GANNETT CO., INC. The following discussion and analysis of our financial condition and results of operations and quantitative and qualitative disclosures should be read in conjunction with our unaudited condensed consolidated financial statements and related notes and with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , as filed with theSecurities and Exchange Commission . Management's Discussion and Analysis of Financial Condition and Results of Operations contains a number of forward-looking statements that reflect our plans, estimates, and beliefs, all of which are based on our current expectations and could be affected by certain uncertainties, risks, and other factors described under Cautionary Note Regarding Forward-Looking Statements, Risk Factors, and elsewhere throughout this Quarterly Report, as well as the factors described in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , and subsequent periodic reports filed with theSecurities and Exchange Commission , particularly under "Risk Factors." Our actual results could differ materially from those discussed in the forward-looking statements.
OVERVIEW
We are a subscription-led and digitally-focused media and marketing solutions company committed to empowering communities to thrive. We aim to be the premier source for clarity, connections and solutions within our communities. Our strategy is focused on driving audience growth and engagement by delivering deeper content experiences to our consumers, while offering the products and marketing expertise our advertisers desire. The execution of this strategy is expected to allow us to continue our evolution from a more traditional print media business to a digitally-focused content platform. Our current portfolio of media assets includesUSA TODAY , local media organizations in 46 states in theU.S. , andNewsquest , a wholly-owned subsidiary operating in theUnited Kingdom ("U.K.") with more than 120 local media brands. We also own the digital marketing services companiesReachLocal, Inc. ("ReachLocal"),UpCurve, Inc. ("UpCurve"), andWordStream, Inc. ("WordStream") which are marketed under the LOCALiQ brand, and run the largest media-owned events business in theU.S., USA TODAY NETWORK Ventures . 26
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ThroughUSA TODAY , our local property network, andNewsquest , we deliver high-quality, trusted content where and when consumers want to engage with it on virtually any device or platform. Additionally, we have strong relationships with hundreds of thousands of local and national businesses in both ourU.S. andU.K. markets due to our large local and national sales forces and a robust advertising and digital marketing solutions product suite.
Business Trends
We have considered several industry trends when assessing our business strategy:
•Print advertising continues to decline as the audience increasingly moves to
digital platforms. We look to optimize our print operations to efficiently
manage for this declining print audience. We are focused on converting the
growing digital audience into digital-only subscribers to our publications.
•Small and medium-sized businesses ("SMBs") are facing an increasingly complex
marketing environment and need to create digital presence to capture audience
online. We offer a broad suite of DMS products that offer a single, unified
solution to meet their digital marketing needs.
•Consumers are looking for experience-based, emotional connections and
communities. USA TODAY NETWORK Ventures was designed to celebrate local
communities and create opportunities for meaningful in-person and virtual
experiences. However, the COVID-19 pandemic has temporarily negatively impacted
our ability to secure necessary permitting for in-person events and consumers'
desire to attend or participate in live events.
•Digital consumer engagement has declined in comparison to such engagement at
the height of the COVID-19 pandemic in the second quarter of 2020, as consumers
have resumed certain pre-pandemic activities. In addition, the overall news
cycle, specifically political coverage, has also slowed, driving less consumer
engagement to our sites.
•Newsprint availability is constrained due to manufacturing facility closures
and conversions to specialty paper and packaging grades. Further, transportation
and other issues are challenging supplier deliveries, including delays, and are
expected to worsen with increased seasonal demand associated with the holidays
in the fourth quarter. Additionally, inflationary pressures are impacting the
overall cost of newsprint and delivery services.
Recent Developments
Debt Refinancing
OnOctober 15, 2021 ,Gannett Holdings LLC ("Gannett Holdings "), our wholly-owned subsidiary, entered into a five-year senior secured term loan facility in an aggregate principal amount of$516 million (the "New Senior Secured Term Loan"). Also onOctober 15, 2021 ,Gannett Holdings completed a private offering of$400 million aggregate principal amount of 6.00% first lien notes dueNovember 1, 2026 (the "2026 Senior Notes"). The proceeds of the New Senior Secured Term Loan, together with the net proceeds from the 2026 Senior Notes were applied towards the full repayment of our five-year, senior-secured term loan facility (the "5-Year Term Loan"). Please see the disclosure below under "Liquidity and Capital Resources - Debt Refinancing" and Note 15 - Subsequent events for further information regarding the debt refinancing.
Certain matters affecting comparability
The following items affect period-over-period comparisons from 2020 and will continue to affect period-over-period comparisons for future results:
Reclassifications
Certain amounts in the prior period condensed consolidated financial statements have been reclassified to conform to the current year presentation. In the fourth quarter of 2020, we re-aligned the breakout of the Publishing segment's Circulation revenues related to Digital-only circulation. As a result of this updated presentation, Print circulation revenues increased and Digital-only circulation revenues decreased$3.2 million and$10.7 million for the three and nine months endedSeptember 30, 2020 , respectively. There was no impact on reported total Publishing segment or consolidated Circulation revenues.
2027 Notes
At the Special Meeting of stockholders of the Company held onFebruary 26, 2021 (the "Special Meeting"), our stockholders approved the issuance of the maximum number of shares of Common Stock issuable upon conversion of the 6.0% 27 -------------------------------------------------------------------------------- Table of Contents Senior Secured Convertible Notes due 2027 (the "2027 Notes"). As a result, the conversion option can be share-settled in full and qualified for equity classification. Upon reclassification, the conversion feature was adjusted to fair value as of the stockholder approval date and the increase in the fair value resulted in a non-cash loss of$126.6 million due primarily to an increase in our stock price fromDecember 31, 2020 . The non-cash loss was recorded in Non-operating expense in the condensed consolidated statements of operations and comprehensive income (loss) for the nine months endedSeptember 30, 2021 . As ofSeptember 30, 2021 , the deferred tax asset related to the embedded conversion feature of the 2027 Notes was reclassified to Equity as a reduction to Additional paid-in-capital and reduced the carrying amount of the equity component of the 2027 Notes to$283.7 million .
Integration and reorganization costs
For the three and nine months endedSeptember 30, 2021 , we incurred Integration and reorganization costs of$13.6 million and$35.5 million , respectively, including$2.7 million and$10.9 million , respectively, related to severance activities and$11.0 million and$24.6 million , respectively, related to other costs, including those for the purpose of consolidating operations, systems implementation, and outsourcing of corporate functions. For the three and nine months endedSeptember 30, 2021 , we ceased operations of four and 14 printing operations, respectively, as part of the synergy and ongoing cost reduction programs. As a result, we recognized accelerated depreciation of$1.1 million and$11.4 million during the three and nine months endedSeptember 30, 2021 , respectively. For the three and nine months endedSeptember 30, 2020 , we incurred Integration and reorganization costs of$13.4 million and$74.0 million , respectively, including$7.3 million and$54.8 million , respectively, related to severance activities and$6.1 million and$19.2 million , respectively, related to other costs, including those for the purpose of consolidating operations. For the three and nine months endedSeptember 30, 2020 , we ceased operations of 11 and 35 printing operations, respectively, as part of the ongoing cost reduction programs. As a result, we recognized accelerated depreciation of$9.3 million and$45.0 million during the three and nine months endedSeptember 30, 2020 , respectively.
There were no goodwill and intangible impairments incurred for the three and
nine months ended
There were no goodwill and intangible impairments incurred for the three months endedSeptember 30, 2020 . For the nine months endedSeptember 30, 2020 , we incurred goodwill and intangible impairments of$393.4 million , primarily due to the impact of the COVID-19 pandemic on our operations.
Foreign currency
OurU.K. publishing operations are conducted through ourNewsquest subsidiary. In addition, ourReachLocal subsidiary has foreign operations in regions such asCanada ,Australia /New Zealand andIndia . Earnings from operations in foreign regions are translated intoU.S. dollars at average exchange rates prevailing during the period, and assets and liabilities are translated at exchange rates in effect at the balance sheet date. Translation fluctuations impact revenue, expense, and operating income results for international operations. 28 --------------------------------------------------------------------------------
Table of Contents Outlook for 2021 Strategy
Our areas of strategic focus for 2021 include:
Accelerating digital subscriber growth
The broad reach of our newsroom network, linking leading national journalism atUSA TODAY , our local property network in 46 states in theU.S. , andNewsquest in theU.K. with more than 120 local media brands, gives us the ability to deepen our relationships with consumers at both the national and local levels. We bring consumers local news and information that impacts their day-to-day lives while keeping them informed of the national events that impact their country. We believe this local content is not readily obtainable elsewhere, and we are able to deliver that content to our customers across multiple print and digital platforms. As such, a key element of our consumer strategy is growing our paid digital-only subscriber base to 10 million subscribers over the next five years. We expect to do this through expansion of our current subscription products as well as through the launch of new digital subscription offerings tailored to specific users.
Driving digital marketing services growth by engaging more clients in a subscriber relationship
We have now achieved significant digital scale, with unique reach at both the national and local community levels. We expect to leverage our integrated sales structure and lead generation strategy to continue to aggressively expand our digital marketing services business into our local markets, both domestically and internationally. Given our extensive client base and volume of digital campaigns, we will also use data and insights to inform new and dynamic advertising products that we believe will deliver superior results.
Optimizing our traditional businesses across print and advertising
We will continue to drive the profitability of our traditional print operations through economies of scale, process improvements, and optimizations. We are focused on optimizing our pricing and improving customer service for our print subscribers. Print advertising continues to offer a compelling branding opportunity across our network due to our scale and unique reach at both the national and local community levels.
Prioritizing investments into growth businesses that have significant potential and support our vision
By leveraging our unique footprint, trusted brands, and media reach, we identify, experiment, and invest in potential growth businesses.USA TODAY NETWORK Ventures is a strong example of one such experiment that has grown significantly since its founding in 2015. During 2020,USA TODAY NETWORK Ventures was able to successfully pivot to holding its events virtually, hosting over 250 events. This success has continued in 2021, with over 160 events held through the end of the third quarter of 2021. While live events have resumed in 2021, the majority of events remain virtual. In addition, in connection with our company-wide priority to explore online gaming, inJuly 2021 , we entered into an exclusive agreement withTipico USA Technology, Inc. ("Tipico"), aU.S. -based subsidiary of European-basedTipico Group of Companies , the leading sports betting provider inGermany , utilizing their Tipico Sportsbook brand.
Impacts of the COVID-19 pandemic
As a result of the COVID-19 pandemic, we experienced a significant decline in Advertising and marketing services revenues, which accelerated the secular declines that we continue to experience. In addition, we continue to experience constraints on the sales of single copy newspapers, largely tied to business travel and in-person events. While we have seen operating trends improve since the second quarter of 2020, which represents the quarter that was most significantly impacted by the pandemic, we expect that the COVID-19 pandemic will continue to have a negative impact on our business and results of operations in the near-term, including lower revenues associated with events and lower sales of single copy newspapers, largely as a result of reduced business travel. If the COVID-19 pandemic were to revert to conditions that existed during 2020, including measures to help mitigate and control the spread of the virus, we would expect to experience further negative impacts in Advertising and marketing services revenues and Circulation revenues.
We have implemented, and continue to implement, measures to reduce costs and preserve cash flow. These measures include, evaluating and applying for all governmental relief programs for which we are eligible, including the Paycheck
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Protection Program ("PPP"), suspending our quarterly dividend, and debt
refinancing, as well as reducing discretionary spending. In addition, we are
continuing with our previously-disclosed plan to monetize non-core assets.
In connection with the CARES Act, the Company received PPP funding in support of
certain of our locations that were meaningfully affected by the COVID-19
pandemic totaling $16.4 million , which was included in Operating activities in
the condensed consolidated statements of cash flows for the nine months ended
September 30, 2021 . As permitted under the CARES Act, during the third quarter
of 2021, the Company received forgiveness of such loans totaling $15.1 million ,
which was recognized in earnings in the condensed consolidated statements of
operations and comprehensive income (loss) as an offset to Operating costs of
$11.1 million and Selling, general, and administrative expenses of $4.0 million .
As of September 30, 2021 , the remaining PPP loans of $1.3 million were included
in Other long-term liabilities in the condensed consolidated balance sheets.
Management has applied for forgiveness of the remaining PPP loans in accordance
with applicable guidelines. Interest expense related to PPP funding was
immaterial for the three and nine months ended September 30, 2021 .
Seasonality
Our revenues are subject to moderate seasonality, due primarily to fluctuations
in advertising volumes. Advertising and marketing services revenues for our
Publishing segment are typically highest in the fourth quarter, due to holiday
and seasonal advertising, and lowest in the first quarter, following the holiday
season. The volume of advertising sales in any period is also impacted by other
external factors such as competitors' pricing, advertisers' decisions to
increase or decrease their advertising expenditures in response to anticipated
consumer demand, and general economic conditions.
RESULTS OF OPERATIONS
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Consolidated Summary
A summary of our segment results is presented below:
Three months ended September 30, Nine months ended September 30,
In thousands, except per share Change Change
amounts 2021 2020 $ % 2021 2020 $ %
Operating revenues:
Publishing $ 715,807 $ 732,226 $ (16,419) (2) % $ 2,139,937 $ 2,286,268 $ (146,331) (6) %
Digital Marketing Solutions 116,771 105,443 11,328 11 % 329,089 321,287 7,802 2 %
Corporate and other 1,649 2,732 (1,083) (40) % 6,428 8,140 (1,712) (21) %
Intersegment eliminations (34,042) (25,862) (8,180) 32 % (93,910) (85,472) (8,438) 10 %
Total operating revenues 800,185 814,539 (14,354) (2) % 2,381,544 2,530,223 (148,679) (6) %
Operating expenses:
Publishing 657,561 684,788 (27,227) (4) % 1,969,046 2,560,811 (591,765) (23) %
Digital Marketing Solutions 110,573 109,209 1,364 1 % 316,712 372,341 (55,629) (15) %
Corporate and other 34,991 44,924 (9,933) (22) % 105,208 148,509 (43,301) (29) %
Intersegment eliminations (34,042) (25,862) (8,180) 32 % (93,910) (85,472) (8,438) 10 %
Total operating expenses 769,083 813,059 (43,976) (5) % 2,297,056 2,996,189 (699,133) (23) %
Operating income (loss) 31,102 1,480 29,622 *** 84,488 (465,966) 550,454 ***
Non-operating expenses, net 13,573 29,830 (16,257) (54) % 186,368 106,119 80,249 76 %
Income (loss) before income
taxes 17,529 (28,350) 45,879 *** (101,880) (572,085) 470,205 (82) %
Provision (benefit) for income
taxes 2,984 3,098 (114) (4) % 11,567 (22,200) 33,767 ***
Net income (loss) 14,545 (31,448) 45,993 *** (113,447) (549,885) 436,438 (79) %
Net loss attributable to
redeemable noncontrolling
interests (142) (188) 46 (24) % (933) (1,580) 647 (41) %
Net income (loss) attributable
to Gannett $ 14,687 $ (31,260) $ 45,947 *** $ (112,514) $ (548,305) $ 435,791 (79) %
Income (loss) per share
attributable to Gannett - basic $ 0.11 $ (0.24) $ 0.35 *** $ (0.84) $ (4.17) $ 3.33 (80) %
Income (loss) per share
attributable to Gannett -
diluted $ 0.09 $ (0.24) $ 0.33 *** $ (0.84) $ (4.17) $ 3.33 (80) %
*** Indicates an absolute value percentage change greater than 100.
Intersegment eliminations in the preceding table represent digital advertising marketing services revenues and expenses associated with products sold by ourU.S. local publishing sales teams but fulfilled by our DMS segment. When discussing segment results, these revenues and expenses are presented gross but are eliminated in consolidation.
Operating revenues
Total Operating revenues were$800.2 million and$2.382 billion for three and nine months endedSeptember 30, 2021 , respectively, a decrease of$14.4 million and$148.7 million , respectively, compared to the three and nine months endedSeptember 30, 2020 , for the reasons described below. For the Publishing segment, Operating revenues decreased$16.4 million for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 , reflecting lower Circulation revenues of$29.5 million offset by higher Other revenues of$13.8 million . Advertising and marketing services revenues remained essentially flat for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 , reflecting lower print revenues offset by higher digital revenues. For the nine months endedSeptember 30, 2021 , Operating revenues decreased$146.3 million compared to the nine months endedSeptember 30, 2020 due to lower Circulation revenues of$111.1 million and lower Advertising and marketing services revenues of$40.8 million , partially offset by higher Other revenues of$5.6 million . Advertising and marketing services revenues are generated by the sale of local, national, and classified print advertising products, digital advertising offerings such as digital classified advertisements, digital media such as display advertisements run on our platforms as well as third-party sites, and digital marketing services delivered by our DMS segment. Circulation revenues are derived from home delivery, digital distribution and single copy sales of our publications. Other revenues are 31 -------------------------------------------------------------------------------- Table of Contents derived mainly from commercial printing, distribution arrangements, revenues from our events business, digital content syndication and affiliate revenues and third-party newsprint sales. For the DMS segment, Operating revenues increased$11.3 million and$7.8 million for the three and nine months endedSeptember 30, 2021 , respectively, compared to the three and nine months endedSeptember 30, 2020 , reflecting higher Advertising and marketing services revenues of$16.0 million and$21.3 million , respectively, partially offset by lower Other revenues of$4.6 million and$13.5 million , respectively. Our DMS segment generates Advertising and marketing services revenues through multiple services, including search advertising, display advertising, search optimization, social media, website development, web presence products, customer relationship management, and software-as-a-service solutions. Operating expenses Total Operating expenses were$769.1 million and$2.297 billion for the three and nine months endedSeptember 30, 2021 , respectively, a decrease of$44.0 million and$699.1 million compared to the three and nine months endedSeptember 30, 2020 , respectively. Operating expenses consist primarily of the following: •Operating costs include labor, newsprint and delivery costs for the Publishing segment and the cost of online media acquired from third parties and costs to manage and operate our marketing solutions and technology infrastructure for the DMS segment; •Selling, general and administrative expenses include labor, payroll, outside services, benefits costs and bad debt expense; •Depreciation and amortization; •Integration and reorganization costs include severance charges and other costs, including those for the purpose of consolidating our operations (i.e., facility consolidation expenses and integration-related costs); •Other operating expenses include third-party debt expenses as well as acquisition-related costs; •Gains or losses on the sale or disposal of assets; and •Impairment charges, including costs incurred related to goodwill, intangible assets and property, plant and equipment. For the three months endedSeptember 30, 2021 , Operating expenses at our Publishing segment decreased$27.2 million compared to the three months endedSeptember 30, 2020 , reflecting a decrease in Operating costs of$10.7 million , a decrease in Depreciation and amortization of$16.6 million , a decrease in Integration and reorganization costs of$1.6 million and a decrease in Loss on the sale or disposal of assets of$2.8 million , partially offset by an increase in Selling, general and administrative expenses of$3.0 million and an increase in Asset impairments of$1.4 million . For the nine months endedSeptember 30, 2021 , Operating expenses at our Publishing segment decreased$591.8 million compared to the nine months endedSeptember 30, 2020 , reflecting a decrease in Operating costs of$104.5 million , a decrease in Selling, general and administrative expenses of$51.7 million , a decrease in Depreciation and amortization of$57.3 million , a decrease in Integration and reorganization costs of$28.4 million , a decrease in Asset impairments of$4.6 million and a decrease inGoodwill and intangible impairments of$352.9 million , partially offset by an increase in Loss on the sale or disposal of assets of$7.7 million . For the three months endedSeptember 30, 2021 , Operating expenses at our DMS segment increased$1.4 million compared to the three months endedSeptember 30, 2020 , reflecting an increase in Operating costs of$9.2 million and an increase in Depreciation and amortization of$1.2 million , partially offset by a decrease in Selling, general and administrative expenses of$8.9 million . For the nine months endedSeptember 30, 2021 , Operating expenses at our DMS segment decreased$55.6 million compared to the nine months endedSeptember 30, 2020 , reflecting a decrease in Selling, general and administrative expenses of$31.9 million , a decrease inGoodwill and intangible impairments of$40.5 million and a decrease in Integration and reorganization costs of$4.3 million , partially offset by an increase in Operating costs of$16.4 million and an increase in Depreciation and amortization of$5.6 million . For the three months endedSeptember 30, 2021 , Operating expenses at Corporate and other decreased$9.9 million compared to the three months endedSeptember 30, 2020 , reflecting a decrease in Selling, general and administrative expenses of$11.2 million , a decrease in Other operating expenses of$1.9 million and a decrease in Operating costs of$1.4 million , partially offset by an increase in Depreciation and amortization of$2.2 million and an increase Integration and reorganization costs of$2.1 million . For the nine months endedSeptember 30, 2021 , Operating expenses at Corporate and other decreased$43.3 million compared to the nine months endedSeptember 30, 2020 , due to a decrease in Selling, general and administrative expenses of$36.0 million , a decrease in Integration and reorganization costs of$5.8 million and a decrease in Operating costs of$3.3 million , partially offset by an increase in Other operating expenses of$1.1 million and an increase in Depreciation and amortization of$0.5 million . 32
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Refer to the discussion of segment results below for further information.
Non-operating (income) expense
Interest expense: For the three and nine months endedSeptember 30, 2021 , Interest expense was$34.6 million and$109.4 million , respectively, compared to$58.1 million and$173.9 million for the three and nine months endedSeptember 30, 2020 , respectively. The decrease in interest expense for the three and nine months endedSeptember 30, 2021 was mainly due to a lower effective interest rate driven by the refinancing of our five-year, senior-secured 11.5% term loan facility withApollo Capital Management, L.P. (the "Acquisition Term Loan") in the first quarter of 2021 and a lower debt balance compared to the same period in 2020. Loss on early extinguishment of debt: For the three and nine months endedSeptember 30, 2021 , Loss on early extinguishment of debt was$3.8 million and$26.0 million , respectively. For the three and nine months endedSeptember 30, 2020 , Loss on early extinguishment of debt was$0.5 million and$1.7 million , respectively. The increase in loss for the three months endedSeptember 30, 2021 was mainly due to early prepayments on the 5-Year Term Loan. The increase in loss for the nine months endedSeptember 30, 2021 was mainly due to the payoff of the Acquisition Term Loan in the first quarter of 2021. Non-operating pension income: For the three and nine months endedSeptember 30, 2021 , Non-operating pension income was$23.9 million and$71.6 million , respectively, compared to$18.3 million and$54.4 million for the three and nine months endedSeptember 30, 2020 , respectively. The increase in non-operating pension income for the three and nine months endedSeptember 30, 2021 was primarily due to an increase in the expected return on plan assets held by the Gannett Retirement Plan and lower interest costs on benefit obligations.
Loss on convertible notes derivative: For the nine months ended
Other non-operating income, net: Other non-operating income, net consisted of certain items that fall outside of our normal business operations. For the three and nine months endedSeptember 30, 2021 , Other non-operating income, net was$0.9 million and$4.0 million , respectively, compared to$10.4 million and$15.0 million for the three and nine months endedSeptember 30, 2020 , respectively. The decrease in Other non-operating income, net for the three and nine months endedSeptember 30, 2021 was primarily due to a gain on disposal of a cost method investment held by the DMS segment during the third quarter of 2020.
Provision (benefit) for income taxes
The following table summarizes our pre-tax net income (loss) before income taxes and income tax accounts:
Three months ended September 30, Nine months ended September 30,
In thousands 2021 2020 2021 2020
Income (loss) before income taxes $ 17,529 $ (28,350) $ (101,880) $ (572,085)
Provision (benefit) for income taxes 2,984 3,098 11,567 (22,200)
Effective tax rate 17.0 % *** (11.4) % 3.9 %
*** Indicates an absolute value percentage change greater than 100.
The provision for income taxes for the three months endedSeptember 30, 2021 was mainly driven by pre-tax income and is impacted by forgiveness of PPP loans during the quarter. For federal tax purposes, book income from forgiven loans is not included in taxable income, and expenses paid utilizing the loan proceeds can be deducted. The impact of PPP loan forgiveness is partially offset by the creation of valuation allowances on non-deductible interest expense carryforwards. The provision was calculated using the estimated annual effective tax rate of 77.7%. The annual effective tax rate is principally impacted by the derivative revaluation, which is non-deductible for federal tax purposes, and the creation of valuation allowances on non-deductible interest expense carryforwards. The estimated annual effective tax rate is based on a projected tax expense for the full year. The tax provision for the nine months endedSeptember 30, 2021 was mainly driven by the pre-tax net loss generated during the first quarter of 2021. The tax provision is impacted by the derivative revaluation, which is nondeductible for federal 33 -------------------------------------------------------------------------------- Table of Contents tax purposes, the creation of valuation allowances on non-deductible interest expense carryforwards, and PPP loan forgiveness, in combination with state income tax and foreign tax expense. During the three months endedJune 30, 2021 , we reclassified$32.5 million (tax effected) in connection with the retirement of the deferred tax asset related to the embedded conversion feature associated with the 2027 Notes. The retirement of the deferred tax asset resulted from the reclassification of the embedded conversion feature from a derivative liability to Equity as a reduction to Additional paid-in-capital during the first quarter of 2021. See Note 7 - Debt for additional information about the 2027 Notes. The provision for income taxes for the three months endedSeptember 30, 2020 was mainly impacted by a reduction in the year to date tax benefit as a result of a lower projected annualized effected tax rate. The provision for income taxes for the three months endedSeptember 30, 2020 was calculated using the estimated annual effective tax rate of 6.2%. The estimated annual effective tax rate is based on a projected tax benefit for the full year. The tax benefit for the nine months endedSeptember 30, 2020 is lower than the 21% statutory federal rate due to the impact of non-deductible asset impairments, non-deductible officers' compensation, and the creation of valuation allowances on non-deductible interest expense carryforwards and capital losses. Several economic relief bills have been enacted into law in response to the COVID-19 pandemic. We continue to monitor the applicability of federal and state legislation to the Company, as well as regulatory interpretations of enacted legislation that provide economic relief in response to the pandemic, and expect to utilize these provisions as we determine necessary or desirable. Net income (loss) attributable to Gannett and diluted income (loss) per share attributable to Gannett For the three months endedSeptember 30, 2021 , Net income attributable to Gannett and diluted income per share attributable to Gannett were$14.7 million and$0.09 , respectively, compared to Net loss attributable to Gannett and diluted loss per share attributable to Gannett of$31.3 million and$0.24 , respectively, for the three months endedSeptember 30, 2020 . For the nine months endedSeptember 30, 2021 , Net loss attributable to Gannett and diluted loss per share attributable to Gannett were$112.5 million and$0.84 , respectively, compared to$548.3 million and$4.17 , respectively, for the nine months endedSeptember 30, 2020 . The change for the three and nine months endedSeptember 30, 2021 reflects the various items discussed above.
Publishing segment
A summary of our Publishing segment results is presented below:
Three months ended September 30, Nine months ended September 30,
Change Change
In thousands 2021 2020 $ % 2021 2020 $ %
Operating revenues:
Advertising and marketing
services $ 328,784 $ 329,508 $ (724) - % $ 984,575 $ 1,025,396 $ (40,821) (4) %
Circulation 306,698 336,152 (29,454) (9) % 942,392 1,053,517 (111,125) (11) %
Other 80,325 66,566 13,759 21 % 212,970 207,355 5,615 3 %
Total operating revenues 715,807 732,226 (16,419) (2) % 2,139,937 2,286,268 (146,331) (6) %
Operating expenses:
Operating costs 427,887 438,588 (10,701) (2) % 1,285,904 1,390,366 (104,462) (8) %
Selling, general and
administrative expenses 189,032 186,000 3,032 2 % 541,165 592,856 (51,691) (9) %
Depreciation and
amortization 35,861 52,481 (16,620) (32) % 118,664 175,990 (57,326) (33) %
Integration and
reorganization costs 3,512 5,120 (1,608) (31) % 10,641 39,049 (28,408) (73) %
Asset impairments 2,301 868 1,433 *** 3,134 7,727 (4,593) (59) %
Goodwill and intangible
impairments - - - - % - 352,947 (352,947) (100) %
(Gain) loss on sale or
disposal of assets, net (1,032) 1,731 (2,763) *** 9,538 1,876 7,662 ***
Total operating expenses 657,561 684,788 (27,227) (4) % 1,969,046 2,560,811 (591,765) (23) %
Operating income (loss) $ 58,246 $ 47,438 $ 10,808 23 % $ 170,891 $ (274,543) $ 445,434 ***
*** Indicates an absolute value percentage change greater than 100.
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Operating revenues
The following table provides the breakout of Operating revenues by category:
Three months ended September 30, Nine months ended September 30,
Change Change
In thousands 2021 2020 $ % 2021 2020 $ %
Local and national print $ 118,292 $ 132,013 $ (13,721) (10) % $ 363,291 $ 422,849 $ (59,558) (14) %
Classified print 71,752 76,210 (4,458) (6) % 220,874 240,888 (20,014) (8) %
Print advertising 190,044 208,223 (18,179) (9) % 584,165 663,737 (79,572) (12) %
Digital media 91,344 84,054 7,290 9 % 265,450 235,865 29,585 13 %
Digital marketing services 34,078 25,498 8,580 34 % 95,652 79,677 15,975 20 %
Digital classified 13,318 11,733 1,585 14 % 39,308 46,117 (6,809) (15) %
Digital advertising and
marketing services 138,740 121,285 17,455 14 % 400,410 361,659 38,751 11 %
Advertising and marketing
services 328,784 329,508 (724) - % 984,575 1,025,396 (40,821) (4) %
Print circulation 280,980 315,833 (34,853) (11) % 869,489 1,000,210 (130,721) (13) %
Digital-only circulation 25,718 20,319 5,399 27 % 72,903 53,307 19,596 37 %
Circulation 306,698 336,152 (29,454) (9) % 942,392 1,053,517 (111,125) (11) %
Other 80,325 66,566 13,759 21 % 212,970 207,355 5,615 3 %
Total operating revenues $ 715,807 $ 732,226 $ (16,419) (2) % $ 2,139,937 $ 2,286,268 $ (146,331) (6) %
For the three and nine months ended September 30, 2021 , the overall decline in
Print advertising revenues of $18.2 million and $79.6 million , respectively, was
driven by secular industry trends impacting all categories and the absence of
revenues related to a business we divested in the fourth quarter of 2020. For
the three and nine months ended September 30, 2021 , Local and national print
advertising revenues decreased $13.7 million and $59.6 million , respectively,
compared to the three and nine months ended September 30, 2020 , primarily due to
lower advertising volumes, including a decrease in advertiser inserts. For the
three and nine months ended September 30, 2021 , Classified print advertising
revenues decreased $4.5 million and $20.0 million , respectively, compared to the
three and nine months ended September 30, 2020 , due to decreased spend in
classified advertisements, including legal, real estate, and obituaries.
For the three months ended September 30, 2021 , Digital advertising and marketing
services revenues increased $17.5 million , due to an increase of $7.3 million in
Digital media revenues, an increase of $8.6 million in Digital marketing
services revenues, and an increase of $1.6 million in Digital classified
revenues, compared to the three months ended September 30, 2020 . For the nine
months ended September 30, 2021 , Digital advertising and marketing services
revenues increased $38.8 million , due to an increase of $29.6 million in Digital
media revenues and an increase of $16.0 million in Digital marketing services
revenues, offset by a decrease of $6.8 million in Digital classified revenues
compared to the nine months ended September 30, 2020 . For the three and nine
months ended September 30, 2021 , the overall increase in Digital advertising and
marketing services revenues was due to an increase in Digital media spend and
Digital marketing services revenues as well as continued improvement in
operating trends since the prior year impacts of the COVID-19 pandemic. The
increase in Digital media revenues for the three and nine months ended September
30, 2021 was driven by a higher mix of premium media sold, including premium
sports products, as well as an overall increase in rate across both owned and
operated sites as well as third-party sites. The increase in Digital marketing
services revenues for the three and nine months ended September 30, 2021 was due
to higher average revenue per customer for digital marketing services sold
primarily as a result of focusing on strategic initiatives across our local
marketing sales force. The increase in Digital classified revenues for the three
months ended September 30, 2021 was due to increased spend in obituaries, legal
and employment advertisements. The decrease in Digital classified revenues for
the nine months ended September 30, 2021 was due to reduced spend in automotive
advertisements, partially offset by increased spend in employment
advertisements.
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For the three and nine months ended September 30, 2021 , Print circulation
revenues decreased $34.9 million and $130.7 million , respectively, compared to
the three and nine months ended September 30, 2020 , driven by a reduction in the
volume of home delivery subscribers, a decline in single copy sales reflecting
the overall secular trends impacting the industry, and the absence of revenues
related to a business we divested in the fourth quarter of 2020, as well as the
impact of the COVID-19 pandemic on business travel and overall consumer
activity, partially offset by an increase in rate. For the three and nine months
ended September 30, 2021 , Digital-only circulation revenues increased $5.4
million and $19.6 million , respectively, compared to the three and nine months
ended September 30, 2020 , driven by an increase of 46% in paid digital-only
subscribers, including those subscribers on introductory subscription offers, to
approximately 1.543 million compared to the prior year.
For the three and nine months ended September 30, 2021 , Other revenues increased
$13.8 million and $5.6 million , respectively, compared to the three and nine
months ended September 30, 2020 , primarily due to an increase in digital content
syndication volume, as well as commercial print growth in local markets driven
by continued improvement in operating trends since the prior year impacts of the
COVID-19 pandemic and customer retention, partially offset by the absence of
revenues related to a business we divested in the fourth quarter of 2020. The
growth in Other revenues for the nine months ended September 30, 2021 was
negatively impacted by a decline in event revenues driven by the shift from in
person events to virtual events as a result of the COVID-19 pandemic.
Operating expenses
For the three and nine months ended
Three months ended September 30, Nine months ended September 30,
Change Change
In thousands 2021 2020 $ % 2021 2020 $ %
Newsprint and ink $ 26,176 $ 31,250 $ (5,074) (16) % $ 78,160 $ 101,097 $ (22,937) (23) %
Distribution 112,884 99,189 13,695 14 % 321,435 306,768 14,667 5 %
Compensation and benefits 129,620 153,643 (24,023) (16) % 414,513 478,996 (64,483) (13) %
Outside services 90,428 87,574 2,854 3 % 248,110 252,046 (3,936) (2) %
Other 68,779 66,932 1,847 3 % 223,686 251,459 (27,773) (11) %
Total operating costs $ 427,887 $ 438,588 $ (10,701) (2) % $ 1,285,904 $ 1,390,366 $ (104,462) (8) %
For the three and nine months ended September 30, 2021 , Newsprint and ink costs
decreased $5.1 million and $22.9 million , respectively, compared to the three
and nine months ended September 30, 2020 , mainly due to lower print circulation
driven by the decline in volume of home delivery and single copy sales. In
addition, the decrease in Newsprint and ink costs for the nine months ended
September 30, 2021 was also impacted by declines in print advertising volumes.
For the three and nine months ended September 30, 2021 , Distribution costs
increased $13.7 million and $14.7 million , respectively, compared to the three
and nine months ended September 30, 2020 , primarily driven by an increase in
distribution postage, as well as activity in our commercial print business. In
addition, the increase in Distribution costs for the nine months ended September
30, 2021 was offset by the decline in print circulation and print advertising
volumes incurred in the first quarter of 2021.
For the three and nine months ended September 30, 2021 , Compensation and
benefits costs decreased $24.0 million and $64.5 million , respectively, compared
to the three and nine months ended September 30, 2020 , primarily due to a
reduction in costs associated with ongoing integration efforts, including
headcount reductions, as well as the benefit in 2021 of cost containment
initiatives implemented in 2020 in connection with the COVID-19 pandemic and
$11.1 million of PPP loan forgiveness, offset by the absence of the temporary
reduction of expenses in the prior year, such as furloughs and wage reductions
in response to the COVID-19 pandemic.
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For the three months endedSeptember 30, 2021 , Outside services costs, which includes outside printing, professional services fulfilled by third parties, paid search and ad serving, feature services, and credit card fees, increased$2.9 million compared to the three months endedSeptember 30, 2020 , due to higher costs associated with the increase in Digital media and Digital marketing services revenues, including paid search fees and affiliate revenue share as well as other related costs, offset by a reduction in costs associated with ongoing integration efforts. For the nine months endedSeptember 30, 2021 , Outside services costs decreased$3.9 million compared to the nine months endedSeptember 30, 2020 , due to a reduction in costs associated with ongoing integration efforts and the benefit in 2021 of cost containment initiatives implemented in 2020 in connection with the COVID-19 pandemic, offset by higher costs associated with the increase in Digital media and Digital marketing services revenues. For the three months endedSeptember 30, 2021 , Other costs, which primarily includes travel, and facility and equipment costs, increased$1.8 million compared to the three months endedSeptember 30, 2020 , due to an increase in travel costs in the period as travel began to resume after the height of the COVID-19 pandemic travel restrictions. For the nine months endedSeptember 30, 2021 , Other costs decreased$27.8 million compared to the nine months endedSeptember 30, 2020 , due to a reduction in costs associated with ongoing integration efforts and cost containment initiatives, including the consolidation of print facilities. For the three and nine months endedSeptember 30, 2021 , Selling, general and administrative expenses increased$3.0 million and decreased$51.7 million , respectively, compared to the three and nine months endedSeptember 30, 2020 . The following table provides the breakout of Selling, general and administrative expenses: Three months ended September 30, Nine months ended September 30, Change Change In thousands 2021 2020 $ % 2021 2020 $ % Compensation and benefits$ 93,762 $ 93,619 $ 143 - %$ 283,875 $ 295,569 $ (11,694) (4) % Outside services and other 95,270 92,381 2,889 3 % 257,290 297,287 (39,997) (13) % Total Selling, general and administrative expenses$ 189,032 $ 186,000 $ 3,032 2 %$ 541,165 $ 592,856 $ (51,691) (9) % For the three months endedSeptember 30, 2021 , Compensation and benefits remained essentially flat compared to the three months endedSeptember 30, 2020 , due to an increase in costs associated with employee insurance benefits and the absence of the temporary reduction of expenses in the prior year period, such as furloughs and wage reductions, offset by PPP loan forgiveness of$4.0 million . For the nine months endedSeptember 30, 2021 , Compensation and benefits costs decreased$11.7 million compared to the nine months endedSeptember 30, 2020 , due to a reduction in costs associated with ongoing integration efforts, including headcount reductions, the benefit in 2021 of cost containment initiatives implemented in 2020 in connection with the COVID-19 pandemic, and PPP loan forgiveness of$4.0 million , partially offset by the impact of higher payroll and commission expenses driven by the growth in Advertising and marketing services revenues, an increase in costs associated with employee insurance benefits and the absence of the temporary reduction of expenses in the prior year, such as furloughs and wage reductions. For the three months endedSeptember 30, 2021 , Outside services and other costs, which includes services fulfilled by third parties, increased$2.9 million compared to the three months endedSeptember 30, 2020 , due to an increase in promotion fees, offset by decreases in legal fees, facility related costs and bad debt expense. For the nine months endedSeptember 30, 2021 , Outside services and other costs decreased$40.0 million compared to the nine months endedSeptember 30, 2020 , due to lower facility related costs, lower bad debt expense, a reduction in costs associated with ongoing integration efforts, and the benefit in 2021 of cost containment initiatives implemented in 2020 in connection with the COVID-19 pandemic, partially offset by an increase in promotion fees. For the three and nine months endedSeptember 30, 2021 , Depreciation and amortization expenses decreased$16.6 million and$57.3 million , respectively, compared to the three and nine months endedSeptember 30, 2020 , due to a decrease in accelerated depreciation of$8.2 million and$33.6 million , respectively, as a result of fewer print facility shutdowns and strategic dispositions of real estate during the period related to ongoing cost reduction programs. For the three months endedSeptember 30, 2021 , Integration and reorganization costs decreased$1.6 million compared to the three months endedSeptember 30, 2020 , due to a decrease in severance costs of$2.0 million , partially offset by an increase in other costs, including those for the consolidation of operations of$0.4 million . For the nine months endedSeptember 30, 2021 , Integration and reorganization costs decreased$28.4 million compared to the nine months endedSeptember 30, 2020 , 37 -------------------------------------------------------------------------------- Table of Contents due to a decrease in severance costs of$25.3 million , as well as a decrease in other costs, including those for the consolidation of operations of$3.1 million . For the three and nine months endedSeptember 30, 2021 , severance costs were primarily related to facility consolidation and ongoing integration activities. For the three and nine months endedSeptember 30, 2020 , severance costs were related to acquisition-related synergies and the consolidation of the business due to our acquisition ofGannett Co., Inc. (which was renamedGannett Media Corp. and is referred to as "Legacy Gannett") in the fourth quarter of 2019. For the three and nine months endedSeptember 30, 2021 , we recorded Asset impairment charges of$2.3 million and$3.1 million , respectively, in the Publishing segment due primarily to the impairment of real estate held for sale. For the three months endedSeptember 30, 2020 , we recorded$0.9 million of Assets impairment charges as a result of fixed asset disposals related to the continued consolidation of operations. For the nine months endedSeptember 30, 2020 , we recorded$7.7 million of Assets impairment charges as a result of the Company's recoverability test for long-lived assets, as well as fixed asset disposals related to the continued consolidation of operations.
For the nine months ended
For the three months endedSeptember 30, 2021 , we recorded a Gain on the sale or disposal of assets, net of$1.0 million due to a gain on sale of real estate atNewsquest , offset by the loss on the sale of assets as part of our plan to monetize non-core assets, compared to a Loss on the sale or disposal of assets, net of$1.7 million for the three months endedSeptember 30, 2020 . For the nine months endedSeptember 30, 2021 , Loss on sale or disposal of assets increased$7.7 million compared to the nine months endedSeptember 30, 2020 , driven by the loss on the sale of assets in 2021 as part of our plan to monetize non-core assets, offset by a gain on sale of real estate atNewsquest .
Publishing segment Adjusted EBITDA
Three months ended September 30, Nine months ended September 30,
Change Change
In thousands 2021 2020 $ % 2021 2020 $ %
Net income (loss)
attributable to Gannett $ 84,137 $ 67,726 $ 16,411 24 % $ 246,792 $ (213,490) $ 460,282 ***
Interest expense - 17 (17) (100) % - 127 (127) (100) %
Non-operating pension income (23,860) (18,262) (5,598) 31 % (71,644) (54,215) (17,429) 32 %
Depreciation and amortization 35,861 52,481 (16,620) (32) % 118,664 175,990 (57,326) (33) %
Integration and
reorganization costs 3,512 5,120 (1,608) (31) % 10,641 39,049 (28,408) (73) %
Asset impairments 2,301 868 1,433 *** 3,134 7,727 (4,593) (59) %
Goodwill and intangible
impairments - - - - % - 352,947 (352,947) (100) %
(Gain) loss on sale or
disposal of assets, net (1,032) 1,731 (2,763) *** 9,538 1,876 7,662 ***
Other items 82 (929) 1,011 *** 273 1,756 (1,483) (84) %
Adjusted EBITDA (non-GAAP
basis) $ 101,001 $ 108,752 $ (7,751) (7) % $ 317,398 $ 311,767 $ 5,631 2 %
Net income (loss)
attributable to Gannett
margin 11.8 % 9.2 % 11.5 % (9.3) %
Adjusted EBITDA margin
(non-GAAP basis)(a) 14.1 % 14.9 % 14.8 % 13.6 %
*** Indicates an absolute value percentage change greater than 100. (a)We define Adjusted EBITDA margin as Adjusted EBITDA divided by total Operating revenues.
Adjusted EBITDA for our Publishing segment was$101.0 million and$317.4 million for the three and nine months endedSeptember 30, 2021 , respectively, a decrease of$7.8 million and an increase of$5.6 million compared to the three and nine months endedSeptember 30, 2020 , respectively. The change for the three and nine months endedSeptember 30, 2021 was primarily attributable to the changes discussed above. 38 -------------------------------------------------------------------------------- Table of Contents Digital Marketing Solutions segment A summary of our Digital Marketing Solutions segment results is presented below: Three months ended September 30, Nine months ended September 30, Change Change In thousands 2021 2020 $ % 2021 2020 $ % Operating revenues: Advertising and marketing services$ 116,771 $ 100,807 $ 15,964 16 %$ 328,184 $ 306,899 $ 21,285 7 % Other - 4,636 (4,636) (100) % 905 14,388 (13,483) (94) % Total operating revenues 116,771 105,443 11,328 11 % 329,089 321,287 7,802 2 % Operating expenses: Operating costs 80,405 71,223 9,182 13 % 224,112 207,741 16,371 8 % Selling, general and administrative expenses 21,342 30,228 (8,886) (29) % 68,252 100,120 (31,868) (32) % Depreciation and amortization 7,986 6,768 1,218 18 % 23,665 18,103 5,562 31 % Integration and reorganization costs 931 1,237 (306) (25) % 1,301 5,587 (4,286) (77) % Asset impairments - 717 (717) *** - 717 (717) ***Goodwill and intangible impairments - - - - % - 40,499 (40,499) *** Gain on sale or disposal of assets, net (91) (964) 873 (91) % (618) (426) (192) 45 % Total operating expenses 110,573 109,209 1,364 1 % 316,712 372,341 (55,629) (15) % Operating income (loss)$ 6,198 $ (3,766) $ 9,964 ***$ 12,377 $ (51,054) $ 63,431 ***
*** Indicates an absolute value percentage change greater than 100.
Operating revenues
For the three and nine months endedSeptember 30, 2021 , Advertising and marketing services revenues increased$16.0 million and$21.3 million , respectively, compared to the three and nine months endedSeptember 30, 2020 , primarily driven by growth in the coreReachLocal business and a continued improvement in operating trends since the prior year impacts of the COVID-19 pandemic. The increase for the nine months endedSeptember 30, 2021 was partially offset by the absence of$11.7 million of revenues in 2021 as a result of the change in media rebate programs, as well as the absence of revenues associated with a business we divested in the third quarter of 2020. For the three and nine months endedSeptember 30, 2021 , Other revenues decreased$4.6 million and$13.5 million , respectively, compared to the three and nine months endedSeptember 30, 2020 , primarily due to the absence of revenues related to a business we divested in the fourth quarter of 2020.
Operating expenses
For the three and nine months ended
Three months ended September 30, Nine months ended September 30,
Change Change
In thousands 2021 2020 $ % 2021 2020 $ %
Compensation and benefits $ 7,593 $ 10,809 $ (3,216) (30) % $ 23,408 $ 35,031 $ (11,623) (33) %
Outside services 70,332 56,787 13,545 24 % 193,423 160,722 32,701 20 %
Other 2,480 3,627 (1,147) (32) % 7,281 11,988 (4,707) (39) %
Total operating costs $ 80,405 $ 71,223 $ 9,182 13 % $ 224,112 $ 207,741 $ 16,371 8 %
For the three and nine months ended September 30, 2021 , Compensation and
benefits costs decreased $3.2 million and $11.6 million , respectively, compared
to the three and nine months ended September 30, 2020 , due to a reduction in
costs associated with ongoing integration efforts, including headcount
reductions, as well as the benefit in 2021 of cost containment
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initiatives implemented in 2020 in connection with the COVID-19 pandemic, offset
by the absence of the temporary reduction of expenses in the prior year, such as
furloughs and wage reductions.
For the three and nine months ended September 30, 2021 , Outside services costs,
which includes professional services fulfilled by third parties, media fees and
other digital costs, increased $13.5 million and $32.7 million , respectively,
compared to the three and nine months ended September 30, 2020 , due to an
increase in expenses associated with third-party media fees driven by a
corresponding increase in revenues, partially offset by the absence of costs
associated with a business we divested in the fourth quarter of 2020.
For the three and nine months ended September 30, 2021 , Selling, general and
administrative expenses decreased $8.9 million and $31.9 million , respectively,
compared to the three and nine months ended September 30, 2020 . The following
table provides the breakout of Selling, general and administrative expenses by
category:
Three months ended September 30, Nine months ended September 30,
Change Change
In thousands 2021 2020 $ % 2021 2020 $ %
Compensation and benefits $ 17,046 $ 28,426 $ (11,380) (40) % $ 52,283 $ 92,145 $ (39,862) (43) %
Outside services and other 4,296 1,802 2,494 *** 15,969 7,975 7,994 ***
Total Selling, general and
administrative expenses $ 21,342 $ 30,228 $ (8,886) (29) % $ 68,252 $ 100,120 $ (31,868) (32) %
*** Indicates an absolute value percentage change greater than 100.
For the three and nine months endedSeptember 30, 2021 , Compensation and benefits costs decreased$11.4 million and$39.9 million , respectively, compared to the three and nine months endedSeptember 30, 2020 , primarily due to a reduction in costs associated with ongoing integration efforts, including headcount reductions, as well as the benefit in 2021 of cost containment initiatives implemented in 2020 in connection with the COVID-19 pandemic, offset by the absence of the temporary reduction of expenses in the prior year, such as furloughs and wage reductions. For the three and nine months endedSeptember 30, 2021 , Outside services and other costs increased$2.5 million and$8.0 million , respectively, compared to the three and nine months endedSeptember 30, 2020 , due to an increase in various miscellaneous expenses, including higher technology and marketing expenses. For the three and nine months endedSeptember 30, 2021 , Integration and reorganization costs decreased$0.3 million and$4.3 million , respectively, compared to the three and nine months endedSeptember 30, 2020 due to lower severance costs of$0.8 million and$5.0 million , respectively, offset by higher facility consolidation and other restructuring related expenses of$0.5 million and$0.7 million , respectively. For the three and nine months endedSeptember 30, 2020 , severance costs were related to acquisition-related synergies and the consolidation of the business due to our acquisition of Legacy Gannett in the fourth quarter of 2019.
For the three and nine months ended
For the nine months ended
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Digital Marketing Solutions segment Adjusted EBITDA
Three months ended September 30, Nine months ended September 30,
Change Change
In thousands 2021 2020 $ % 2021 2020 $ %
Net income (loss)
attributable to Gannett $ 5,005 $ 5,223 $ (218) (4) % $ 10,990 $ (43,076) $ 54,066 ***
Depreciation and
amortization 7,986 6,768 1,218 18 % 23,665 18,103 5,562 31 %
Integration and
reorganization costs 931 1,237 (306) (25) % 1,301 5,587 (4,286) (77) %
Asset impairments - 717 (717) (100) % - 717 (717) (100) %
Goodwill and intangible
impairments - - - - % - 40,499 (40,499) (100) %
Gain on sale or disposal of
assets, net (91) (964) 873 (91) % (618) (426) (192) 45 %
Other items 1,193 (8,804) 9,997 *** 1,387 (6,557) 7,944 ***
Adjusted EBITDA (non-GAAP
basis) $ 15,024 $ 4,177 $ 10,847 *** $ 36,725 $ 14,847 $ 21,878 ***
Net income (loss)
attributable to Gannett
margin 4.3 % 5.0 % 3.3 % (13.4) %
Adjusted EBITDA margin
(non-GAAP basis)(a) 12.9 % 4.0 % 11.2 % 4.6 %
*** Indicates an absolute value percentage change greater than 100. (a)We define Adjusted EBITDA margin as Adjusted EBITDA divided by total Operating revenues.
Adjusted EBITDA for our Digital Marketing Solutions segment was$15.0 million and$36.7 million for the three and nine months endedSeptember 30, 2021 , respectively, an increase of$10.8 million and$21.9 million compared to the three and nine months endedSeptember 30, 2020 , respectively. The change for the three and nine months endedSeptember 30, 2021 was primarily attributable to the changes discussed above. Corporate and other category For the three months endedSeptember 30, 2021 , Corporate and other operating revenues were$1.6 million compared to$2.7 million for the three months endedSeptember 30, 2020 . For the nine months endedSeptember 30, 2021 , Corporate and other operating revenues were$6.4 million compared to$8.1 million for the nine months endedSeptember 30, 2020 . For the three and nine months endedSeptember 30, 2021 , Corporate and other operating expenses decreased$9.9 million and$43.3 million , respectively, compared to the three and nine months endedSeptember 30, 2020 . The following table provides the breakout of the decrease in Corporate and other operating expenses: Three months ended September 30, Nine months ended September 30, Change Change In thousands 2021 2020 $ % 2021 2020 $ % Operating expenses: Operating costs$ 6,039 $ 7,424 $ (1,385) (19) %$ 14,534 $ 17,864 $ (3,330) (19) % Selling, general and administrative expenses 15,222 26,393 (11,171) (42) % 43,386 79,339 (35,953) (45) % Depreciation and amortization 4,260 2,106 2,154 *** 12,123 11,613 510 4 % Integration and reorganization costs 9,176 7,060 2,116 30 % 23,525 29,342 (5,817) (20) % Loss on sale or disposal of assets, net 290 28 262 *** 286 90 196 *** Other operating expenses 4 1,913 (1,909) (100) % 11,354 10,261 1,093 11 % Total operating expenses$ 34,991 $ 44,924 $ (9,933) (22) %$ 105,208 $ 148,509 $ (43,301) (29) %
*** Indicates an absolute value percentage change greater than 100.
For the three months endedSeptember 30, 2021 , Corporate and other operating expenses decreased$9.9 million compared to the three months endedSeptember 30, 2020 due to a decrease in Selling, general and administrative expenses of$11.2 million , mainly consisting of cost containment initiatives, a decrease in Other operating expenses of$1.9 million , which was due to the absence of$1.9 million of Acquisition costs incurred during the three months endedSeptember 30, 2020 , and a 41 -------------------------------------------------------------------------------- Table of Contents decrease in Operating costs of$1.4 million due to the decline in revenues. The decreases for the three months were partially offset by an increase in Depreciation and amortization of$2.2 million and an increase in Integration and reorganization costs of$2.1 million , driven by an increase of$3.9 million in costs associated with systems implementation and outsourcing of corporate functions, partially offset by a decrease in severance of$1.8 million . For the nine months endedSeptember 30, 2021 , Corporate and other operating expenses decreased$43.3 million due to a decrease in Selling, general and administrative expenses of$36.0 million , mainly consisting of cost containment initiatives, offset by the absence of the temporary reduction of expenses in the prior year, such as furloughs and wage reductions, a decrease in Integration and reorganization costs of$5.8 million , driven by a decrease in severance of$13.6 million , offset by an increase of$7.8 million in costs associated with systems implementation and outsourcing of corporate functions. The decreases for the nine months were offset by an increase in Other operating expenses of$1.1 million , which was primarily due to$10.9 million of third-party fees related to the 5-Year Term Loan expensed during the nine months endedSeptember 30, 2021 , compared to$10.3 million of Acquisition costs incurred during the nine months endedSeptember 30, 2020 .
LIQUIDITY AND CAPITAL RESOURCES
Our primary cash requirements are for working capital, debt obligations, and capital expenditures.
We expect to fund our operations through cash provided by operating activities. We expect we will have adequate capital resources and liquidity to meet our ongoing working capital needs, borrowing obligations, and all required capital expenditures.
Details of our cash flows are included in the table below:
Nine months ended September 30,
In thousands 2021 2020
Net cash provided by operating activities $ 133,347 $ 74,280
Net cash provided by (used for) investing activities 39,236 (1,979)
Net cash used for financing activities (212,284) (37,471)
Effect of currency exchange rate change on cash 389 439
(Decrease) increase in cash, cash equivalents and restricted
cash $ (39,312) $ 35,269
Cash flows provided by operating activities: Our largest source of cash provided
by our operations is Advertising revenues, primarily generated from Local and
national advertising and marketing services revenues (retail, classified, and
online). Additionally, we generate cash through circulation subscribers,
commercial printing and delivery services to third parties, and events. Our
primary uses of cash from our operating activities include compensation,
newsprint, delivery, and outside services.
Our net cash flow provided by operating activities was $133.3 million for the
nine months ended September 30, 2021 , compared to $74.3 million for the nine
months ended September 30, 2020 . The increase in net cash flow provided by
operating activities was primarily due to a decrease in interest paid on debt of
$96.1 million , a decrease in severance payments of $40.1 million , $16.4 million
in PPP funding received in support of certain of our locations that were
meaningfully affected by the COVID-19 pandemic and an increase in tax refunds,
net of $4.5 million . These increases were partially offset by a decrease in
working capital of $70.9 million due to the overall timing of payments,
including accrued compensation and accounts receivable collections, and an
increase in contributions to our pension and other postretirement benefit plans
of $19.2 million .
Cash flows provided by (used for) investing activities: Cash flows provided by
investing activities totaled $39.2 million for the nine months ended September
30, 2021 compared to $2.0 million used for investing activities in the nine
months ended September 30, 2020 . This increase was primarily due to an increase
in proceeds from the sale of real estate and other assets of $41.2 million and a
decrease in purchases of property, plant and equipment of $1.7 million .
Cash flows used for financing activities: Cash flows used for financing
activities totaled $212.3 million for the nine months ended September 30, 2021
compared to $37.5 million for the nine months ended September 30, 2020 . This
increase was primarily due to an increase in net repayments under term loans of
$148.1 million and payments of debt issuance costs of $33.9 million .
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--------------------------------------------------------------------------------Table of Contents Debt 5-Year Term Loan OnFebruary 9, 2021 , we entered into a five-year, senior-secured term loan facility with the lenders from time to time party thereto andCitibank, N.A ., as collateral agent and administrative agent for the lenders, in an aggregate principal amount of$1.045 billion (the "5-Year Term Loan"). The 5-Year Term Loan was to mature onFebruary 9, 2026 and, at the Company's option, bore interest at a rate equal to LIBOR plus a margin equal to 7.00% per annum or an alternate base rate plus a margin equal to 6.00% per annum. Interest on the 5-Year Term Loan was payable at least every three months in arrears, beginning inMay 2021 .
The proceeds from the 5-Year Term Loan were used to repay the remaining
principal balance and accrued interest of
There were certain lenders that participated in both the Acquisition Term Loan and the 5-Year Term Loan and their balances in the Acquisition Term Loan were deemed to be modified. The Company continued to defer, over the term, the deferred financing fees and original issue discount from the Acquisition Term Loan of$1.5 million and$34.7 million , respectively, related to those lenders. Further, certain lenders in the Acquisition Term Loan did not participate in the 5-Year Term Loan and their balances in the Acquisition Term Loan were deemed to be extinguished. The Company recognized a Loss on early extinguishment of debt of$17.2 million in the first quarter of 2021 as a result of the write-off of the remaining original issue discount and deferred financing fees related to those lenders. Third-party fees of approximately$13.0 million were allocated to the new lenders in the 5-Year Term Loan on a pro-rata basis, and$20.9 million of original issue discount were capitalized and amortized over the term of the 5-Year Term Loan using the effective interest method. For the nine months endedSeptember 30, 2021 , third-party fees of$10.9 million , which were allocated to the lenders whose balances were deemed to be modified, were expensed and recorded in Other operating expenses in the condensed consolidated statements of operations and comprehensive income (loss). No third-party fees were incurred during the three months endedSeptember 30, 2021 . The 5-Year Term Loan amortized in equal quarterly installments at a rate of 10% per annum (or, if the ratio of Total Indebtedness secured on an equal priority basis with the 5-Year Term Loan (net of Unrestricted Cash) to Consolidated EBITDA (as such terms are defined in the 5-Year Term Loan) was equal to or less than a specified ratio, 5% per annum) (the "Quarterly Amortization Installment"), beginningSeptember 30, 2021 . In addition, we were required to repay the 5-Year Term Loan from time to time with (i) the proceeds of non-ordinary course asset sales and casualty and condemnation events, (ii) the proceeds of indebtedness that was not otherwise permitted under the 5-Year Term Loan and (iii) the aggregate amount of cash and cash equivalents on hand in excess of$100 million at the end of each fiscal year. The 5-Year Term Loan was subject to a requirement to have minimum unrestricted cash of$30 million as of the last day of each fiscal quarter. As ofSeptember 30, 2021 , we were in compliance with all of the covenants and obligations under the 5-Year Term Loan.
As of
Under the 5-Year Term Loan, the Company was contractually obligated to make prepayments with the proceeds from asset sales and could have elected to make optional payments with excess free cash flow from operations. For the three and nine months endedSeptember 30, 2021 , we made prepayments totaling$91.1 million and$145.6 million , respectively, which were classified as financing activities in the condensed consolidated statements of cash flows. These amounts are inclusive of both mandatory and optional prepayments. The 5-Year Term Loan was repaid using the proceeds from the 2026 Senior Notes and the New Senior Secured Term Loan. As a result of the debt refinancing inOctober 2021 , we estimate that we will recognize a loss on the early extinguishment of the 5-Year Term Loan and other fees of approximately$31.2 million during the fourth quarter of 2021.
Senior Secured Convertible Notes due 2027
OnNovember 17, 2020 , the Company issued$497.1 million in aggregate principal amount of the Company's 6.0% Senior Secured Convertible Notes due 2027 (the "2027 Notes"). The 2027 Notes were issued pursuant to an Indenture dated as ofNovember 17, 2020 , as amended by the First Supplemental Indenture dated as ofDecember 21, 2020 and the Second 43 -------------------------------------------------------------------------------- Table of Contents Supplemental Indenture dated as ofFebruary 9, 2021 (collectively, the "2027 Notes Indenture"), between the Company andU.S. Bank National Association , as trustee. In connection with the issuance of the 2027 Notes, the Company entered into an Investor Agreement (the "Investor Agreement") with the holders of the 2027 Notes (the "Holders") establishing certain terms and conditions concerning the rights and restrictions on the Holders with respect to the Holders' ownership of the 2027 Notes. The Company also entered into an amendment to the Registration Rights Agreement datedNovember 19, 2019 , between the Company andFIG LLC . Interest on the 2027 Notes is payable semi-annually in arrears. The 2027 Notes mature onDecember 1, 2027 , unless earlier repurchased or converted. The 2027 Notes may be converted at any time by the holders into cash, shares of the Company's Common Stock or any combination of cash and Common Stock, at the Company's election. The initial conversion rate is 200 shares of Common Stock per$1,000 principal amount of the 2027 Notes, which is equal to a conversion price of$5.00 per share of Common Stock (the "Conversion Price"). The conversion rate is subject to customary adjustment provisions as provided in the 2027 Notes Indenture. In addition, the conversion rate will be subject to adjustment in the event of any issuance or sale of Common Stock (or securities convertible into Common Stock) at a price equal to or less than the Conversion Price in order to ensure that following such issuance or sale, the 2027 Notes would be convertible into approximately 42% of the Common Stock after giving effect to such issuance or sale assuming the initial principal amount of the 2027 Notes remains outstanding. Upon the occurrence of a "Make-Whole Fundamental Change" (as defined in the 2027 Notes Indenture), the Company will in certain circumstances increase the conversion rate for a specified period of time. If a "Fundamental Change" (as defined in the 2027 Notes Indenture) occurs, the Company will be required to offer to repurchase the 2027 Notes at a repurchase price of 110% of the principal amount thereof. Holders of the 2027 Notes will have the right to put up to approximately$100 million of the 2027 Notes at par on or after the date that is 91 days after the maturity date of the 5-Year Term Loan or any Refinancing Facilities (as defined in the 2027 Notes Indenture) in respect thereof. Under the 2027 Notes Indenture, the Company can only pay cash dividends up to an agreed-upon amount, provided the ratio of consolidated debt to EBITDA (as such terms are defined in the 2027 Notes Indenture) does not exceed a specified ratio. In addition, the 2027 Notes Indenture provides that, at any time that the Company's Total Gross Leverage Ratio (as defined in the 2027 Notes Indenture) exceeds 1.5 and the Company approves the declaration of a dividend, the Company must offer to purchase a principal amount of 2027 Notes equal to the proposed amount of the dividend. Until the four-year anniversary of the issuance date, the Company will have the right to redeem for cash up to approximately$99.4 million of the 2027 Notes at a redemption price of 130% of the principal amount thereof, with such amount reduced ratably by any principal amount of 2027 Notes that has been converted by the holders or redeemed or purchased by the Company. The 2027 Notes are guaranteed byGannett Holdings and any subsidiaries of the Company that guaranteed the 5-Year Term Loan. The 2027 Notes are secured by the same collateral that secured the 5-Year Term Loan. The 2027 Notes rank as senior secured debt of the Company and are secured by a second priority lien on the same collateral package that secured the indebtedness incurred in connection with the 5-Year Term Loan. The 2027 Notes Indenture includes affirmative and negative covenants, including limitations on liens, indebtedness, dispositions, loan, advances and investors, sale and leaseback transactions, restricted payments, transactions with affiliates, restrictions on dividends and other payment restrictions affecting restricted subsidiaries, negative pledges and modifications to certain agreements. The 2027 Notes Indenture also requires that the Company maintain, as of the last day of each fiscal quarter, at least$30.0 million of Qualified Cash (as defined in the 2027 Notes Indenture). The 2027 Notes Indenture includes customary events of default. For the nine months endedSeptember 30, 2021 , no shares were issued upon conversion, exercise, or satisfaction of the required conditions. Refer to Note 10 - Supplemental equity information to the condensed consolidated financial statements for details on the convertible debt's impact to diluted earnings per share under the if-converted method. 44
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Senior Convertible Notes due 2024
The$3.3 million principal value of the remaining 4.75% convertible senior notes due 2024 (the "2024 Notes") outstanding is reported as convertible debt in the condensed consolidated balance sheets. The effective interest rate on the 2024 Notes was 6.05% as ofSeptember 30, 2021 .
Debt Refinancing
OnOctober 15, 2021 ,Gannett Holdings entered into the New Senior Secured Term Loan. Also, onOctober 15, 2021 ,Gannett Holdings completed a private offering of the 2026 Senior Notes. The proceeds of the New Senior Secured Term Loan, together with the net proceeds from the 2026 Senior Notes were applied towards the full repayment of the 5-Year Term Loan. The 2026 Senior Notes were issued pursuant to an Indenture, datedOctober 15, 2021 (the "2026 Senior Notes Indenture"), amongGannett Holdings , the Company, the guarantors party thereto,U.S. Bank National Association , as trustee,U.S. Bank National Association , as collateral agent, andU.S. Bank National Association , as registrar, paying agent and authenticating agent. Interest on the 2026 Senior Notes is payable semi-annually. Loans under the New Senior Secured Term Loan bear interest at a per annum rate equal to LIBOR (which shall not be less than 0.50% per annum) plus a margin of 5.00% or an alternate base rate plus a margin equal to 4.00% per annum (which shall not be less than 1.50% per annum). The New Senior Secured Term Loan contains usual and customary covenants for credit facilities of this type that restrict, among other things, our ability to incur debt, grant liens, sell assets, and make investments and pay dividends, in each case with customary exceptions, including an exception that permits dividends and repurchases of outstanding junior debt or equity in (i) an amount of up to$25 million per fiscal quarter if the ratio of debt secured on an equal basis with the New Senior Secured Term Loan to EBITDA (as defined in the New Senior Secured Term Loan) of the Company and its restricted subsidiaries (the "FirstLien Net Leverage Ratio") for such fiscal quarter is equal to or less than 2.00 to 1.00, (ii) an amount of up to$50 million per fiscal quarter if the FirstLien Net Leverage Ratio for such fiscal quarter is equal to or less than 1.50 to 1.00, and (iii) an unlimited amount if First Lien Net Leverage Ratio for such fiscal quarter is equal to or less than 1.00 to 1.00. All obligations under the New Senior Secured Term Loan are secured by all or substantially all of the assets of the Company and the wholly-owned domestic subsidiaries of the Company (the "Guarantors"). The obligations ofGannett Holdings under the New Senior Secured Term Loan are guaranteed on a senior secured basis by the Company and the Guarantors. As of the closing of these transactions onOctober 15, 2021 , total debt outstanding was$1.416 billion , which included the (i)$516 million New Senior Secured Term Loan, (ii)$400 million of 2026 Senior Notes, (iii)$497.1 million of 2027 Notes and (iv)$3.3 million of 2024 Notes. The 5-Year Term Loan was repaid using the proceeds from the 2026 Senior Notes and the New Senior Secured Term Loan. As a result of the debt refinancing inOctober 2021 , we estimate that we will recognize a loss on the early extinguishment of the 5-Year Term Loan and other fees of approximately$31.2 million during the fourth quarter of 2021.
Additional information
We continue to evaluate our results of operations, liquidity and cash flows, and as part of these measures, we have taken steps to manage cash outflow by rationalizing expenses and implementing various cost containment initiatives. We do not presently pay a quarterly dividend and have no current intention to reinstate the dividend. In addition, the terms of our indebtedness, including our credit facility, the New Senior Secured Term Loan, and the 2026 Senior Secured Notes Indenture and the 2027 Notes Indenture have terms that restrict our ability to pay dividends. The CARES Act, enactedMarch 27, 2020 , provided various forms of relief to companies impacted by the COVID-19 pandemic. As part of the relief available under the CARES Act, we deferred remittance of our 2020 Federal Insurance Contributions Act taxes as allowed by the legislation. We deferred$41.6 million of the employer portion of FICA taxes for payroll paid betweenMarch 27, 2020 andDecember 31, 2020 . We have untilDecember 31, 2021 , to pay 50% of the FICA deferral with the remaining 50% to be remitted on or beforeDecember 31, 2022 .
For the Gannett Retirement Plan in the
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We expect our capital expenditures for the remainder of 2021 to total
approximately $13.9 million . These capital expenditures are anticipated to be
primarily comprised of projects related to digital product development, costs
associated with our print and technology systems, and system upgrades.
Our leverage may adversely affect our business and financial performance and
restricts our operating flexibility. The level of our indebtedness and our
ongoing cash flow requirements may expose us to a risk that a substantial
decrease in operating cash flows due to, among other things, continued or
additional adverse economic developments or adverse developments in our
business, could make it difficult for us to meet the financial and operating
covenants contained in our New Senior Secured Term Loan, the 2026 Senior Secured
Notes, and the 2027 Notes. In addition, our leverage may limit cash flow
available for general corporate purposes such as capital expenditures and our
flexibility to react to competitive, technological, and other changes in our
industry and economic conditions generally.
Although we currently forecast sufficient liquidity, a resurgence of the
COVID-19 pandemic and related counter-measures could have a material negative
impact on our liquidity and our ability to meet our ongoing obligations,
including obligations under the New Senior Secured Term Loan, the 2026 Senior
Secured Notes, and the 2027 Notes. The Company continues to closely monitor the
COVID-19 pandemic and will continue to take the steps necessary to appropriately
manage liquidity.
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
See our most recent Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 for a discussion of our critical accounting policies and use of estimates. There have been no material changes to our critical accounting policies and use of estimates discussed in such report.
NON-GAAP FINANCIAL MEASURES
A non-GAAP financial measure is generally defined as one that purports to
measure historical or future financial performance, financial position, or cash
flows, but excludes or includes amounts that would not be so excluded or
included in the most comparable
Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett are non-GAAP financial measures we believe offer a useful view of the overall operation of our businesses and may be different than similarly-titled measures used by other companies. We define Adjusted EBITDA as Net income (loss) attributable to Gannett before (1) Income tax expense (benefit), (2) Interest expense, (3) Gains or losses on the early extinguishment of debt, (4) Non-operating pension income (expense), (5) Loss on convertible notes derivative, (6) Depreciation and amortization, (7) Integration and reorganization costs, (8) Other operating expenses, including third-party debt expenses and acquisition costs, (9) Asset impairments, (10)Goodwill and intangible impairments, (11) Gains or losses on the sale or disposal of assets, (12) Share-based compensation, and (13) certain other non-recurring charges, including gains or losses on the sale of investments. We define Adjusted EBITDA margin as Adjusted EBITDA divided by total Operating revenues. We define Adjusted Net income (loss) attributable to Gannett before (1) Gains or losses on the early extinguishment of debt, (2) Loss on convertible notes derivative, (3) Integration and reorganization costs, (4) Other operating expenses, including third-party debt expenses and acquisition costs, (5) Asset impairments, (6)Goodwill and intangibles impairments, (7) Gains or losses on the sale or disposal of assets, (8) Gains or losses on the sale of investments, and (9) the tax impact of the above items.
Management's use of Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett
Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett are not measurements of financial performance under GAAP and should not be considered in isolation or as an alternative to income from operations, net income (loss), or any other measure of performance or liquidity derived in accordance withU.S. GAAP. We believe these non-GAAP financial measures, as we have defined them, are helpful in identifying trends in our day-to-day performance because the items excluded have little or no significance on our day-to-day operations. These measures provide an assessment of controllable expenses and afford management the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieve optimal financial performance.
Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett provide us with measures of financial performance, independent of items that are beyond the control of management in the short-term, such as depreciation and amortization, taxation, non-cash impairments, and interest expense associated with our capital structure. These metrics measure our financial performance based on operational factors that management can impact in the short-term, namely
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the cost structure or expenses of the organization. Adjusted EBITDA, Adjusted
EBITDA margin, and Adjusted Net income (loss) attributable to Gannett are
metrics we use to review the financial performance of our business on a monthly
basis.
We use Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss)
attributable to Gannett as measures of our day-to-day operating performance,
which is evidenced by the publishing and delivery of news and other media and
excludes certain expenses that may not be indicative of our day-to-day business
operating results.
Limitations of Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett
Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett have limitations as analytical tools. They should not be viewed in isolation or as a substitute forU.S. GAAP measures of earnings or cash flows. Material limitations in making the adjustments to our earnings to calculate Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett and using these non-GAAP financial measures as compared toU.S. GAAP net income (loss) include: the cash portion of interest/financing expense, income tax (benefit) provision, and charges related to asset impairments, which may significantly affect our financial results. Management believes these items are important in evaluating our performance, results of operations, and financial position. We use non-GAAP financial measures to supplement ourU.S. GAAP results in order to provide a more complete understanding of the factors and trends affecting our business. Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett are not alternatives to net income and margin as calculated and presented in accordance withU.S. GAAP. As such, they should not be considered or relied upon as substitutes or alternatives for any suchU.S. GAAP financial measures. We strongly urge you to review the reconciliation of Net income (loss) attributable to Gannett to Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett along with our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. We also strongly urge you not to rely on any single financial measure to evaluate our business. In addition, because Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett are not measures of financial performance underU.S. GAAP and are susceptible to varying calculations, the Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett measures as presented in this report may differ from and may not be comparable to similarly titled measures used by other companies. The table below shows the reconciliation of Net income (loss) attributable to Gannett to Adjusted EBITDA and Net income (loss) attributable to Gannett margin to Adjusted EBITDA margin: Three months ended September 30, Nine months ended September 30, In thousands 2021 2020 2021 2020 Net income (loss) attributable to Gannett$ 14,687 $
(31,260)
2,984 3,098 11,567 (22,200)
Interest expense 34,603 58,063 109,370 173,890
Loss on early extinguishment of debt 3,761 476 25,996 1,650
Non-operating pension income (23,860) (18,334) (71,644) (54,433)
Loss on convertible notes derivative - - 126,600 -
Depreciation and amortization 48,107 61,355 154,452 205,706
Integration and reorganization costs 13,619 13,417 35,467 73,978
Other operating expenses 4 1,913 11,354 10,261
Asset impairments 2,301 1,585 3,134 8,444
Goodwill and intangible impairments - - - 393,446
(Gain) loss on sale or disposal of
assets, net (833) 795 9,206 1,540
Share-based compensation expense 4,602 3,844 13,804 22,812
Other items 2,092 (6,972) 1,509 (1,723)
Adjusted EBITDA (non-GAAP basis) $ 102,067 $ 87,980 $ 318,301 $ 265,066
Net income (loss) attributable to Gannett
margin 1.8 % (3.8) % (4.7) % (21.7) %
Adjusted EBITDA margin (non-GAAP basis) 12.8 % 10.8 % 13.4 % 10.5 %
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The table below shows the reconciliation of Net income (loss) attributable to
Gannett to Adjusted Net income (loss) attributable to Gannett:
Three months ended September 30, Nine months ended September 30,
In thousands 2021 2020 2021 2020
Net income (loss) attributable to Gannett
$ (112,514) $ (548,305) Loss on early extinguishment of debt 3,761 476 25,996 1,650 Loss on convertible notes derivative - - 126,600 - Integration and reorganization costs 13,619 13,417 35,467 73,978 Other operating expenses 4 1,913 11,354 10,261 Asset impairments 2,301 1,585 3,134 8,444 Goodwill and intangible impairments - - - 393,446 (Gain) loss on sale or disposal of assets, net (833) 795 9,206 1,540 Gain on sale of investments - (7,800) - (7,995) Subtotal 33,539 (20,874) 99,243 (66,981) Tax impact of above items (7,033) (25,449) (28,042) (61,364) Adjusted Net income (loss) attributable to Gannett (non-GAAP basis)$ 26,506 $ (46,323)
$ 71,201
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