Gannett Co. Inc. Q1 2023 Earnings Call

[music].

Yeah.

Reading and welcome to dig in that first quarter earnings call. At this time, all participants are in a listen only mode.

<unk> question and answer session will follow the formal presentation if any.

One should require operator assistance during the conference. Please fresh tires zero on your telephone keypad.

[noise] Minder This conference is being recorded.

Now my pleasure to introduce your house Master, we're supposed to you know better relations you may begin sir.

Thank you good morning, everyone and thank you for joining our call today to discuss can that first quarter 2023 results.

Today's call will be migrate chair.

Chairman and Chief Executive Officer, and Doug Hart, Chief Financial Officer.

During this call. We all discussed can that's financial results for the quarter if.

If you navigate taken that website you will find that we have posted and earning supplement in addition, or earlier press release.

Will be referencing it today on the call is it provides you with additional detail on this quarter's performance.

Before we begin please let me remind you that this call is being recorded.

In addition, certain statements made during this call are or may be deemed to be forward looking statements, including those with respect to future results and events and are based upon current expectations.

These statements involve risks and uncertainties that may cause actual results and events to differ materially from those discussed today.

We encourage you to read the cautionary statement regarding forward looking statements and the earning supplement as well as the risk factors described Indian that's filings made with the SEC.

Except as required by law, we undertake no obligation of publicly update or correct any of the forward looking statements made during this call.

In addition, we will be discussing a non-GAAP financial information during the call, including Same-store revenues.

Free cash flow adjust.

Suggested EBITDA adjusted EBITDA margin and adjusted net income attributable to get that.

You can find reconciliation of our non-GAAP measures to the most comparable us GAAP measures in the earning supplement.

Lastly, I would like to remind you that nothing on this call constitute an offer to sell more solicitation or an offer to purchase any interest in getting at.

The webcast and Audiocast are copyrighted material of good that it may not be duplicated reproduced or rebroadcasted without prior written consent.

With that I would like to turn the call over to migrate can that's chairman and CEO .

Thanks, Matt.

Thanks, everyone for joining our first quarter earnings call. This morning.

We are pleased to report that 2023 is off to a great start.

Adjusted EBITDA was down only 2% in the first quarter compared to the prior year after being down 22% in the fourth quarter of 2022.

And entering Q2, we believe our most challenging comparisons to prior year are behind us.

Excluding the impact of foreign currency adjusted EBITDA was actually flat to the prior year.

Our same store revenue trends also improved sequentially in the first quarter and we expect this trend to continue into the second quarter.

Net income in the first quarter grew by $13.3 million from the prior year $210.3 million that compares to a net loss of $3 million in the first quarter of last year.

As forecasted and our last earnings call, we expect to achieve year over year adjusted EBITDA growth in 2023, as we capture the benefits from our cost management initiatives, so you're improving revenue trends and cycle more favorable comparisons.

And the solid performance in the first quarter of this year gives us the confidence to increase our 2023 full year outlook with respect to adjusted EBITDA net income and free cash flow.

To put it concisely, we believe that we are at an inflection point in the trajectory of our company.

This throughout the call. This morning, as we are moving nicely in the right direction with regard to most of our financial measures.

We believe our results in the first quarter demonstrates the effectiveness of the actions we've put in place and the later half of 2022 to better position the company for long term success.

We are operating more efficiently from these efforts, resulting it anticipated annualized savings of at least $220 million in 2023.

And our organizational structure changes have established a solid foundation for anticipated continued growth and are highly recurring digital businesses.

We also remain committed to our aggressive debt repayment strategy Evan.

Evidence by the $37 million of debt repayment in the first quarter.

Which reduced our leverage in the quarter as well and continues to improve our capital structure.

As our digital revenue streams continue to grow our cost structure comes down and inflationary pressures ease. We believe we will be able to generate significant free cash flow and year over year adjusted EBITDA growth in 2023.

With that I'd like to discuss the major highlights of the first quarter.

When we spoke last on our fourth quarter earnings call in February we outlined a more balanced approach between increasing profitability and growing digital only paid subscriptions.

We will continue to pursue paid digital subscriptions growth. However, we have become more targeted and our subscription subscription acquisition strategy.

With an increased focus on profitability and <unk>.

Are digital only subscription volume in the first quarter reflects this refined ballads of volume versus profitability.

In the first quarter digital only paid subscriptions increased 15% year over year.

And remained relatively unchanged from the fourth quarter.

This was in line with our expectations as we anticipated lower net ads in the first quarter.

As we focus on improving product deficiency, and refocusing, our marketing and pricing strategies.

We anticipate this to continue in the second quarter.

However, we do expect to see an increase in our subscription subscription acquisition volumes as we move into Q3 and Q4 of this year.

Even with our shift in focus are digital only circulation revenues headstrong growth of 20% year over year on the same store basis in the first quarter and we expect this growth to continue throughout the year.

We believe that over the medium and long term, we have a significant opportunity to grow are digital only subscriber base given our large organic audience.

For context during the first quarter, we had $186 million average monthly unique visitors.

We believe our current digital offerings had a significant addressable market for us to continue to attack and.

And we are making further investments in our infrastructure to improve our penetration of this very sizeable market.

And to further expand the audiences that visit our platform.

Investments in this area include content content creation product enhancement product improvements and.

And importantly data collection and analysis.

Data remains the most significant driver for growth with regard to our content strategy, our product strategy, and our marketing and pricing strategies.

Within this significant addressable market, we have an active and engaged set of consumers across a registered users and newsletter subscribers.

And the U S alone at the end of the first quarter, we had 6.5 million registered users and that grew 63% year over year.

We also had 8.7 million newsletter subscribers growing 16% year over year.

<unk> $6 2 million of those were not yet registered users.

So that's nearly $13 million engaged consumers that are not yet subscribers, who we are interacting with on a regular basis.

And we expect these registered user numbers to continue to grow.

Our goal is to build on those relationships activate those users and convert a portion of this highly engaged pool of users into subscribers.

Now switching gears a bit one of our big growth opportunities as further monetization of this large audience and this content platform.

Beyond subscriptions and beyond advertise.

As previously announced partnerships are a key focus of ours in order to leverage this growth opportunity.

In addition to the partnerships previously announced in the sports gambling and financial services sectors, we have plans to establish additional partnerships.

Covering big sectors, such as home services and education.

We anticipate these partnerships as well as others in the pipeline will allow us to expand our total addressable market and increase the overall monetization of our content platform.

We'll have much more to come and much more to announce in this area of our business over the next few quarters.

We are also excited about Christian Roberts, joining Jeanette is our chief content officer.

Christian brings over two decades of experience to the role.

Most recently as chief content officer of Mcclatchy.

And her previous roles Christian has architected audience growth and engineered strategic and tactical changes to create new business categories for content.

Creating the fuel and investment needed to sustain high quality journalism.

Christian has a proven track record, creating creating audience growth.

And we are energized that her expertise will help drive our digital transformation and content strategy across USA today.

In our USA today network.

Her focus will be on leveraging data science to refine our content strategy that drives agile interactions with our consumers and.

Ensuring our newsrooms deliver a dynamic digital model for journalism.

Monetizing breadth of content that both the national and local levels.

All of these efforts are expected to lead to additional opportunities to further monetize and expand our significant audience.

We are really thrilled to have Christian on the team and we look forward to her contributions towards driving our transformation.

Now turning to our digital marketing solutions business.

We achieved poor platform revenues of $111 $4 million in the first quarter of 2023, increasing approximately 4% year over year.

While maintaining strong adjusted EBITDA margins.

<unk> and budget retention, both grew year over year as well.

We continued to expand our dms product offerings through our premium experience, which contributed to idms registered users surpassing 100000 in the first quarter.

A registered user couch continues to show impressive growth as demonstrated by nearly doubling from 55000 registered users at the end of the fourth quarter.

These premium registered customers are in addition to our nearly 15000 core platform customers.

Our premium customer segment provides an interested and engaged.

Base of businesses to introduce low or do it yourself.

Self or by online products, and we expect to start to more meaningfully monetize this business as we move forward.

We continue to remain very optimistic about the dms business and its growth potential.

First this business has many similarities to a subscription or SaaS model and that it generates high revenue and client retention.

We have historically retained 95% of customer revenue comparable to that of assess or subscription product.

There are over 30 million small businesses in the U S and those businesses are increasingly dependent on a digital strategy to grow their own business and importantly to generate and manage Leeds.

We serve these businesses with our digital platform that helps our business partners establish and optimize their digital presence.

We assist them with optimizing their marketing spend across an increasing increasingly complex online digital ecosystem, while optimizing their lead management process.

Finally, given our long standing involvement and knowledge of the communities in which we operate we believe that we have a true advantage at successfully reaching the small and medium sized business segment with a lower overall cack.

So let's talk about gender generate generate of the AI for a second but very hot topic.

Globally and in our industry.

Generate of AI, while still in the early stages in terms of development.

Shows tremendous potential to help us improve our business.

But of course has risks as well.

Can that is committed to being a leader in using AI effectively and innovative Lee while maintaining unique in depth and unparalleled content that only our journalists can produce.

We continued to explore the possibilities of AI, but have already seen and implemented use cases here Jeanette.

Looking at where we can benefit most one area that stands out as commoditize content, such as whether an event listings.

By utility utilizing generative AI, we can effectively provide basic content to our audience.

Allowing our journalists to focus on creating more high quality non commoditized content and value added services.

We can further leverage AI to improve the product experience in areas, such as personalized content recommendations and curated page experiences.

And I can help improve and quick and business decisions in areas, such as pricing strategies or balance of premium content on our pages.

The applications of AI are vast and buy responsibly leveraging the technology, we can improve the customer experience and create efficiencies that allow our journalists to provide more rich local and national contest.

All the content that can that is known for.

Now before turning the call over to Doug I want to reiterate a few very important points.

We had a solid first quarter with noticeable improvement and trends across a broad spectrum of our business.

It was very encouraging and our confidence enables us to raise our guidance and several key financial categories.

With declining debt and lower leverage improved.

And the meaningfully lower cost structure, we are well positioned to grow adjusted EBITDA and free cash flow significantly this year.

Over the prior year and we remain confident in our ability to reach our inflection point towards the end of next year.

We believe we are well positioned to execute on our transformation, while we delever the company, resulting in significant value enhancement for our shareholders.

I would like to now turn the call over to Dove to provide additional detail and color around our 2023 first quarter as well as the details on the increase to our full year 2023 guidance Dove.

Thank you, Mike and good morning, everybody.

As Mike mentioned, we are very excited by the progress you made in the first quarter.

Adjusted EBITDA remained relatively stable year over year, despite facing the most challenging comparisons of the year.

Last year's negative trends around revenue inflationary impacts and currency all became more significant beginning in the second quarter of 2022.

We also improved our adjusted EBITDA margin in Q1 by 80 basis points year over year.

The stabilization and adjusted EBITDA reflects the successful execution of our cost management initiatives as well as the sustained execution of our strategy.

We are optimistic about the ongoing trends, which we anticipate will continue to improve throughout the year, most notably in Q2 and Q3.

We believe that puts us in a favorable favorable position to achieve year over year adjusted unit growth for 2023.

Q1, total operating revenues were $668 $9 million, a decrease of 10.6% as compared to the prior year quarter or 9.3% on our same store basis.

This represents a 100 basis point improvement from the 10.3% year over year same store revenue decreases in the fourth quarter of 2022.

And we expect this trend an improvement to continue for the balance of the year.

Adjusted EBITDA totaled $62.9 million in the first quarter of 2023, a slight decrease of 2% or $1.3 million a year over year.

Do almost exclusively to the impact from foreign exchange rates.

He adjusted EBIT margin was 9.4% compared to 8.6% in the prior year quarter.

The improvement and adjusted EBITDA margin was driven by the savings captured from our cost management initiatives with expenses related to these initiatives down approximately 12% year over year.

This is despite the lingering impacts of inflationary pressures.

While we believe these cost peaked in late 2022, the flow through impact was still meaningful on a year over year basis in the first quarter of 2023.

On the bottom line, we ended the first quarter with net income attributable to get at $10.3 million and.

And $5.8 million and adjusted net income.

Our net income represents a 13.3 million dollar year over year increase driven by lower operating expenses to gain on the sale of real estate and other assets and a $17 $6 million tax benefit.

We continue to expect a full year tax provision to remain in line with our original guidance of zero to $20 million with the expected tax benefit in the first half of the year being offset by and expect a tax provision in the second half of 2023.

Total digital revenues in Q1, where $247.5 million down 9% year over year on that same store basis.

And the first quarter or total digital revenues accounted for 37% of our total revenues.

Digital revenues decreased due to continued softness and digital advertising, which started in mid Q2 of 2022 and was down 15.8% in Q1 of 2023 on a same store basis year over year.

The decrease in digital advertising revenue was primarily driven by lower monetization rates as compared to the prior year period.

We expect to begin the cycle this impact midway through the second quarter of 2023 and returned to digital revenue growth.

This will help us reach our long term projection of total digital revenues accounting for more than 50% of our total revenue.

The performance and are digital only circulation and digital marketing solutions businesses is expected to continue to provide the foundation for future growth.

On our same store basis are digital only circulation revenues of $35.8 million increased nearly 20% over the prior year period.

As we look ahead, we expect <unk> to gradually rise to the rest of the year as we continue to focus our customer acquisition efforts on more profitable subscribers.

Alright advertising revenue decreased 10.7% compared to the prior year on our same store basis.

Reflecting a stabilization and improvement in trends despite the continued secular declines.

There has been a significant improvement in print advertising trends on a sequential basis with an increase of over 600 basis points compared to Q4 of 2022.

We did experience some softness in the classifieds market, which includes a <unk> unemployment listings. However, we have implemented self service order capabilities across both of those articles and we are pleased to report that in the initial stages. The self service functionality has led to an increase in both the order volume.

And average order size as well as an expanded customer base.

Results in print circulation.

Excuse me one moment please.

For a moment please.