Q2 2023 Gannett Co Inc Earnings Call
Greetings and welcome to the second quarter earnings Cole.
At this time all participants are.
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Brief question and answer session will follow the formal presentation.
If anyone should require operators during the conference <unk> as in Zebra on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Matthew.
You might begin.
Thank you.
Good morning, everyone and thank you for joining our call today to discuss getting a second quarter 2023 financial results.
Presenting on today's call will be Mike Reed chair.
Chairman and Chief Executive Officer.
Chief Financial Officer.
Christian Roberts.
Media, Chief content Officer, and Chris Chow.
Didn't digital marketing solutions.
If you navigate to begin that web site, you will find that we have posted and earning supplement in addition, or earlier press release well.
We 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.
Sure 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.
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 earnings supplement as well as the risk factors described and can nets filings made with the S. E C.
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 non-GAAP financial information during the call.
Including Same-store revenues.
Free cash flow.
Adjusted EBITDA adjusted EBITDA margin and adjusted net income attributable to get at.
You can find reconciliation of our non-GAAP measures to the most comparable U S GAAP measures and the earning supplement.
Lastly, I would like to remind you that nothing on this call constitutes and all sorts of cell or solicitation of an offer to purchase any interest internet.
The webcast and Audiocast are copyrighted material.
And may not be duplicated.
Reproduced or rebroadcasted without prior written consent.
With that I would like to turn the call over to Mike Reed, and that's chairman and C E O.
Thanks, Matt good morning to everyone and thanks for joining a sudden or up to two earnings call. This morning.
We are pleased to report a strong quarter of improving financial results were good at.
And Q2, adjusted EBITDA reached 71.2 million and grew by 40% year over year. We also generated 38 million of free cash flow and the quarter, reflecting a significant increase of approximately 190% compared to 222 of last year.
We believe our strategic initiatives continue to play a crucial role in driving sequential improvement in same store revenue trends.
As a result, our total digital revenues, which returned to growth in queue to now.
Now account for nearly 40% of total revenue representing an all time high.
Our cost controls remains strong and we continue to work diligently on our optimization efforts.
All of these items adjusted EBITDA growth sustained improvement in same store revenue trends expansion of digital revenue and significant free cash flow generation are expected to continue in the second half of the year.
And as a result, we are again raising our guidance for the fiscal year 2023.
Importantly on total digital revenues, we return to growth in the second quarter and importantly on that with June specifically being our best month in the quarter we've.
We further expect digital revenue growth trend improvement in the third quarter.
We also repaid $15 million of debt in the quarter, which combined with our adjusted EBITDA growth has materially reduced our firstly that leverage to 2.26 and.
And we expect this figure to fall well below two times by the end of 2023.
We believe we are making great progress on our strategy and our results signify a notable turning point in our business trajectory.
Consistent with what you've heard from us over the last few quarters, we continued to implement implement necessary actions to reduce our cost structure.
And to drive our evolution to a customer first digital led business.
Howard by data in technology.
We continue to build on the strong foundation, we laid over the past year.
Our focus on profitability did.
Digital revenue growth and strengthening our balance sheet persists and that focus is evident in our results.
With that I'd like to discuss the positive results achieved in the second quarter.
And Q2 are digital only subscription revenues showed continued growth increasing by 17% year over year on the same store basis, and they groups sequentially, 6% over the previous quarter.
R Q2, digital only subscription volumes, which grew 5% year over year, we're in line with our expectations and reflect the refined acquisition strategy with a heightened focus on profitability and digital only are.
As a result in Q2, we achieved our highest RP level in two years.
We believe we have continued upside with regard Dar poop and expect ongoing digital only subscription revenue growth as we continued to strategically focus on a smart customer acquisition content and pricing strategy.
Customer churn remains.
Below industry standards, and we continue to believe we have a significant opportunity to grow digital only subscriptions in the future as we expand our content and product offerings.
We continue to focus on monetizing our large organic audience of $185 million average monthly unique visitors of which 134 million of those come from our USA today network as measured by Comscore.
And 51 million come from our UK digital properties.
In addition to our digital subscriptions, we are hyper focused on the overall monetization of our user base with a bias towards recurring revenue.
In fact, we believe the revenue opportunity is much bigger through embracing in Monetising all the visitors to our platform beyond digital subscriptions.
This monetization comes from leveraging affiliate and content partnerships.
Digital advertisers.
Expanding our product offerings and capitalizing on our sports vertical.
We believe the strategic initiatives, coupled with our unwavering commitment to delivering relevant and essential content will allow us to better optimize all of our audience and improve our overall digital revenue growth.
We are also excited to share that our partnerships in the gambling and financial services sectors with gambling dotcom and Forbes marketplace platforms are pacing ahead of expectations and their first year.
The performance of these partnerships gives us great confidence in the potential growth from these relationships.
As well as other partnership opportunities that may arise.
To grow mature into material revenue and cash flow streams for good at.
As previously mentioned, we are actively exploring additional partnerships and major sectors, such as home services and education, and we expect more partnership announcements to come over the next year.
We believe this strategic expansion will enable us to reach a broader audience increase our digital revenues and enhance the overall monetization of our platform.
We believe our overall monetization strategy is rooted in the highly valued and unique content. The USA today network produces.
As we move forward, we believe content will continue to be the growth engine for good that media.
We are so excited that Christian Roberts joined our leadership team as Chief content Officer, and Christian is already boasts bolstering our efforts to drive that growth Chris.
Christian and her team are executing on their strategy too rapidly expand our audience amplify our journalism and drive diversified revenue streams the.
The content team is diligently focused on creating more captivating and compelling content that resonates with our audience, which we expect will result in a significant expansion of our viewership and page views.
Even in the initial stages of this strategy, we are already seeing significantly improved results.
For example, various initiatives implemented in June .
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Ah consumers through our different Richie differentiated content, including local news that is important and vital to our communities.
Through outreach, we are committed to helping local businesses cultivate new customers through our media and marketing tools technologies and services.
We are encouraged by the early results of our increased local efforts.
While there's much to do our leadership team knows there is a great opportunity to strengthen our local brands, which we believe will lead to increased revenues engagement and profitability.
In connection with our increase local market focus and optimization efforts.
Recently appointed Jason Taylor as Chief sales officer of good that media.
And his prior roll with good at Jason ran USA today network ventures, which we believe is the largest domestic media owned events business.
Jason will oversee our beta be media and events teams as we prioritize securing new business and embedding events across the company is part of our advertising sales and promotional strategy that both the local and national levels.
Jason's energy and track record of revenue growth combined with his expertise in local media and event management will further propel our sales efforts and we are excited about the positive impact he will have on the company.
As we focus on local communities and the importance of content.
We believe nothing is more critical than the consumer and our strategy to be essential in their lives.
With that in mind, we are thrilled to welcome MTS Patel S Chief consumer officer of good that media.
M T. As recently joined US from the Baltimore banner, where he was the C E O of the digital news site.
He brings extensive experience from consumer news media organizations.
His focus has been on growth strategy and digital expansion.
With a strong track record of delivering results is widely recognized as an incredibly collaborative leader.
We are thrilled to have mts's on team <unk> and are confident he will make a great impact.
We are also very pleased to have Chris Cho join us to lead the digital marketing solutions business local I Q.
Chris is a proven private executive and visionary who spent over two decades building and scaling tech enabled businesses.
Most recently, Chris was chief private officer at Axiom, a recruiting technology platform for legal talent resources.
He oversaw product platform technology and go to market strategy.
In his capacity Chris was instrumental in launching new features and expanding the product portfolio. We're very excited to have Christmas expertise and leadership and we look forward to the positive impact he will bring to <unk>.
A key component of our digital revenue growth strategy is the aforementioned digital marketing solutions business.
In the second quarter, we achieved our highest core platform revenue in history of the segment, reaching $121.6 million.
Growing 4.4% year over year.
And improving our growth trend from Q1 of this year by a half a point.
We also continue to generate strong adjusted EBITDA margins.
A year, we achieve significant growth in both core platform core platform or poo AD budget retention.
And we are particularly excited to see or to reach an all time high.
We also witness strong sequential growth the customer count surpassing 15000 customers in Q2.
We remain committed to running a digital marketing solutions business in a manner that appropriately balances revenue growth and profitability.
I'll also enhancing our product offerings to target and expanded customer base.
A premium experience.
Bind with compelling do it yourself offerings and other technology enabled products.
Ah complimentary model continues to drive impressive growth.
With daily registered users, surpassing 140000 in Q2.
That compares to 7000 in Q2 of last year.
These 140000 registered users.
In addition to our 15300 core platform customers.
We are also actively developing a cross media optimization technology known as X M O.
This a high powered technology facilitates gull based advertising by leveraging insights optimizations and actions to deliver exceptional results.
We are excited about this product lines potential as well as it's expected ability to deliver strong growth year over year.
To recap the second quarter, we made solid progress on many facets of our strategy and believe we will see continued strong performance over the back half of this year.
We concluded the first half of 2023 with significant momentum.
And as we entered the second half of the year or optimism continues to grow.
Before I turn it over to Dove to talk about more detail of the quarter I'd like to take a moment to let Kristen and Chris share a few remarks as they joined guenette since our last quarterly call and I'm Gonna start with Christian Christian I'll kick it over to you.
And you don't have this extraordinary opportunity to walk with a talent.
No sunlight throughout my career.
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The raw and innovative business model I'm Gonna drive won't grow.
Because I believe the potential here is totally unparallel.
Per month olds bonding audience, which we believe offers unlimited potential for a diversified predictable and <unk> what fighting part about that.
Our company and our shareholders, while empowering to make substantial investments in journalism at the live Earth on our part.
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This allows us to better sorry, if I can get rid of it.
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Mark about progress and migraines time here.
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Norfolk N investments and content by hiring more journalists with more to come.
On the early photos that I'm excited about our potential profit.
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The little and strengthening journalism my passion.
I found this topic unwavering and I am confident.
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Thank you Christian and.
And now I'd like to pass it over to Chris Cho, who is now leading our local.
Local I Q business, Chris. Thank you, Mike I am excited to join cannot and local I Q.
Deeply impressed by the collective talents and the innovative products and solutions offered.
Passion to drive growth for our customers businesses is truly inspiring and I look forward to leveraging my experience building and nurturing tech enabled businesses that contribute to our continued success.
And the upcoming quarters, our team will work to develop short and long term plans as we lay out comprehensive strategies for maximizing our freemium business.
Start developing new product offerings that more deeply entrenched ourselves and our customers operations.
Our unwavering commitment to our customers will drive us forward as we continually obsess over meeting their needs.
Together, we will embark on a journey developed new.
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Eric Devolving requirements and insure their ongoing success.
I believe the journey ahead, it exciting and I'm eager to contribute my expertise to our collective growth and success Mike.
Thanks, Chris.
Before I turn it over to Doug just just wanted to say how excited we are to have Chris Christian here as well as in T as in Jason.
Can't wait to see the impacts they make to our business not only over the copier couple quarters, but over the coming years now I'll turn it over to Doug for additional color around the second quarter of 2023.
Thank you, Mike and good morning, everyone.
Notably in queue too, we outsource certain technology functions and we expect to see the benefit from these cost optimization efforts and the upcoming quarters.
We will continue to exercise prudent cost management with an emphasis on optimizing those centralized costs in order to preserve our resources in the markets, we serve and to invest in key areas for future growth.
As a result, adjusted EBITDA totaled $71.2 million in the second quarter of 2023, an increase of approximately 40% or $20.3 million a year over year.
Adjusted EBITDA margin was 10.6% compared to 6.8% in the prior year quarter, representing an improvement of 380 basis points.
Growth and adjusted EBITDA was fueled by the improve around new friends strategic cost controls and it continued operational progress against our goals.
As a result of our performance in the first half of the year, we continue to expect meaningful adjusted EBITDA growth in 2023.
Total digital revenues return to overall growth in Q2 and were $262.1 million.
0.8% year over year on the same store basis.
In the second quarter or total digital revenues accounted for 39% of our total revenues.
Given the ongoing pressures and digital media monetization rates are digital advertising revenues.
11.4% year over year Same-store decline.
We are very encouraged by the significant 440 basis point improvement compared to the first quarter's performance.
Looking ahead, we expect to continue rebound and digital advertising did a more favorable comparisons.
The optimization initiatives, including increased self through.
In addition, we expect notable improvement and digital revenues for both Q3 and Q4 of this year.
The performance and are digital only subscription and digital marketing solutions businesses are key components of the company's strategic foundation for future growth.
On our same store basis are digital only subscription revenues increased nearly 17% year over year to $38 million.
Digital only paid subscriptions grew 5% year over year and declined slightly from Q1.
This reflects intentional actions to continue optimizing acquisition costs by prioritizing longterm monetization versus short term volume.
These deliberate actions are paying off evidenced by the 6% year over year growth in digital only <unk>, which is the highest level in two years.
<unk> is expected to continue to grow throughout the second half of 2023 as we continue to focus on customer acquisition and retention efforts on those more profitable subscribers as well as the continued optimization of our pricing strategy.
Despite secular headwinds the decrease in print advertising revenue was limited to 8.9% year over year on our same store basis, marking the smallest decline observed in the past year.
Or sequential trends also improved by 180 basis points compared to Q1 of 2023.
The results in print subscription revenue continue to show promising improvements driven by the actions we implemented to enhance the subscriber experience we.
We believe our investments and addressing open routes and distribution challenges are paying off with the percentage of open delivery routes declining over 44% versus the prior year.
And Q2 or other revenues category, which includes commercial threatened delivery face muted trends, which had a negative impact on the company's overall revenue.
Despite two years of recent growth this revenue stream experienced a 5.3% year over year decline on a same-store basis.
This decrease can be attributed to a reduction in commercial print volumes as well as lower digital media Cpm's, which negatively impacted the third party monetization of our syndicated content.
Moving to our digital marketing solutions business.
Total revenue in the second quarter was $122.8 million, an increase of 4.6% year over year on a same-store basis.
Adjusted EBITDA for the segment was $15.5 million, representing a margin of 12.6% in the second quarter and an increase of 50 basis points year over year.
The average monthly customer count increase from Q1, but decreased five 6% compared to the prior year period due to higher churn across the lower margin customer segments.
However, core platform or poo reached a record high and Q2.
Showing 10% versus the prior year period.
Additionally budget retention.
Increase of 70 basis points year on year, reaching 95.6% in Q2.
We believe these positive trends reflect our continued emphasis on the product portfolio and our focus on delivering an outstanding client experience.
Let's now shipped to the balance sheet.
At the end of the second quarter, our cash balance stood at $106.6 million translating to net debt of approximately $1.1 billion.
We generated free cash flow of $38.4 million in the second quarter, marking a substantial increase of $81.7 million compared to the prior year period.
Looking ahead, we anticipate significant free cash flow generation in Q3, and Q4 this year with the full year expected to be between $90 million to $110 million.
We ended the second quarter was approximately $1.2 billion of total debt.
Our first lien net leverage decreased to 2.26 times, reflecting $15.1 million.
Total debt pay down to the second quarter and improved adjusted EBITDA performance.
During July we repaid an additional $8.2 million of our term loan using the proceeds from recent real estate asset sales.
Debt repayment remains a top priority for us and as a result, we expect our first lien that leverage to fall well below two times by the end of the year.
We continue to maintain a sizeable real estate sales pipeline of approximately $50 million to $60 million, which combined with are expected free cash flow improvement will contribute meaningfully into our debt repayment for the remainder of the year.
At the end of the second quarter took legal action by filing a lawsuit against Google and Federal Court.
Overall, we felt this was an appropriate time to enter the litigation given the parallel lawsuit from the department of Justice as well as additional actions at the state level.
We believe that billions of dollars of advertising revenue were negatively impacted over the timeframe in question.
We feel confident in our position as outlined in the claim and importantly from a financial perspective, we do not expect this legal action to have any meaningful impact on can net operating expenses are cashflows during the course of the lawsuit.
Turning now to guidance.
We are reiterating our prior guidance as described in today's earnings release with respect of revenues Same-store total revenues and firstly net leverage.
As a result of our second quarter performance, we are increasing our 2023 full year outlook for both adjusted EBITDA and free cash flow by $5 million.
We now expect full year adjusted EBITDA, they're trained $290 million to $310 million, which translates to expected year over year growth of nearly 20%.
We expect significant growth year over year in Q3, two on improving same store revenue trends and the ramping of our cost management initiatives.
Free cash flow is now expected to be in the range of $90 million to $110 million, representing a conversion rate of at least 30%.
We also raised or 2023 full your outlook for both net income attributed older than that in cash provided by operating activities by $5 million.
For the full year, we expect net income attributable to begin at two range from a net loss of $10 million to a net income of $20 million.
<unk> provided by operating activities is expected to be in the range of $130 million to $150 million.
Before wrapping up I just wanted to reiterate how excited we are about the progress we've made and the company's performance in Q2.
The first half of 2023 closed with remarkable momentum and we are entering the second half of the year with a great deal of optimism.
Our unwavering focus is on sustaining these positive trends throughout 2000 twenty-three and into 2024 as we continue to transform guenette and in turn create meaningful value for the company's stakeholders.
I will now I'll hand, it back to the operator for questions and then we will go back to Mike for some closing thoughts.
Thank you very much.
<unk>, we will not convict question and answer session.
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<unk> this call keys.
One moment, please while we pose questions.
It would appear that we have my questions and I would like to pay the full back to Mister <unk>.
Okay, great. Thank you.
So I'm incredibly proud of the strong performance, we achieved in the second quarter and really the first half of the year.
Wavering focus and dedication of the team here and that has led to a high level of operating performance this year, resulting in solid financial results.
We believe we are in a favourable position as you've heard this morning, as we move into the second half of the year backed by a number of catalysts. Let me do a quick review a few quick review of a few of those catalysts.
The cheating significant adjusted EBITDA free cash flow growth.
Driving digital revenue growth now approximately 40% of our total revenue and that percentage will keep going up improving same-store revenue trends on a sequential basis.
Sustaining growth and are digital only subscription revenues, while increasing digital only are poo through a renewed content strategy and revitalized focus on local markets.
Achieving hot record highs and Dms core platform revenue in our pool, while sustaining strong adjusted EBITDA.
Rapid deleveraging through adjusted EBITDA growth and debt repayment.
And finally, adding for dynamic leaders to our business and Christian Roberts, MTS Patel, Jason Taylor and Chris Joe.
With these catalysts driving US forward, we are excited and confident about the opportunities that lie ahead. The remarkable progress achieved during Q2 fills us with pride and we are determined to continue delivering solid results and unlock unlocking significant shareholder value throughout the remainder of 2020.
Three and of course beyond thanks, Thanks, everyone for joining US today, we look forward to updating you again in three months on our progress in the third quarter. Thank you.
Thank you very much sir.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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