[August 09, 2018]

Gannett Reports Second Quarter Results

Gannett Co., Inc. (NYSE: GCI) ("Gannett" or "company" or "we" or "our") today reported second quarter 2018 financial results for the period ended June 30, 2018 ⁽¹⁾.

"We are excited by the continued momentum in our digital business driven by strong growth in our marketing services and national media businesses," said Robert J. Dickey, president and chief executive officer. "On July 2^nd, we successfully closed the WordStream acquisition, which adds more software-as-a-service solutions to our digital marketing services product portfolio and will further propel our digital transformation that is already well underway."

"The strong margin improvement at our ReachLocal segment and the continued focus on driving efficiencies within our publishing and corporate operations reflect strong execution on our objectives," said Ali Engel, senior vice president and chief financial officer. "Adjusted EBITDA grew year-over-year and we delivered better than expected margin expansion in the quarter. We are increasing our Adjusted EBITDA guidance range for the year as a result of our stronger first-half performance, combined with the integration of WordStream."

Second Quarter 2018 Consolidated Results ⁽²⁾

• Operating revenues were $730.8 million, compared to $774.5 million in the second quarter of 2017.
• Favorable changes in foreign currency exchange rates benefited revenues by $4.7 million.
• Same store operating revenues declined 7.5% year-over-year, consistent with the first quarter decline of 7.2%.
• Total digital revenues increased 8% to $260.9 million, or approximately 36% of total revenue.
• GAAP net income was $16 million, including $22.8 million of after-tax restructuring, asset impairment charges and other costs.
• Adjusted EBITDA ⁽³⁾ totaled $85.6 million, compared to $83.7 million in the second quarter of 2017, up 2.3% year-over-year reflecting strong earnings growth at ReachLocal and continued operating efficiencies across our publishing and corporate operations. Adjusted EBITDA margins expanded in the quarter to 11.7% from 10.8% in the year ago quarter.

Second Quarter 2018 Publishing Segment

• Publishing segment operating revenues were $644.6 million, compared to $692.2 million in the second quarter of 2017. On a same store basis, segment revenues declined 8.9%.
• Same store print advertising revenues for the quarter declined 19.1% year-over-year reflecting a negative impact from the timing of Easter, which instead benefited the first quarter. First half same store print advertising revenues fell 18.1% year-over-year, consistent with trends seen in the last six months of 2017.
• Digital advertising & marketing services revenues increased 8.5% to $107.9 million, compared to the prior year quarter. On a same store basis, digital advertising & marketing services revenues increased 6.4%, consistent with the first quarter trend.
  • Digital marketing services revenues of $20.0 million rose 72.0%, on a same store basis, driven by higher client counts and higher average revenue per client.
  • Digital media revenues of $68.5 million rose 4.9%, on a same store basis, due to strong growth in national revenues.
  • Digital classified revenues of $19.3 million fell 21.6%, on a same store basis, reflecting weakness across all categories.

• Same store circulation revenues fell 5.0% from the prior year quarter, consistent with the first quarter trend, reflecting the continued benefit from our full-access subscriber pricing initiatives, offset by expected revenue declines in single copy.
• Digital-only subscriber volumes grew 46% year-over-year and now total approximately 413,000.
• Publishing segment Adjusted EBITDA was $94.4 million compared to $104.1 million in the prior year quarter.

Second Quarter 2018 ReachLocal Segment

• ReachLocal revenues were $100.4 million, up 16.9% year-over-year.
  • The increase was attributable to the migration of Gannett clients onto the ReachLocal platform and organic growth across ReachLocal's core business.
• Adjusted EBITDA was $10.3 million, or a 10.2% margin, up materially from only $1.2 million in the second quarter of 2017.
  • Improved profitability in the quarter was driven by continued solid growth in average revenue per client due to more successful cross-selling and the migration of Gannett clients onto the ReachLocal platform. Additionally, in the second quarter, we sold our business in Germany, which had been slightly unprofitable a year ago.

Second Quarter 2018 Cash Flow

• Net cash flow from operating activities was approximately $15.4 million, compared to $98.3 million in the prior year quarter. The decrease in net cash flow from operating activities primarily relates to the timing of pension contributions of $25 million in the second quarter of 2018, as compared to the third quarter of 2017, and a tax refund of $16 million received in the second quarter of 2017.
• Capital expenditures were approximately $14 million, primarily for product development, technology investments, and maintenance projects.
• The company paid dividends of $18.1 million; there were no share repurchases.
• As of the end of the second quarter, the company had a cash balance of $209.7 million and $170 million drawn on its revolver plus $166.8 million in convertible notes, or net debt of $127.1 million. The company's revolver balance at the end of second quarter reflects the funding needed to complete the purchase of WordStream in early July.

Outlook

For 2018, the company is providing the following outlook:

• Consolidated revenues of $2.95-3.00 billion, compared to $2.93-3.03 billion previously, including a $27 million contribution from WordStream.
• Consolidated Adjusted EBITDA outlook of $337-345 million, raised from prior guidance of $330-340 million, reflecting a $7 million contribution from WordStream.
• Capital expenditures of $65-75 million.
• Depreciation and amortization of $140-150 million, excluding accelerated depreciation related to facility consolidations and including an estimated $6 million for depreciation and intangibles amortization related to WordStream.
• The non-operating cost associated with our pension plans, recorded in other non-operating items, is currently estimated to be a credit of $5-7 million as compared to an expense of $21 million in 2017.
• A non-GAAP effective tax rate of 25-26% ⁽³⁾.

Conference Call Information

The company will hold a conference call at 10:00 a.m. ET today to discuss its second quarter results. The call can be accessed via a live webcast through the company's investor site, http://investors.gannett.com/, or listen-only conference lines. U.S. callers should dial 855-462-1958 and international callers should dial 503-343-6635 at least 10 minutes prior to the scheduled start of the call. The confirmation code for the conference call is 1179067. A conference call replay will be available through September 7, 2018. U.S. callers should dial 855-859-2056 and international callers should dial 404-537-3406.

Forward Looking Statements

This press release contains certain forward-looking statements regarding business strategies, market potential, future financial performance and other matters. Forward-looking statements include all statements that are not historical facts. The words "believe," "expect," "estimate," "could," "should," "intend," "may," "plan," "seek," "anticipate," "project" and similar expressions, among others, generally identify forward-looking statements, which speak only as of the date the statements were made and are not guarantees of future performance. Where, in any forward-looking statement, an expectation or belief as to future results or events is expressed, such expectation or belief is based on the current plans and expectations of our management and expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. Whether or not any such forward-looking statements are in fact achieved will depend on future events, some of which are beyond our control. The matters discussed in these forward-looking statements are subject to a number of risks, trends, uncertainties and other factors that could cause actual results to differ materially from those projected, anticipated or implied in the forward-looking statements. These factors include, among other things:

• our ability to achieve our strategic transformation;
• an accelerated decline in general print readership and/or advertiser patterns as a result of competitive alternative media or other factors;
• an inability to adapt to technological changes or grow our digital businesses;
• risks associated with the operation of an increasingly digital business, such as rapid technological changes, frequent new product introductions, declines in web traffic levels, technical failures and proliferation of ad blocking technologies;
• macroeconomic trends and conditions;
• competitive pressures in the markets in which we operate;
• increases in newsprint costs over the levels anticipated or declines in newsprint supply;
• potential disruption or interruption of our IT systems due to accidents, extraordinary weather events, civil unrest, political events, terrorism or cyber security attacks;
• variability in the exchange rate relative to the U.S. dollar of currencies in foreign jurisdictions in which we operate;
• risks and uncertainties related to strategic acquisitions or investments, including distraction of management attention, incurrence of additional debt, integration challenges, and failure to realize expected benefits or synergies or to operate businesses effectively following acquisitions;
• risks and uncertainties associated with our ReachLocal segment, including its significant reliance on Google for media purchases, its international operations and its ability to develop and gain market acceptance for new products or services;
• our ability to protect our intellectual property or defend successfully against infringement claims;
• our ability to attract and retain employees;
• labor relations, including, but not limited to, labor disputes which may cause business interruptions, revenue declines or increased labor costs;
• risks associated with our underfunded pension plans;
• adverse outcomes in litigation or proceedings with governmental authorities or administrative agencies, or changes in the regulatory environment, any of which could encumber or impede our efforts to improve operating results or the value of assets;
• volatility in financial and credit markets which could affect the value of retirement plan assets and our ability to raise funds through debt or equity issuances and otherwise affect our ability to access the credit and capital markets at the times and in the amounts needed and on acceptable terms;
• risks to our liquidity related to the redemption, conversion and similar features of our convertible notes; and
• other uncertainties relating to general economic, political, business, industry, regulatory and market conditions.

A further description of these and other important risks, trends, uncertainties and other factors is provided in the company's filings with the U.S. Securities and Exchange Commission, including the company's annual report on Form 10-K for fiscal year 2017. Any forward-looking statements should be evaluated in light of these important risk factors. The company is not responsible for updating or revising any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Non-GAAP Financial Measures

This press release also contains a discussion of certain non-GAAP financial measures that the company presents to allow investors and analysts to measure, analyze and compare its financial condition and results of operations in a meaningful and consistent manner. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the tables accompanying this press release.

About Gannett

Gannett Co., Inc. (NYSE: GCI) is an innovative, digitally focused media and marketing solutions company committed to strengthening communities across our network. With an unmatched local-to-national reach, Gannett touches the lives of more than 125 million people monthly with our Pulitzer-Prize winning content, consumer experiences and benefits, and advertiser products and services. Gannett brands include USA TODAY NETWORK with the iconic USA TODAY and more than 100 local media brands, digital marketing services companies ReachLocal and SweetIQ, and U.K. media company Newsquest. To connect with us, visit www.gannett.com.

USE OF NON-GAAP INFORMATION

The company uses non-GAAP financial performance and liquidity measures to supplement the financial information presented on a GAAP basis. These non-GAAP financial measures, which may not be comparable to similarly titled measures reported by other companies, should not be considered in isolation from or as a substitute for the related GAAP measures and should be read together with financial information presented on a GAAP basis.

The company defines its non-GAAP measures as follows:

• Adjusted EBITDA is a non-GAAP financial performance measure that the company believes offers a useful view of the overall operation of our business. The company defines adjusted EBITDA as net income before (1) income taxes, (2) interest expense, (3) equity income, (4) other non-operating items, (5) restructuring costs, (6) acquisition-related expenses (including certain integration expenses), (7) asset impairment charges, (8) other items (including certain business transformation costs, litigation expenses, multi-employer pension withdrawals, and gains or losses on certain investments), (9) depreciation, and (10) amortization. The most directly comparable GAAP financial measure is net income.
• Adjusted net income is a non-GAAP financial performance measure that the company uses for calculating adjusted earnings per share ("EPS"). Adjusted net income is defined as net income before the adjustments we apply in calculating adjusted EPS, as described below. We believe presenting adjusted net income is useful to enable investors to understand how we calculate adjusted EPS, which provides a useful view of the overall operation of the company's business. The most directly comparable GAAP financial measure is net income.
• Adjusted diluted EPS is a non-GAAP financial performance measure that the company believes offers a useful view of the overall operation of our business. The company defines adjusted EPS as EPS before tax-effected (1) restructuring costs, (2) asset impairment charges, (3) acquisition-related expenses (including certain integration expenses), (4) non-operating (gains) losses, and (5) other items (including certain business transformation expenses, litigation expenses, multi-employer pension withdrawals and gains or losses on certain investments). The tax impact on these non-GAAP tax deductible adjustments is based on the estimated statutory tax rates for the United Kingdom of 19.0% and the United States of 25.5%. In addition, tax is adjusted for impacts associated with new tax rates in the U.S. Tax Cuts and Jobs Act. The most directly comparable GAAP financial measure is diluted EPS.
• Free cash flow is a non-GAAP liquidity measure that adjusts our reported GAAP results for items that we believe are critical to the ongoing success of our business. The company defines free cash flow as cash flow from operating activities as reported on the statement of cash flows less capital expenditures, which results in a figure representing free cash flow available for use in operations, additional investments, debt obligations, and returns to shareholders. The most directly comparable GAAP financial measure is net cash from operating activities.

The company uses non-GAAP financial measures for purposes of evaluating its performance and liquidity. Therefore, the company believes that each of the non-GAAP measures presented provides useful information to investors by allowing them to view our businesses through the eyes of our management and Board of Directors, facilitating comparison of results across historical periods, and providing a focus on the underlying ongoing operating performance of our business. Many of our peer group companies present similar non-GAAP measures to better facilitate industry comparisons.

View source version on businesswire.com: https://www.businesswire.com/news/home/20180809005121/en/

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