentioned we've made very good progress with debt repayment, especially early in the fourth quarter, we see a clear path to reducing our.
Our net debt to approximately 1.4 to 1.5 billion by year end.
This is a significant reduction since new media acquired you know me in one year ago.
We see enormous potential to continue to grow our digital subscriptions and digital marketing services businesses accelerating growth trends and vastly increasing our current paid digital subscriber base, which as mentioned earlier.
It is it's a significant contributor to next year's growth.
And as mentioned earlier, we see growth opportunities for our events business in the future based on retaining the virtual world, which is also while also returning to live events. We look forward to sharing more with you about our vision and strategy for 2021 and beyond but just to kind of recap huge growth drivers for us.
Subscription and digital digital subscriptions to our digital marketing services business, our national digital advertising business and our events business. They are all.
Starting to grow nicely now and we see significant upside and 2021 and beyond so.
I just want to take a second to to thank all my colleagues have done that for their continued commitment to our communities and the resilience during this incredibly difficult year. So thats.
Thanks for joining us today wish everybody on the call a safe and healthy holiday season, and a happy election day and look forward to updating you as we get towards.
As we close the year and you get into the first quarter of next year. Thanks, everyone for joining.
This concludes today's conference call you may now disconnect.
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