Needham Technology & Media Conference
May 20, 2020
Disclaimers and Notes
In General. This disclaimer applies to this document and the verbal or written comments of any person presenting it. This document, taken together with any such verbal or written comments, is referred to herein as the "Presentation." Prior to November 19, 2019, our corporate name was New Media Investment Group Inc. ("New Media" or "Legacy New Media"), and Gannett Co., Inc. ("Legacy Gannett") was a separate publicly traded company. On November 19, 2019, New Media acquired Legacy Gannett (the "Acquisition"). In connection with the Acquisition, Legacy Gannett became a wholly owned subsidiary of New Media, and New Media's name was changed to Gannett Co., Inc. (also referred to as "Gannett," "we," "us," "our" or the "Company").
Cautionary Statement Regarding Forward-LookingStatements. Certain statements in this Presentation may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our expectations, in terms of both amount and timing, with respect to implementation of synergies, realization of cost savings, debt repayment, real estate sales and debt refinancing, future revenue trends and our ability to influence trends, and the amount and timing of any future dividend. These statements are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties, which could cause actual results to differ materially from those described in the forward-looking statements. Many of these risks and uncertainties are beyond our control. The Company can give no assurance its expectations will be attained. Accordingly, you should not place undue reliance on any forward-looking statements contained in this Presentation. For a discussion of some of the risks and important factors that could cause actual results to differ from such forward-looking statements, see the risks and other factors detailed from time to time in the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and other filings with the Securities and Exchange Commission. Furthermore, new risks and uncertainties emerge from time to time, and it is not possible for the Company to predict or assess the impact of every factor that may cause its actual results to differ from those contained in any forward-looking statements. Such forward-looking statements speak only as of the date of this press release. The Company expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.
Past Performance. In all cases where historical performance is presented, please note that past performance is not a reliable indicator of future results and should not be relied upon as the basis for making an investment decision. This Presentation is not an offer to sell, nor a solicitation of an offer to buy any securities.
Non-GAAPMeasures. This Presentation includes non-GAAP measures, such as Adjusted EBITDA, Free Cash Flow and same store pro forma revenue. Year-over-year same store pro forma revenue changes are calculated based on GAAP revenue for Legacy New Media and Legacy Gannett prior to the Acquisition and GAAP revenue for the Company for the reporting period, excluding (1) revenues related to 2019 acquisitions from the beginning of 2020 through the first year anniversary of the applicable acquisition date, (2) exited operations, (3) currency impacts, and (4) deferred revenue impacts related to the Acquisition. See the "Appendix" in this presentation for information regarding these non-GAAP measures, including reconciliations to the most directly comparable GAAP financial measure.
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Gannett Acquisition(1) Strategic Rationale
- Complementary network of award-winning journalists and content strengthens partnership with consumers
- Substantial scale will drive digital revenue growth and support business transformation
- Diversified revenue offerings strengthen partnerships with national advertisers & SMBs
- Substantial identified, achievable cost savings from combination of $300 million
- Best practices leveraged from both companies expected to lead to further cost reductions and revenue upside
The combined company is better positioned to manage through this market dislocation and
uncertainty than either company would have been stand-alone
- New Media Investment Group, Inc. (NYSE:NEWM) acquired Gannett Co., Inc. (NYSE:GCI) in November 2019. The name Gannett Co., Inc. and ticker NYSE:GCI were retained for the combined company.
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Gannett Priorities 2020-2021
- Successfully implement $300 million in synergies over 24 months
- Expect roughly half of synergies within 12 months, including revenue opportunities
- Continue normal course cost reduction programs to mitigate current revenue declines
- Aggressively pay down debt with goal to refinance term loan at the end of 2021
- Leverage goal of ~2.0x, improving from 3.6x in Q4 2019
- Sell $100-$125 million in real estate assets over 24 months
- Stabilize revenue trends by leveraging increased scale, expanding growth products across entire portfolio and reducing reliance on print advertising, and implementing best practices
- Print advertising represents 31% of revenues today, expected to fall to 21% in 2022
- Focus on growth areas of paid digital subscriptions, events and digital marketing services businesses
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Investment Highlights - Q1 2020 & Subsequent Events(1)
• Revenue of $948.7 million for the quarter, down 9.7% on a pro forma basis to the prior year quarter
Q1 Financial | - Same store total revenue declined 10.0% on a pro forma basis | |
- COVID-19 negatively impacted March revenues by an estimated $17 million | ||
Performance | ||
• | Digital advertising and marketing services revenue of $219.2 million in Q1 2020, or 23.1% of Q1 2020 revenue | |
• Adjusted EBITDA of $99.1 million | ||
• Our preliminary view of April is that same store total revenue declined approximately 30% | ||
• Implemented cost measures that are expected to save $100-125 million in operating expenses in Q2; minimizing all but essential | ||
COVID-19 Update | capital expenditures | |
• Continue to support our consumers, businesses, and communities while implementing employee safety measures; maintained | ||
consistent operations across all properties with zero significant disruptions | ||
• Over $75 million in annualized synergies implemented in the first quarter, reducing Q1 2020 expenses by $19 million | ||
Integration & | • | Over $140 million in cumulative annualized synergies expected to be implemented by the end of Q2; $35 - $40 million expected |
Synergy Update | savings in Q2 2020 |
• Integration plan on track; continue to target half of the $300 million of synergies to be implemented by the end of 2020 | |
• Cash on the balance sheet of $199.7 million at the end of Q1 | |
Balance Sheet & | • $12.7 million of debt pay down in Q1; over $50 million in real estate sales under contract and expected to close during Q2 |
- $1.747 billion debt outstanding as of May 7, 2020 | |
Liquidity | |
- $100-$125 million in total real estate sales expected to drive accelerated debt pay down during 2020 and 2021 | |
• The Company is in compliance with all the terms of its credit agreement and is confident it will remain compliant |
- As of May 7, 2020.
- Pro forma results reflect the consolidated operations, assuming the companies had been consolidated for the entire period.
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COVID-19 Response
- We took immediate and deliberate action to support the health and safety of our employees and to fulfill our public service mission to deliver trusted news and information on the pandemic to our communities
Employees
- Health and safety is our #1 priority
- Since March 20, 2020:
95% | of our non-production and |
delivery workers have been | |
working from home |
Consumers / Community | Businesses | |
• | COVID-19 content available to all visitors | • Support Local platform was launched to |
across our daily editions | provide communities with an easy way to | |
• | Launched new tailored content | discover opportunities to help their |
favorite local businesses |
NATION'S | Daily section runs in USA | Free business listings easily |
TODAY print and digital, all | ||
HEALTH | local e-editions, and updates | searchable |
real-time online |
For production & delivery |
workers, social distancing |
measures and hygiene best |
practices were implemented in |
line with CDC and WHO |
guidelines |
~160,000
subscribers
USA TODAY Coronavirus newsletter reaches nearly 160K subscribers across the country and led to launching 35 local market editions
Access to special services, like enabling gift cards and delivery service
0 | Significant operational or |
financial disruptions |
650M | Since mid-February, USA |
TODAY has had more than 650 | |
views | million views of its coronavirus |
content |
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COVID-19 Liquidity & Cash Flow Measures
- We quickly implemented several measures to preserve liquidity and cash flow
- Implemented $100 - $125 million in expense reductions; majority temporary in nature
- Cost of goods sold
- Furloughs
- Pay reductions
- Reductions in force
- Cancellation of non-essential travel and spending
- Minimizing capital expenditures; savings expected to reduce 2020 by ~20% from plan
- Board of Directors suspended the quarterly dividend until conditions improve
- Additionally, we expect liquidity benefit in 2020 of $50 - $60 million due to several CARES Act provisions relating to FICA tax deferral, ERISA pension contribution deferral, and NOL tax carryback provisions. The deferred obligations will come due in 2021 and 2022.
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Integration & Synergy Update
- Integration plan identified $300 million of synergies are expected to be implemented by the end of 2021
- Additional cost savings beyond synergies value also underway based on previously identified and/or implemented actions taken by prior companies
- Over $75 million in annualized synergies implemented in Q1, reducing Q1 2020 expenses by $19 million
- Over $140 million in cumulative annualized synergies expected to be implemented by the end of Q2; $35 - $40 million expected savings in Q2 2020
Estimated Run-Rate
Synergies
Newspaper Operations | $115+ million |
Corporate/Procurement | $70+ million |
Other Operations | $50+ million |
Systems | $40+ million |
Areas Targeted for Savings
- Rationalization of manufacturing and distribution
- Centralization of management structure and consumer marketing
- Consolidation of procurement
- Centralization of finance
- Elimination of duplicative public company functions and costs
- Centralization of sales
- Digital services
- Events
- Centralization and expansion of technology systems
Quarterly Update
- Consolidated 9 print sites in Q1; 23 sites will be consolidated by the end of Q2
- Launched digital optimization team pilots to support digital audience growth
- Savings achieved in legal, human resources, finance, and executive
- Negotiations continue with key vendors; several contracts signed
- Post-salesstreamlining underway
- Call center roll-out underway
- Collaboration platform roll-out underway
- Completed several key system project contracts
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Balance Sheet & Liquidity
- Cash on the balance sheet of $199.7 million at the end of Q1
- $12.7 million of debt paid down in Q1 2020, primarily driven by real estate sales
- Over $50 million of real estate under contract and expected to close during the second quarter
- $50-$75million of additional real estate sales targeted by the end of 2021
- The Company is in compliance with the terms of its credit agreement and is confident it will remain in compliance
Debt Outstanding under Credit Facility(1)
$2,150 | |||
RP Basket Threshold | 3.75x | ||
$2,050 | |||
Gross Leverage | 3.5x | 3.6x | 3.6x |
$1,950 | |||
Net Leverage | 3.3x | 3.2x | |
$1,850 | $1,792 | ||
Debt Outstanding | $1,756 | $1,743 | |
Key Credit Facility Terms
3 • No Event of Default tied to debt to EBITDA or other financial ratios
2.5 • Only financial covenant test quarterly is requirement to have $20 million of cash on the balance sheet
2 • $60 million cap on capital expenditures annually
• Quarterly interest payments beginning in Q2 2020 (holiday on
$1,750 |
$1,650
$1,550
$1,450
1.5
1
payment prior to that, but interest accrued from closing)
$1,350
$1,250
Closing | Q4 2019 | Q1 2020 |
0.5
0
1) Credit Facility outstanding as of May 7, 2020. Excludes $3.3 million of remaining convertible notes that were not tendered in December 2019.
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Appendix
Non-GAAP Reconciliation
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 the Company believes offers a useful view of the overall operation of our business. The Company defines Adjusted EBITDA as net income (loss) attributable to Gannett before (1) income tax expense (benefit), (2) interest expense, (3) gains or losses on early extinguishment of debt, (4) non-operating items, primarily pension costs, (5) depreciation and amortization, (6) integration and reorganization costs,
(7) impairment of long-lived assets, (8) goodwill and intangible impairments, (9) net loss (gain) on sale or disposal of assets, (10) non-cash compensation, (11) acquisition costs, and (12) certain other non-recurring charges. The most directly comparable GAAP financial measure is net income (loss) attributable to Gannett. - Free cash flow is a non-GAAP liquidity measure that adjusts our reported GAAP results for items we believe are critical to the ongoing success of our business. The Company defines Free cash flow as net cash provided by 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.
Management's Use of Non-GAAP Measures
Adjusted EBITDA and Free cash flow 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), cash flow from continuing operating activities, or any other measure of performance or liquidity derived in accordance with GAAP. We believe our non-GAAP 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 provides us with a measure 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. This metric measures our financial performance based on operational factors that management can impact in the short-term, namely the cost structure or expenses of the organization. Adjusted EBITDA is one of the metrics we use to review the financial performance of our business on a monthly basis.
We use Adjusted EBITDA as a measure 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. We consider the unrealized (gain) loss on derivative instruments and the (gain) loss on early extinguishment of debt to be financing related costs associated with interest expense or amortization of financing fees. Accordingly, we exclude financing related costs such as the early extinguishment of debt because they represent the write-off of deferred financing costs, and we believe these non-cashwrite-offs are similar to interest expense and amortization of financing fees, which by definition are excluded from Adjusted EBITDA. Additionally, the non-cash gains (losses) on derivative contracts, which are related to interest rate swap agreements to manage interest rate risk, are financing costs associated with interest expense. Such charges are incidental to, but not reflective of, our day-to-day operating performance, and it is appropriate to exclude charges related to financing activities such as the early extinguishment of debt and the unrealized (gain) loss on derivative instruments which, depending on the nature of the financing arrangement, would have otherwise been amortized over the period of the related agreement and does not require a current cash settlement. Such charges are incidental to, but not reflective of our day-to-day operating performance of the business that management can impact in the short term.
Limitations of Non-GAAP Measures
Each of our non-GAAP measures has limitations as an analytical tool. They should not be viewed in isolation or as a substitute for GAAP measures of earnings or cash flows. Material limitations in making the adjustments to our earnings to calculate Adjusted EBITDA and using this non-GAAP financial measure as compared to GAAP net income (loss) include: the cash portion of interest / financing expense, income tax (benefit) provision, and charges related to impairment of long-lived assets, which may significantly affect our financial results.
A reader of our financial statements may find this item important in evaluating our performance, results of operations, and financial position. We use non-GAAP financial measures to supplement our GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.
Adjusted EBITDA and Free cash flow are not alternatives to net income, income from operations, or cash flows provided by or used in operations as calculated and presented in accordance with GAAP. Readers of our financial statements should not rely on Adjusted EBITDA or Free cash flow as a substitute for any such GAAP financial measure. We strongly urge readers of our financial statements to review the reconciliation of income (loss) from continuing operations to Adjusted EBITDA and the reconciliation of net cash from operating activities to Free cash flow, along with our consolidated financial statements included elsewhere in this report. We also strongly urge readers of our financial statements to not rely on any single financial measure to evaluate our business. In addition, because Adjusted EBITDA and Free cash flow are not measures of financial performance under GAAP and are susceptible to varying calculations, the Adjusted EBITDA and Free cash flow measures as presented in this report may differ from and may not be comparable to similarly titled measures used by other companies.
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Gannett Non-GAAP Reconciliation(1)
(in thousands) | 3 months ended |
March 31, 2020 | |
Net income (loss) attributable to Gannett | ($80,152) |
Income tax expense (benefit) | 8,979 |
Interest expense | 57,899 |
Loss on early extinguishment of debt | 805 |
Other non-operating items, net | (16,899) |
Depreciation and amortization | 78,024 |
Integration and reorganization costs | 28,254 |
Acquisition costs | 5,969 |
Impairment of long-lived assets | - |
Goodwill and mastheads impairment | - |
Net (gain) loss on sale or disposal of assets | 657 |
Non-cash compensation | 11,577 |
Other items | 3,956 |
Adjusted EBITDA (non-GAAP basis) | $99,069 |
(in thousands) | |
Net cash flow from operating activities (GAAP basis) | |
Capital expenditures | |
Free cash flow (non-GAAP basis) | (2) |
3 months ended March 31, 2020 $60,489 (13,783) $46,706
- Small discrepancies may exist due to rounding.
- Free cash flow for the fourth quarter was negatively impacted by $28.3 million of integration and reorganization costs, $6.0 million of acquisition costs, and $4.0 million of other one-time adjustments.
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Disclaimer
Gannett Co. Inc. published this content on 20 May 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 20 May 2020 12:08:02 UTC