Gannett Co., Inc.

Greetings and welcome to the Gannett Fourth Quarter Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Matthew Esposito. Thank you, Mr. Esposito. You may begin.

Thank you. Good morning, everyone, and thank you for joining our call today to discuss Gannett's fourth quarter 2022 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 following looking statements made during this call. In addition, we will be discussing non-GAAP financial information during the call, including same store revenues, free cash flow, adjusted EBITDA, adjusted EBITDA margin, and adjusted net income attributable to Gannett. You can find reconciliations of our non-GAAP measures to the most comparable U.S. GAAP measures in the earning 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 prior written consent. With that, I would like to turn the call over to Mike Reed and that's Chairman and CEO.

Thanks, Matt. Good morning, everyone. Thanks for taking the time this morning to join us on our call. We are entering 2023 with a lot of optimism, and you'll hear that throughout the call today. Adjusted EBITDA in the fourth quarter increased substantially over the third quarter, and we believe sets us up for adjusted EBITDA growth in 2023 of approximately 10% to 15%. year over year. We'll walk through the details later, but we expect significant free cash flow growth in 2023 as well. We're seeing improving revenue trends early in Q1, and we've announced a few exciting new partnerships that drive immediate revenue opportunities that are also very high margin deals. We've paid down significant debt in 2022, And we expect to repay at least another $120 million of debt in 2023. And we expect at the end of 2023, our first lien net debt will be less than two times EBITDA. And our digital businesses are showing consistent growth. Of course, we're happy to turn the page on 2022. It was a tough year. But we are excited about the momentum that we are carrying into 2023. 2022 was a year of unanticipated volatility and, of course, high inflation. Despite these challenges, we made great strides with the business. We focused on what we could control, providing unique and relevant content to our readers, helping local businesses find, convert, and keep customers, as well as taking the necessary actions to significantly lower our cost structure. As a result, fourth quarter adjusted EBITDA grew nearly 40 million over the third quarter. Digital-only subscription revenue grew nearly 30% year over year, and we saw new highs across several key metrics in our digital marketing solutions business. We are focused on the investments needed to support the growth areas of our business and still believe we will reach the revenue inflection point in 2024 and create long-term sustainable growth from there. We also continued to repay debt. As I mentioned, we repaid $147 million of debt in 2022, and we've already paid another $22 million of debt so far in 2023. Since the acquisition of Gannett back in November of 2019, we have repaid over one-third of that debt while also significantly lowering our cost of capital. For the full year, we generated $2.9 billion in total operating revenues, and approximately 35% of that revenue came from digital sources, and that grew 1.8% year over year on the same store basis. We are very proud to have grown digital revenues despite the continued slowdown in the digital advertising marketplace, and many of our PeerPlay digital peers have actually witnessed revenue declines. This really speaks to the importance of revenue diversification in the digital ecosystem, particularly in recurring revenue streams, such as our digital-only subscription revenue and our digital marketing solutions business. Turning to 2023, we believe we are well positioned to grow adjusted EBITDA and free cash flow, as well as improve our revenue trends. We created a lower and more variable cost base in the second half of 2022, which we expect will translate into annual savings of at least $220 million in 2023. Our cash obligations tied to items such as pension and reorganization costs are expected to decrease by over $60 million year over year and should provide a substantial uplift to our free cash flow. Our digital businesses are expected to continue to perform well and represent valuable recurring revenue streams. In addition, we are creating incremental revenue streams through partnerships with top-tier organizations. We are optimizing our local content, and we believe we are positioned to better monetize our sports verticals. All of these things are building blocks for growth, for the growth we expect in 2023. As you may remember, the macro pressures that we experienced for much of 2022 did not begin until the second quarter, which will mean the first quarter of 23 will have tougher revenue comparisons to the prior year. However, starting in the second quarter of this year, we expect to benefit from more favorable year-over-year comparisons, which combined with the anticipated growth of our digital businesses and the flow through of our cost management program is expected to result in full year 2023 Adjusted EBITDA growth, I mentioned, of about 10% to 15%, and pre-cash flow growth approaching nearly $100 million. Doug will go into more detail later on the call on our full year 2023 guidance and how we believe the foundation we built in 22 is expected to set us up for success this year. We are excited to build on the momentum of our execution, fourth quarter performance, and improved capital structure. We have a clear vision and strategy and I'd like to spend a few minutes outlining it for you. We made tremendous progress on our strategic priorities last year. Digital-only subscriptions grew to 2.03 million during the fourth quarter, and since the second quarter of 2022, paid digital-only subscriptions have outnumbered our full-access print subscriptions And in the back half of 2022, we have grown our overall total number of subscriptions on a combined basis. The growth of our overall paid consumer base across print and digital marks a meaningful inflection point in our consumer business. And we believe this will be a key component in driving total revenue growth by the end of 2024. In Q4, traditionally our lowest quarter for net new digital only paid subscribers, we added 47,000 new subscribers. And we added approximately 400,000 net new digital subscribers for the full year of 2022. During the fourth quarter, we continued to grow our total registered users and newsletter subscribers as well. We ended the quarter with 5.9 million registered users, and 8.5 million newsletter subscribers, which represents meaningful growth of 60% and 25%, respectively, year over year. Both continue to be important customer acquisition and subscriber engagement channels for us with low costs of acquisition. While growing digital-only subscriptions remains one of our top priorities, we have adopted a more balanced approach between increasing profitability and growing subscribers. We will continue to pursue subscriptions growth, but we will be more targeted in our acquisition strategy. During 2022, we experimented with several offer strategies and rate structures. As a result, we are learning which offers perform well in both the near term and which are expected to perform well in the long term. Based on all of the learnings of the various tests, we intend to focus our subscription acquisition efforts on acquiring highly engaged long-term, and more profitable subscribers. During the first half of 2023, we will be focusing our efforts on consumer acquisition and retention improvement. We will be modulating back our paid acquisition strategy during this time as well and expect to lower our marketing spend while our product enhancements begin to take effect. Having said that, We still expect to see significant growth in digital-only subscriptions and revenue during 2023. We have learned an incredible amount from our first year of USA Today as a subscription product. At the start of its launch, we prioritized subscriber volume growth over advertising monetization. Given our learnings, we have refined our strategy to be more balanced, which we believe will lead to improved overall USA Today monetization and profitability versus purely subscriber growth. The new balanced approach will bring a larger audience into our ecosystem, and we will be able to monetize these visitors not only through digital advertising but also through strategic partnerships. As a result, we expect lower subscription acquisition at USA Today but an overall increase in revenue and profitability. Local markets are expected to continue to drive most of our subscription growth and already account for over 90% of our current subscribers. And we believe we still have significant opportunity in these local communities since the local subscribers we have today only represent approximately 3% of our digital local audience as of the end of 2022. Turning back to the USA Today for a minute, we plan to balance monetization across the platforms. With USA Today's clear, concise, and credible approach to journalism, we believe USA Today has the potential to be the top digital news and content destination in the United States. Given its large organic audience, delivering over half of the 133 million unique visitors to our digital platform on average each month in the U.S., we will use USA Today more extensively to guide people into our ecosystem help create bundles, serve as product extensions for games and sports, and create a subscription-based value proposition for our local offerings. In addition to the success of our digital subscription efforts, our digital marketing solutions business again drove impressive results in Q4. We achieved core platform revenues of $119.7 million in the fourth quarter of 2022. increasing 8.7% year-over-year, and we continue to maintain double-digit adjusted EBITDA margins. Customer count, ARPU, and budget retention all grew year-over-year. The majority of our revenue in the DMS segment continues to be recurring and structured on evergreen contracts. With monthly customer budget retention rates of 95%, We continue to expand our DMS product offerings through our freemium channel to help SMBs have greater control over how they interact with their customers, including our recently launched scheduling tools, which makes booking appointments simple and enables businesses to accept online appointments 24-7. Since we launched our freemium channel in 2021, we have seen significant growth in the number of registered users thanks to these and other initiatives. As many of you are aware, we launched the channel in 21, and as we ended 2021, we had less than 1,000 registered users. We're ending 2022 with 55,000 registered users, and that number more than tripled from Q3 to Q4. So you can see the growth trajectory in our freemium channel. Our freemium customer business is an important lever for future growth, as these are businesses that have registered with us and are engaged with our platform and our products, and are a growth channel outside our traditional lead gen channels. Moving forward, we expect the premium capabilities throughout 2023 in connection with do-it-yourself and buy online products that will deliver a quality marketing solution for lower tier marketing budgets and a lower cost of sale and service. We do expect to continue to expand these capabilities in 23. Our 2022 financial results reflect an important year for our DMS business as it represented the most profitable year to date in the segment's history. So despite advertising budgets being tightened across the country, we believe these results demonstrate that our efficient, data-driven solutions with in-depth analytics and attributions yielded tangible results for our customers. We are proud of the progress we made in 2022 and believe our dedication to helping local businesses unlock their potential makes our LocalIQ digital marketing platform an indispensable partner to thousands of SMBs. I'm incredibly grateful to Chris Barton, the president of LocalIQ, for his leadership driving this platform and developing an extremely talented team of leaders. While Chris will be leaving Gannett next month to pursue his passion of becoming a CEO, we expect his positive impact will continue to fuel the team and business. Under Chris's guidance, we have achieved significant milestones, and he has helped further position Local IQ as a competitive leader in the industry. We have begun an executive search for Chris's replacement, but his leadership team, including our Chief Revenue Officer and Chief Customer Officer, have well over 30 years of combined experience in the marketing solutions business. We remain well positioned with a talented and experienced leadership team in place, and we remain confident in our ability to execute on our strategic plans in 2023 and beyond. We've been on an incredible journey to evolve Local IQ's brand identity and positioning to showcase the commitment to helping customers transform their businesses through the power of digital marketing. Last year, we shared the beginning of the brand evolution with our first brand advertising campaign, highlighting businesses who benefited from the Local IQ platform. And earlier this month, we launched a new website which unifies the Local IQ brand promise and highlights the digital solutions that help businesses seize their full potential using LocalIQ's advanced digital platform. On our new LocalIQ website, you can find rebuilt product pages that more clearly explain the features and benefits of each of our solutions and how they work to help businesses reach their specific marketing goals, along with more information about how the LocalIQ platform uses proprietary marketing technology, data, and expertise to help its customers. We have also been laser focused on increasing the overall monetization of our content platform. And a key piece of this strategy is growth through new partnerships that bring in both new audience and revenue streams. The strength of the USA Today brand and audience creates a unique opportunity to work with top tier organizations across subscriptions, affiliate, and content partnerships. We are very excited about the two new partnerships we have recently launched in 2023 with Gambling.com and Forbes Marketplace Platforms. Both of these will allow us to provide additional sports and consumer financial services content to our readers while also allowing us to immediately monetize our large organic audience of 133 million uniques. These affiliate partnerships such as these provide great content to our audience and are expected to be immediately accretive to our total revenue and free cash flow. We intend to roll out additional partnerships in the future where we can leverage our platform to create additional growth in audience and revenue, and you'll hear more on these in the quarters to come. Finally, as we enter 2023, we are renewing our commitment to our local operations and our local communities. Gannett serves over 200 local communities, and our commitment is to build community connections by helping advertisers and readers stay informed, connected, and engaged. We believe by leaning further into our local connections, we will not only better serve our audiences, but we will also drive better operating performance. We are confident in our belief that we have entered 2023 with great plans in place. We believe our digital-only subscription revenue and digital marketing solution revenue are poised for significant growth. Our focus on creating a lower and more variable cost base going forward combined with sustainable growth in our core digital revenue streams positions us well for our anticipated adjusted EBITDA growth and free cash flow growth. With anticipated improving free cash flow and a strong balance sheet, We believe we are well positioned to navigate any near-term headwinds that may persist and continue our evolution to a customer-first, subscription-led business powered by data and content. I'm now going to turn the call over to Doug to provide additional detail and color around 2022 fourth quarter and our full year 2023 guidance. Doug?