Gannett Co., Inc.

Greetings. Welcome to the Gannett Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note, this conference is being recorded. At this time, I'll turn the conference over to Tricia Gossard with Investor Relations. Tricia, you may now begin.

Thank you, Rob. Good morning, everyone, and thank you for joining our call today to discuss Gannett's third quarter 2021 results. Presenting on today's call will be Mike Reed, Chairman and Chief Executive Officer, and Doug Horn, Chief Financial Officer. During this call, we will discuss Gannett's financial results for the quarter. If you navigate to the Gannett website, you will find that we have posted an earnings supplement in addition to our earlier press release. We will be referencing it today on the call as it provides you with additional detail on this quarter's performance. Before we begin, please let me remind you that this call is being recorded. In addition, certain statements made during this call are or may be deemed to be forward-looking statements, including those with respect to future results and events, and are based upon current expectations. These statements involve risks. and uncertainties that may cause actual results and events to differ materially from those discussed today. We encourage you to read the cautionary statement regarding forward-looking statements in the earnings supplement, as well as the risk factors described in Gannett's filings made with the SEC. Except as required by law, we undertake no obligation to publicly update or correct any of the forward-looking statements made during this call. In addition, we will be discussing some non-GAAP financial information during the call today. You can find reconciliations of our non-GAAP measures to the most comparable U.S. GAAP measures in the earnings supplement. Lastly, I would like to remind you that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase any interest in Gannett. The webcast and audiocast are copyrighted material of Gannett and may not be duplicated, reproduced, or rebroadcasted without our consent. With that, I would like to turn the call over to Mike Reed, Gannett's Chairman and CEO.

Thanks, Tricia. Good morning, everyone. Thanks for joining us this morning on our third quarter earnings call. We are pleased to report this morning that the third quarter was another strong quarter for Gannett, especially in the areas of our business plan that are the most important for the evolution of our business and our long-term growth. Our results in the quarter evidence continued strong growth in our digital-only subscriber counts and in our digital marketing solution segment. These represent stable and recurring revenue streams that are growing very rapidly with big addressable markets that we are penetrating. The increases in these digital categories in Q3 led to year-over-year same-store revenue growth, and for the fourth consecutive quarter, year-over-year adjusted EBITDA growth. Also, importantly, our results are in line with previous guidance we had given at the end of the second quarter and again when we did our most recent refinancing about a month ago. 2.3 adjusted EBITDA was $102.1 million with a margin of 12.8% for the quarter. And that brings our last 12 months adjusted EBITDA to $467 million, up meaningfully from 2020. We achieved positive net income in the quarter of $14.7 million, and adjusted net income was a very strong $26.5 million in the quarter. Further, I'm excited to report that our last 12-month digital revenues have now exceeded $1 billion, and our overall digital revenues are growing at 15% to 20%. During the third quarter, we were able to meaningfully pay down principal on our five-year term loan, reducing debt by $91 million in the third quarter. Our aggressive debt repayment this year, combined with strong financial performance, has allowed us to opportunistically refinance our term loan B. This refinancing was completed in October, just last month. In fact, this was our second refinancing in 2021. We have been able to materially reduce the cost of our debt, our ongoing cash interest expense, and we have continued to lower our leverage. We continue to remain on our aggressive plan to de-lever our balance sheet. We were able to post strong financial results this year, along with multiple refinancings, despite the lingering impact of the COVID-19 pandemic, as well as the inflationary pressures that have risen here in the U.S. and impacted so many. It's worth highlighting that we have repeatedly shown that even in a challenging environment, the compounding growth in our digital revenue businesses and our ability to strategically modulate our cost structure continues to allow us to produce stable, growing, adjusted EBITDA and free cash flow. With regard to our strategy, in alignment with our first strategic pillar, accelerating digital subscription growth, we have accumulated our three best quarters ever of digital only subscriber growth here in 2021, with the third quarter being our biggest growth quarter ever. Our subscription led strategy resulted in adding 164,000 net new digital only subscribers in the third quarter. outpacing our previous high set in the second quarter of 2021. The accelerating growth is built on new product launches, such as USA Today Sports Plus, a new premium personalized sports subscription product that went live in early September. In addition to growth in our recently launched paid crossword app, as well as continued progress with our newly launched USA Today premium content subscription strategy. These new products combined with the continued strong growth in our local subscriber business has allowed us to begin to further accelerate our overall growth rates. More on that in a minute. The USA Today Sports Plus immersive and interactive product gives subscribers access to augmented reality experiences, data visualization that the USA Today brand was built on, podcasts, and access via live chats and text messages to the remarkable journalists across the USA Today network, including Josina Anderson, an NFL expert and a veteran with over 20 years of experience who previously worked for ESPN and was named the network's first female national NFL insider in 2015. We're so happy to have her on board here at the USA Today. USA Today Sports Plus is currently live in seven markets, with more markets being added in the coming year. As an expanding product portfolio, which includes digital subscriptions in our over 200 local markets and at the USA Today, as well as ancillary products such as our Crossword app and Sports Plus app, now allow us to test the impact of bundling, on both subscriber growth and retention. Increased rigor on content and brand marketing and on data intelligence led by our Chief Marketing and Strategy Officer, Mayor Gupta, and our newly added Chief Data Officer, Nate Rakiewicz, who joined us in August, have also helped drive more new net subscribers in the last two quarters than in all of 2020. We're really happy that Nate joined us as well. While we are excited about the growth this year, we firmly believe we are in the early stages. With 179 million average monthly unique visitors and the sixth largest reach among all domestic media peers, our digital only subscriber volume represents less than 1% of our audience reach. So tremendous upside as penetration increases. We expect to end 2021 with more than 1.65 million digital subscribers, and that will represent growth of over 50% versus 2020. With expectations of an expanding product portfolio, an accelerated marketing flywheel, and the application of rigorous data science, we are building plans to continue this accelerated growth rate going forward into 2022. The success in our digital subscription efforts was complemented by success in our second strategic pillar, accelerating the growth in our digital marketing solution segment. The digital marketing solutions business, which operates a SAS-like model on our proprietary local IQ marketing services platform, which now generates approximately 440 million of revenue annually, with growth rates that are expected to outpace the competitive market. Our core platform revenue, which we view as customers using our proprietary digital marketing services platform that are sold by either our direct or local market teams, grew 26% year over year to $113 million in the third quarter. And, importantly, the segment recorded record adjusted EBITDA margins again this quarter at 12.9%. Sequentially, client count demonstrated modest growth, and ARPU grew 7%. In the quarter, we also augmented our current local and direct sales channels by enabling a new freemium digital marketing solutions offering on our platforms. which will serve as a low friction tool for acquiring registered users while providing small businesses immediate marketing value and exposing them to the proprietary functionality of our broader local IQ platform. The freemium offering will operate in close connection with our marketing efforts and inside sales capabilities to create an engaged segment of new customers which may not have previously considered local IQ. The first two phases were launched in Q3, which enable a registered user to receive a free assessment of their current marketing presence and to create a local IQ account with access to the local IQ university and the ability to connect with a salesperson. In Q4 and in 2022, we will enable additional features that drive platform engagement and the ability to purchase solutions within the freemium experience either directly or via one of our sales channels. We look forward to updating you in the coming quarters on the metrics generated by the freemium channel and are excited by the potential to expand our TAM and reduce our customer acquisition costs through these efforts. This could represent our biggest growth category within the DMS segment over the next five years. We continue to invest in our local IQ platform with our product team consistently rolling out product improvements to what we believe is already a best-in-class solution to help businesses build web presence, drive leads and awareness, and expertly manage leads and engage customers. In the third quarter, among other enhancements, we added a competitor keyword automation as soon as campaigns go live, through our improved smart algorithm, which uses over 100 million national and local US businesses to drive further optimization. We also implemented the use of first party data as we strive to help businesses reduce their dependence on third party cookies. We now allow businesses to leverage their own customer data to target lookalike audiences at both Google and Facebook. We believe that ongoing investment in product and marketing combined with sales channel expansion are critical to sustaining the double-digit growth in our core platform business and expanding our core client count from over 15,000 today to a more meaningfully percentage of the over 30 million small businesses here in the U.S. Our third strategic pillar is optimizing our traditional print business across circulation and advertising. In the coming year, we will be creating a focused regional effort on enhancing the performance of our legacy print offering across the country. We continue to have many levers to pull around our print business that we believe can improve the business performance coming from this segment, despite the secular headwinds we face. From data governance and intelligence impacts on customer acquisition and preferences to capitalizing on the standard systems and data analytics that have been put in place through the integration from our merger in 2019 to reinvigorating our single copy sales channel post-pandemic. Improved customer service and a focus on the right pricing all will lead to improvement in our legacy print business in 2022 and beyond. Our fourth pillar is prioritizing investments in our growth businesses. In the third quarter, we announced our five-year agreement with Typical USA, the U.S.-based sportsbook of Typical Group Limited, the leading sports betting provider in Germany. With this announcement, Typical became the exclusive sports betting and iGaming provider for Gannett in the U.S. The five-year agreement includes $90 million in media spend by Typical, incremental incentives payable to Gannett for customer referrals upon reaching certain thresholds, and the ability to acquire a minority equity stake in typical U.S. In September, we officially launched content assets to support this exciting partnership and engage the avid sports betting fan. The team launched Sportsbook Wire, BetFTW, Bet for the Win, a site dedicated to sports betting analysis. We launched a video series on site, and Bet for the Win 101 to help inform and educate bettors. Additionally, the video series Lorenzo's Locks is back for another football season, and more video and podcasts will be launching over the next several months. In just the first two weeks, these assets drove nearly 15 million page views. We will continue to bet big on sports with a sports audience here at Gannett of over 53 million sports fans. and we have over 500 dedicated sports journalists to help expand our coverage of the growing sports betting market. The events business remained under pressure in the third quarter with the resurgence of the COVID-19 pandemic with the Delta variant, which directly impacted our ability to host live events. While we initially saw live events accelerate in the second quarter, we largely returned to virtual events in the third quarter, and expect to remain substantially virtual in the fourth quarter this year. Despite these challenges, events revenue still grew 33% year-over-year in the third quarter, and our marquee events drove impressive engagement with just over 2 million virtual and live event attendees within the quarter. RAGBRAW, the Des Moines Register's annual great bicycle ride across Iowa, returned in July of 2021. The first national high school sports award show was held this summer as well, featured host Michael Strahan and Rob Gronkowski, and highlighted more than 1,000 honorees from 50 states. And earlier this week, we aired the American Influencer Awards, hosted by Andy Cohen. Our American Influencer Awards honors influential and talented social media personalities in categories including beauty, fitness, and lifestyle. And it drives significant engagement with over 5.8 million votes cast this year through our website. This diverse portfolio of events brings a broad, engaged local to national audience into the Gannett ecosystem. And we remain firm in our belief that events will be able to generate 40 plus percent year over year growth as we emerge from the pandemic. Our fifth and final strategic pillar is building on an inclusive and diverse culture. This commitment is the core pillar of our organization and influences all aspects of our operations from hiring, onboarding, and educating to aligning our culture around empowering our communities to thrive. Last year, we published our inclusion goal for 2025 and published our first company-wide workforce diversity report earlier this year. In addition, during the third quarter of 2020, our newsrooms published demographic metrics and pledged to build a workforce that mirrors the demographics of the nation and the communities we serve by the end of 2025, and to publicly report our staff demographics each year. This September, our news organization published results from this year's survey, which reflects our newsroom workforce as of July 13, 2021. USA Today increased the proportion of black, indigenous, people of color journalists, and also increased female representation year over year. Similar gains were recorded in local newsrooms including Detroit, Indianapolis, Louisville, Nashville, Phoenix, and Rochester, New York. To be sure, this work must continue in advance, but we remain committed to achieving our 2025 targets and to accurately reflect the interests, issues, and lived experiences of the people we serve. I would also like to highlight the fantastic work the Gannett Foundation has done this year. In October, the Gannett Foundation announced $5.4 million in grants through the company's A Community Thrives program. In its fifth year, A Community Thrives awards grants to worthy causes and organizations across the United States aiming to improve their communities. Supported by the Gannett Foundation, the program encourages nonprofits to promote their ideas and efforts on a national platform leveraging the USA Today network, including USA Today and over 200 local media brands to drive further awareness and support through donations. Gannett's driving mission is to empower our local communities And A Community Thrives is honored to support this year's recipients in their efforts to create change in their local communities. Now, turning our attention to the fourth quarter, we are estimating same store total revenues to decline in the low single digits. This decline reflects the impact of small market newspapers we have sold or in rare cases closed during 2021. combined with the impact the pandemic continues to have on the events business, as well as cycling against a strong fourth quarter last year, both in terms of revenue and adjusted EBITDA. Despite small same-store revenue declines expected in Q4 for the reasons noted, our two-year CAGR continues to improve, and we expect that to improve again in Q4. We are very encouraged by this improving trend. As we march toward sustainable revenue growth, our two-year total revenue CAGR trend improved from down 12.8% in Q1 to down 12% in Q2 to down 10.1% in Q3, and we expect to be inside 10% in Q4. With respect to adjusted EBITDA, we expect margins to be higher in the fourth quarter than the 12.8% we posted in Q3, We expect margin to be in the range of 14.5% to 16%. As I mentioned before, we have repeatedly demonstrated our ability to modulate our cost structure in response to macroeconomic conditions. The upcoming fourth quarter and early 2022 will be no different. We consistently review our print portfolio and operations and optimize costs and strategies across a broad base of variable expenses. that support our print operations. With growing and recurring digital revenue streams and an improved capital structure with materially lower cost of debt, we are very confident in our ability to drive strong, stable, adjusted EBITDA and cash flow even during periods of economic disruptions. I'd now like to turn the call over to Doug to discuss the details of our financial performance in the third quarter and the refinancing efforts we just undertook in much more detail. Doug?