Gannett Co., Inc.

Greetings and welcome to the Gannett first 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 our host, Matthew Esposito, Investor Relations. You may begin, sir.

Thank you. Good morning, everyone, and thank you for joining our call today to discuss Gannett's first quarter 2023 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 file 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 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 US 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 prior written consent. With that, I would like to turn the call over to Mike Reed, Gannett's Chairman and CEO.

Thanks, Matt. Thanks everyone for joining our first quarter earnings call this morning. We are pleased to report that 2023 is off to a great start. Adjusted EBITDA was down only 2% in the first quarter compared to the prior year after being down 22% in the fourth quarter of 2022. And entering Q2, we believe our most challenging comparisons to prior year are behind us. Excluding the impact of foreign currency, adjusted EBITDA was actually flat to the prior year. Our same store revenue trends also improved sequentially in the first quarter, and we expect this trend to continue into the second quarter. Net income in the first quarter grew by $13.3 million from the prior year to $10.3 million. That compares to a net loss of $3 million in the first quarter of last year. As forecasted in our last earnings call, We expect to achieve year-over-year adjusted EBITDA growth in 2023 as we capture the benefits from our cost management initiatives, see improving revenue trends, and cycle more favorable comparisons. And the solid performance in the first quarter this year gives us the confidence to increase our 2023 full-year outlook with respect to adjusted EBITDA, net income, and free cash flow. To put it concisely, we believe that we are at an inflection point in the trajectory of our company. You'll hear this throughout the call this morning as we are moving nicely in the right direction with regard to most of our financial measures. We believe our results in the first quarter demonstrate the effectiveness of the actions we put in place in the later half of 2022 to better position the company for long-term success. We are operating more efficiently from these efforts, resulting in anticipated annualized savings of at least $220 million in 2023. And our organizational structure changes have established a solid foundation for anticipated continued growth in our highly recurring digital businesses. We also remain committed to our aggressive debt repayment strategy, evidenced by the $37 million of debt repayment in the first quarter. which reduced our leverage in the quarter as well and continues to improve our capital structure. As our digital revenue streams continue to grow, our cost structure comes down, and inflationary pressures ease, we believe we will be able to generate significant free cash flow and year-over-year adjusted EBITDA growth in 2023. With that, I'd like to discuss the major highlights of the first quarter. When we spoke last on our fourth quarter earnings call in February, we outlined a more balanced approach between increasing profitability and growing digital-only paid subscriptions. We will continue to pursue paid digital subscriptions growth. However, we have become more targeted in our subscription acquisition strategy with an increased focus on profitability and ARPU. Our digital-only subscription volume in the first quarter reflects this refined balance of volume versus profitability. In the first quarter, digital-only paid subscriptions increased 15% year over year and remained relatively unchanged from the fourth quarter. This was in line with our expectations as we anticipated lower net ads in the first quarter as we focus on improving product efficiency, and refocusing our marketing and pricing strategies. We anticipate this to continue in the second quarter. However, we do expect to see an increase in our subscription acquisition volumes as we move into Q3 and Q4 of this year. Even with our shift in focus, our digital only circulation revenues had strong growth of 20% year over year on a same store basis in the first quarter and we expect this growth to continue throughout the year. We believe that over the medium and long term, we have a significant opportunity to grow our digital-only subscriber base given our large organic audience. For context, during the first quarter, we had 186 million average monthly unique visitors. We believe our current digital offerings have a significant addressable market for us to continue to attack and we are making further investments in our infrastructure to improve our penetration of this very sizable market and to further expand the audiences that visit our platform. Investments in this area include content, content creation, product enhancement, product improvements, and importantly, data collection and analysis. Data remains the most significant driver for growth with regard to our content strategy, our product strategy, and our marketing and pricing strategies. Within this significant addressable market, we have an active and engaged set of consumers across our registered users and newsletter subscribers. In the US alone, at the end of the first quarter, we had 6.5 million registered users, and that grew 63% year over year. We also had 8.7 million newsletter subscribers growing 16% year over year, of which 6.2 million of those were not yet registered users. So that's nearly 13 million engaged consumers that are not yet subscribers who we are interacting with on a regular basis. And we expect these registered user numbers to continue to grow. Our goal is to build on those relationships, activate those users, and convert a portion of this highly engaged pool of users into subscribers. Now, switching gears a bit, one of our big growth opportunities is further monetization of this large audience and this content platform beyond subscriptions and beyond advertising. As previously announced, partnerships are a key focus of ours in order to leverage this growth opportunity. In addition to the partnerships previously announced in the sports gambling and financial services sectors, we have plans to establish additional partnerships covering big sectors such as home services and education. We anticipate these partnerships, as well as others in the pipeline, will allow us to expand our total addressable market and increase the overall monetization of our content platform. We'll have much more to come and much more to announce in this area of our business over the next few quarters. We are also excited about Kristen Roberts joining Gannett as our Chief Content Officer. Kristen brings over two decades of experience to the role, most recently as Chief Content Officer of McClatchy. In her previous roles, Kristen has architected audience growth and engineered strategic and tactical changes to create new business categories for content, creating the fuel and investment needed to sustain high-quality journalism. Kristen has a proven track record creating audience growth, and we are energized that her expertise will help drive our digital transformation and content strategy across USA Today, and our USA Today network. Her focus will be on leveraging data science to refine our content strategy that drives agile interactions with our consumers, ensuring our newsrooms deliver a dynamic digital model for journalism, and monetizing Gannett's breadth of content at both the national and local levels. All of these efforts are expected to lead to additional opportunities to further monetize and expand our significant audience. We are really thrilled to have Kristen on the team, and we look forward to her contributions toward driving our transformation. Now, turning to our digital marketing solutions business. We achieved core platform revenues of $111.4 million in the first quarter of 2023, increasing approximately 4% year over year. while maintaining strong adjusted EBITDA margins. ARPU and budget retention both grew year over year as well. We continue to expand our DMS product offerings through our premium experience, which contributed to our DMS registered users surpassing 100,000 in the first quarter. Our registered user count continues to show impressive growth as demonstrated by nearly doubling from 55,000 registered users at the end of the fourth quarter. These premium registered customers are in addition to our nearly 15,000 core platform customers. Our premium customer segment provides an interested and engaged base of businesses to introduce low ARPU, do it yourself, or buy online products and we expect to start to more meaningfully monetize this business as we move forward. We continue to remain very optimistic about the DMS business and its growth potential. First, this business has many similarities to a subscription or SAS model in that it generates high revenue and client retention. We have historically retained 95% of customer revenue, comparable to that of a SaaS or subscription product. There are over 30 million small businesses in the US, and those businesses are increasingly dependent on a digital strategy to grow their own business, and importantly, to generate and manage leads. We serve these businesses with our digital platform that helps our business partners establish and optimize their digital presence. We assist them with optimizing their marketing spend across an increasingly complex online digital ecosystem while optimizing their lead management process. Finally, given our longstanding involvement and knowledge of the communities in which we operate, we believe that we have a true advantage at successfully reaching the small and medium-sized business segment with a lower overall CAC. Let's talk about generative AI for a second, a very hot topic globally and in our industry. Generative AI, while still in the early stages in terms of development, shows tremendous potential to help us improve our business, but of course has risks as well. Gannett is committed to being a leader in using AI effectively and innovatively while maintaining unique, in-depth, and unparalleled content that only our journalists can produce. We continue to explore the possibilities of AI, but have already seen and implemented use cases here at Gannett. Looking at where we can benefit most, one area that stands out is commoditized content such as weather and event listings. By utilizing generative AI, we can effectively provide basic content to our audience while allowing our journalists to focus on creating more high-quality, non-commoditized content and value-added services. We can further leverage AI to improve the product experience in areas such as personalized content recommendations and curated page experiences. And AI can help improve and quicken business decisions in areas such as pricing strategies or balance of premium content on our pages. The applications of AI are vast, and by responsibly leveraging the technology, we can improve the customer experience and create efficiencies that allow our journalists to provide more rich local and national content, all the content that Gannett is known for. Now before turning the call over to Doug, I want to reiterate a few very important points. We had a solid first quarter with noticeable improvement in trends across a broad spectrum of our business. It was very encouraging and our confidence enables us to raise our guidance in several key financial categories. With declining debt and lower leverage, improving same-store revenue trends with a greater portion of revenue coming from digital and a meaningfully lower cost structure, we are well positioned to grow adjusted EBITDA and free cash flow significantly this year over the prior year. And we remain confident in our ability to reach our inflection point toward the end of next year. We believe we are well positioned to execute on our transformation while we de-lever the company, resulting in significant value enhancement for our shareholders. I'd like to now turn the call over to Doug to provide additional detail and color around our 2023 first quarter, as well as the details on the increase to our full year 2023 guidance. Doug?