Gannett Co., Inc.

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 and then 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. You may begin.

Matthew Esposito Thank you. Good morning, everyone. and thank you for joining our call today to discuss Gannett's second quarter 2023 financial results. Presenting on today's call will be Mike Reed, Chairman and Chief Executive Officer, Doug Horn, Chief Financial Officer, Kristen Roberts, Gannett Media Chief Content Officer, and Chris Cho, President of Digital Marketing Solutions. 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 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 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. Good morning to everyone, and thanks for joining us on our Q2 earnings call this morning. We are pleased to report a strong quarter of improving financial results for Gannett. In Q2, adjusted EBITDA reached 71.2 million and grew by 40% year over year. We also generated $38 million of free cash flow in the quarter, reflecting a significant increase of approximately 190% compared to Q2 of last year. We believe our strategic initiatives continue to play a crucial role in driving sequential improvements in same-store revenue trends. As a result, our total digital revenues, which returned to growth in Q2, now account for nearly 40% of total revenue, representing an all-time high. Our cost controls remain strong, and we continue to work diligently on our optimization efforts. All of these items, adjusted EBITDA growth, sustained improvement in same-store revenue trends, expansion of digital revenue, and significant free cash flow generation are expected to continue in the second half of the year. And as a result, we are again raising our guidance for the fiscal year 2023. Importantly, on total digital revenues, we returned to growth in the second quarter. And importantly on that, with June specifically being our best month in the quarter. We further expect digital revenue growth trend improvement in the third quarter. We also repaid $15 million of debt in the quarter, which combined with our adjusted EBITDA growth, has materially reduced our first lien net leverage to 2.26. And we expect this figure to fall well below two times by the end of 2023. We believe we are making great progress on our strategy and our results signify a notable turning point in our business trajectory. Consistent with what you've heard from us over the last few quarters, we continue to implement necessary actions to reduce our cost structure and to drive our evolution to a customer-first, digital-led business powered by data and technology. We continue to build on the strong foundation we laid over the past year. Our focus on profitability, digital revenue growth, and strengthening our balance sheet persists, and that focus is evident in our results. With that, I'd like to discuss the positive results achieved in the second quarter. In Q2, our digital-only subscription revenues showed continued growth, increasing by 17% year-over-year on a same-store basis, and they grew sequentially 6% over the previous quarter. Our Q2 digital-only subscription volumes, which grew 5% year-over-year, were in line with our expectations and reflect the refined acquisition strategy with a heightened focus on profitability and digital-only ARPU. As a result, in Q2, we achieved our highest ARPU level in two years. We believe we have continued upside with regard to ARPU and expect ongoing digital-only subscription revenue growth as we continue to strategically focus on a smart customer acquisition content and pricing strategy. Customer churn remains below industry standards, And we continue to believe we have a significant opportunity to grow digital-only subscriptions in the future as we expand our content and product offerings. We continue to focus on monetizing our large organic audience of 185 million average monthly unique visitors, of which 134 million of those come from our USA Today network as measured by Comscore. and 51 million come from our UK digital properties. In addition to our digital subscriptions, we are hyper-focused on the overall monetization of our user base with a bias towards recurring revenue. In fact, we believe the revenue opportunity is much bigger through embracing and monetizing all the visitors to our platform beyond digital subscriptions. This monetization comes from leveraging affiliate and content partnerships, digital advertisers, expanding our product offerings, and capitalizing on our sports verticals. We believe these strategic initiatives coupled with our unwavering commitment to delivering relevant and essential content will allow us to better optimize all of our audience and improve our overall digital revenue growth. We are also excited to share that our partnerships in the gambling and financial services sectors with Gambling.com and Forbes Marketplace platforms are pacing ahead of expectations in their first year. The performance of these partnerships gives us great confidence in the potential growth from these relationships, as well as other partnership opportunities that may arise, to grow into material revenue in cash flow streams for Gannett. As previously mentioned, we are actively exploring additional partnerships in major sectors such as home services and education, and we expect more partnership announcements to come over the next year. We believe this strategic expansion will enable us to reach a broader audience, increase our digital revenues, and enhance the overall monetization of our platform. We believe our overall monetization strategy is rooted in the highly valued and unique content the USA Today network produces. As we move forward, we believe content will continue to be the growth engine for Gannett Media. We are so excited that Kristen Roberts joined our leadership team as chief content officer, and Kristen is already bolstering our efforts to drive that growth. Kristen and her team are executing on her strategy to rapidly expand our audience, amplify our journalism, and drive diversified revenue streams. The content team is diligently focused on creating more captivating and compelling content that resonates with our audience, which we expect will result in a significant expansion of our viewership and page views. Even in the initial stages of this strategy, we are already seeing significantly improved results. For example, various initiatives implemented in June