Gannett Announces Third Quarter 2023 Results & Updated Full Year Outlook

• Operating Income of $34.9 million; Net Loss Attributable to Gannett of $2.6 million
• Adjusted EBITDA⁽¹⁾ of $59.5 million, up 15% Year-over-Year
• Cash Provided by Operating Activities of $20.6 million; Free Cash Flow⁽¹⁾ of $7.4 million
• Repaid $65.3 million in Debt; First Lien Net Leverage Below 2.0x

Gannett Co., Inc. ("Gannett", "we", "us", "our", or the "Company") (NYSE: GCI) today reported its financial results for the third quarter ended September 30, 2023.

"In the third quarter, we drove significant improvement to our bottom line, along with sustained growth in both Adjusted EBITDA⁽¹⁾ and total digital revenues. Furthermore, for the third consecutive quarter, we achieved a sequential improvement in same-store revenues⁽¹⁾. Our financial results for the third quarter reflect the continued progress on our strategy and our resilience in successfully navigating a challenging operating environment for our advertising clients. The positive momentum observed in our key financial metrics underscores our relentless effort to execute on our strategy, which we believe will result in long term sustainable revenue and profit growth, along with much lower debt levels," said Michael Reed, Gannett Chairman and Chief Executive Officer.

"We remain focused on improving profitability, improving revenue trends through digital revenue growth, and debt repayment. In the third quarter we repaid $65 million of debt, which combined with our Adjusted EBITDA⁽¹⁾ growth, reduced our first lien net leverage to below 2.0x. We also maintained a strong liquidity position with $109 million of cash at the end of the third quarter. Equally important, total digital revenues surpassed 40% of total revenues, growing 3% year-over-year on a same store basis⁽¹⁾. We expect this trend of digital revenue growth to continue into the fourth quarter of 2023."

"We continue to focus on and expand our partnerships to generate new digital and affiliate revenues. Our recent agreements with Jackpocket and Red Ventures bring the total number of executed partnerships to four, which we believe will allow us to expand our audience and create additional monetization opportunities."

"Our progress and results in 2023 serve as a testament to the strength of our strategy, prudent cost management, and our seasoned management team. We've shown resilience across various operating environments, and as a result, we are confident in our ability to navigate any near-term volatility and drive sustained, long-term value for our shareholders. As you may expect, no evolution from an analog business to a digital business is a straight line. We are making substantive progress on our evolution in key areas."

"We expect 2023 will be a good year by most measures that are critical to our strategy. Importantly, we expect to end the year with overall revenue trend improvement, growth in both total digital revenues and Adjusted EBITDA, significant free cash flow generation, meaningful debt reduction, and first lien net leverage below 2.0x. With our continued execution we expect to improve on all these areas in 2024 and beyond, and remain optimistic about creating sustainable growth and significant value for our shareholders."

Third Quarter 2023 Highlights:

• Total revenues of $652.9 million decreased 9.1% compared to the third quarter of 2022
  • Same store revenues⁽¹⁾ decreased 8.4% compared to the third quarter of 2022, as compared to a decrease of 8.6% in the second quarter of 2023
• Total digital revenues were $263.6 million, or 40.4% of total revenues, up 2.7% over the same period in the prior year on a same store basis⁽¹⁾
• Net loss attributable to Gannett of $2.6 million improved by $51.5 million versus the net loss attributable to Gannett of $54.1 million in the third quarter of 2022
  • Adjusted EBITDA⁽¹⁾ totaled $59.5 million, an increase of 14.7% compared to the third quarter of 2022
• Adjusted EBITDA margin⁽¹⁾ of 9.1% improved 190 basis points compared to the 7.2% Adjusted EBITDA margin⁽¹⁾ in the third quarter of 2022
• Cash provided by operating activities of $20.6 million
• Free cash flow⁽¹⁾ of $7.4 million

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Third Quarter 2023 Gannett Media Highlights:

• Digital-only subscription revenues of $40.0 million grew 15.9% year-over-year and increased 16.1% year-over-year on a same store basis⁽¹⁾
• Record high digital-only average revenue per user⁽²⁾ of $6.82 increased 14.0% year-over-year, reflecting the execution of our refined customer acquisition strategy with a heightened focus on profitability and lowering churn
• After minor sequential declines in the first and second quarter of 2023, digital-only paid subscriptions⁽²⁾ returned to growth in the third quarter of 2023, up 0.7% compared to the second quarter of 2023, and totaled 1.96 million digital-only paid subscriptions⁽²⁾
• 189 million average monthly unique visitors in the third quarter of 2023 with 138 million average monthly unique visitors coming from our USA TODAY NETWORK (based on September 2023 Comscore Media Metrix®) and 51 million average monthly unique visitors resulting from our U.K. digital properties⁽³⁾

Third Quarter 2023 Digital Marketing Solutions Highlights:

• Digital Marketing Solutions segment revenues of $121.9 million grew 1.6% year-over year and increased 1.9% year-over-year on a same store basis⁽¹⁾
  • Total core platform revenues⁽⁴⁾ were $120.8 million in the third quarter of 2023, up 1.8% compared to the same quarter in the prior year
  • Total core platform average customer count⁽²⁾ of 15.3 thousand in the third quarter of 2023 was unchanged sequentially, and down 3.2% compared to same period in the prior year
  • Core platform average revenue per user⁽²⁾ was $2,636, a 5.0% increase year-over-year
  • Customer budget retention⁽⁵⁾ was 95.4%, an increase of 20 basis points compared to the third quarter of 2022
• Net income attributable to Gannett within the segment was $5.9 million in the third quarter of 2023 and Net income attributable to Gannett margin within the segment was 4.8% in the third quarter of 2023 versus 4.5% in the same quarter of the prior year
• Adjusted EBITDA⁽¹⁾ within the segment was $13.6 million in the third quarter of 2023, decreasing 13.5% compared to the same period in the prior year. Adjusted EBITDA margin⁽¹⁾ within the segment decreased to 11.1% in the third quarter of 2023 versus 13.1% in the same quarter of the prior year

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Third Quarter 2023 Capital Structure Highlights:

• As of September 30, 2023, the Company had cash and cash equivalents of $109.2 million
• Total principal amount of debt outstanding as of September 30, 2023 was $1,154.5 million including $665.9 million in first lien debt, which resulted in a First Lien Net Leverage⁽⁶⁾ of 1.96x, a decline of 26.9% compared to 2.68x as of the end of fiscal 2022
• During the third quarter of 2023, the Company repaid $65.3 million of debt
  • The Company repurchased approximately $33.5 million of the first lien notes due November 1, 2026 (the "2026 Senior Notes") for approximately $29.5 million representing a discount to par
  • In connection with the repurchase of the 2026 Senior Notes, the Company received a waiver from certain lenders under its five-year senior secured term loan facility (the "New Senior Secured Term Loan") that reduced the scheduled amortization payment for the quarter ended September 30, 2023 payable to those lenders by $13.1 million
  • The Company repaid $31.8 million of its New Senior Secured Term Loan using the proceeds from real estate and other asset sales totaling $29.9 million and its quarterly amortization of $1.9 million
• Subsequent to September 30, 2023:
  • The Company repaid $6.2 million of its New Senior Secured Term Loan using the proceeds from real estate asset sales

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Financial Highlights

Business Outlook

The Company is adjusting its full year 2023 outlook with respect to revenues, net income (loss) attributable to Gannett, cash provided by operating activities, same store total revenues year-over-year, free cash flow, and Adjusted EBITDA. The Company is reiterating its full year 2023 outlook with respect to first lien net leverage.

Earnings Conference Call

Management will host a conference call on Thursday, November 2, 2023 at 8:30 A.M. Eastern Time. A copy of the earnings release will be posted to the Investor Relations section of Gannett’s website, investors.gannett.com. The conference call may be accessed by dialing 1-877-451-6152 (from within the U.S.) or 1-201-389-0879 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference "Gannett Third Quarter Earnings Call" or access code "13733336". A simultaneous webcast of the conference call will be available to the public on a listen-only basis at investors.gannett.com. Please allow extra time prior to the call to visit the website and download any necessary software required to listen to the internet broadcast. A telephonic replay of the conference call will also be available approximately two hours following the call’s completion through 11:59 P.M. Eastern Time on Thursday, November 16, 2023 by dialing 1-844-512-2921 (from within the U.S.) or 1-412-317-6671 (from outside of the U.S.); please reference access code "13733336".

About Gannett

Gannett Co., Inc. (NYSE: GCI) is a subscription-led and digitally-focused media and marketing solutions company committed to empowering communities to thrive. With an unmatched reach at the national and local level, Gannett touches the lives of millions with our Pulitzer Prize-winning content, consumer experiences and benefits, and advertiser products and services. Our current portfolio of media assets includes the USA TODAY NETWORK, which includes USA TODAY, and local media organizations in 43 states in the United States, and Newsquest, a wholly-owned subsidiary operating in the United Kingdom. We also own digital marketing services companies under the brand LocaliQ, which provide a cloud-based platform of products to enable small and medium-sized businesses to accomplish their marketing goals. In addition, our portfolio includes what we believe is the largest media-owned events business in the U.S., USA TODAY NETWORK Ventures. To connect with us, visit www.gannett.com.

Cautionary Statement Regarding Forward-Looking Statements

Certain items in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, our Business Outlook, statements regarding our business outlook, digital revenue performance and growth, growth in our Digital Marketing Solutions segment, growth of and demand for our digital-only subscriptions and digital marketing and advertising services, expectations regarding our free cash flows, revenues, net income (loss) attributable to Gannett, same-store revenues and cash flows, expectations regarding our long-term growth, expectations regarding growth in revenues and Adjusted EBITDA, our ability to navigate near-term volatility and create long-term stockholder value, our expectations, in terms of both amount and timing, with respect to debt repayment, our expected capital expenditures, expectations regarding real estate and other asset sales, our strategy, our ability to achieve our operating priorities, our long-term opportunities, economic impacts, our ability to navigate volatility, achieve our financial goals, optimize our capital structure and achieve optimal financial performance, our cost management programs, our cost structure and future revenue trends and our ability to influence trends. Words such as "expect(s)", believe(s)", "will", "outlook", "guidance", "estimate(s)", "project(s)" and similar expressions are intended to identify such forward-looking statements. These statements are based on management’s current expectations and beliefs and are subject to a number of risks and uncertainties. These and other risks and uncertainties could cause actual results to differ materially from those described in the forward-looking statements, many of which 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 press release. 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 most recent Annual Report on Form 10-K, our quarterly reports on Form 10-Q, and our 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. Except to the extent required by law, 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.

USE OF NON-GAAP INFORMATION

The Company uses non-GAAP financial performance and liquidity measures to supplement the financial information presented on a U.S. 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 U.S. GAAP measures and should be read together with financial information presented on a U.S. GAAP basis.

The Company defines its non-GAAP measures as follows:

• Adjusted EBITDA is a non-GAAP performance measure the Company believes offers a useful view of the overall and segment operations 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 the early extinguishment of debt, (4) Non-operating pension income, (5) Loss on convertible notes derivative, (6) Depreciation and amortization, (7) Integration and reorganization costs, (8) Other operating expenses, including third-party debt expenses and acquisition costs, (9) Asset impairments, (10) Goodwill and intangible impairments, (11) Gains or losses on the sale or disposal of assets, (12) Share-based compensation, and (13) certain other non-recurring charges. The most directly comparable U.S. GAAP measure is Net income (loss) attributable to Gannett.

• Adjusted EBITDA margin is a non-GAAP performance measure the Company believes offers a useful view of the overall and segment operations of our business. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by total Operating revenues.

• Adjusted Net income (loss) attributable to Gannett is a non-GAAP performance measure the Company believes offers a useful view of the overall operations of our business and is useful to analysts and investors in evaluating the results of operations and operational trends. The Company defines Adjusted Net income (loss) attributable to Gannett before (1) Gains or losses on the early extinguishment of debt, (2) Loss on convertible notes derivative, (3) Integration and reorganization costs, (4) Other operating expenses, including third-party debt expenses and acquisition costs, (5) Asset impairments, (6) Goodwill and intangibles impairments, (7) Gains or losses on the sale or disposal of assets, (8) certain other non-recurring charges, and (9) the tax impact of the above items.

• Free cash flow is a non-GAAP liquidity measure that adjusts our reported U.S. GAAP results for items we believe are critical to the ongoing success of our business. The Company defines Free cash flow as Cash provided by (used for) operating activities as reported on the Consolidated 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 stockholders. The most directly comparable U.S. GAAP financial measure is Cash provided by (used for) operating activities.

• Same store revenues is a non-GAAP performance measure based on GAAP revenues for Gannett for the current period, excluding (1) acquired revenues (2) currency impact, and (3) exited operations.

Management’s Use of Non-GAAP Measures

Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net income (loss) attributable to Gannett, Free cash flow and Same store revenues are not measurements of financial performance under U.S. GAAP and should not be considered in isolation or as an alternative to income (loss) from operations, net income (loss), margin, revenues, cash flow provided by (used for) operating activities, or any other measure of performance or liquidity derived in accordance with U.S. GAAP. We believe these non-GAAP financial 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.

We use Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net income (loss) attributable to Gannett, Free cash flow and Same store revenues as measures 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.

Limitations of Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net income (loss) attributable to Gannett, Free cash flow and Same store revenues

Each of our non-GAAP measures have limitations as analytical tools. They should not be viewed in isolation or as a substitute for U.S. GAAP measures of earnings or cash flows. Material limitations in making the adjustments to our earnings to calculate Adjusted EBITDA and Adjusted Net income (loss) attributable to Gannett using these non-GAAP financial measures as compared to U.S. GAAP net income (loss) include: the cash portion of interest / financing expense, income tax (benefit) provision, and charges related to asset impairments, which may significantly affect our financial results.

Management believes these items are important in evaluating our performance, results of operations, and financial position. We use non-GAAP financial measures to supplement our U.S. GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.

Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net income (loss) attributable to Gannett, Free cash flow and Same store revenues are not alternatives to net income, margin, income from operations, cash flows provided by (used for) operations or revenues as calculated and presented in accordance with U.S. GAAP. As such, they should not be considered or relied upon as substitutes or alternatives for any such U.S. GAAP financial measure. We strongly urge you to review the reconciliations of Net income (loss) attributable to Gannett to Adjusted EBITDA, Adjusted EBITDA margin, Net income (loss) attributable to Gannett to Adjusted Net income (loss) attributable to Gannett, Cash provided by (used for) operations to Free cash flow and Revenues to Same Store revenues along with our Consolidated financial statements included elsewhere in this report. We also strongly urge you not to rely on any single financial measure to evaluate our business. In addition, because Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net income (loss) attributable to Gannett, Free cash flow and Same store revenues are not measures of financial performance under U.S. GAAP and are susceptible to varying calculations, the Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net income (loss) attributable to Gannett, Free cash flow and Same store revenues measures as presented in this report may differ from and may not be comparable to similarly titled measures used by other companies.

Non-GAAP Outlook

Our 2023 outlook included in this release includes certain non-GAAP measures, including Same store revenues, Adjusted EBITDA and Free cash flow. The outlook for these items does not factor in the impact of any further acquisitions or dispositions within 2023. We have provided these non-GAAP measures for future guidance for the same reasons that were outlined above for historical non-GAAP measures.

We have not fully reconciled non-GAAP forward-looking Same store revenues, Adjusted EBITDA and Free cash flow to its most directly comparable GAAP measure because the Company is unable to predict with reasonable certainty those items that may affect such measures calculated and presented in accordance with GAAP without unreasonable effort. These reconciling items are uncertain, depend on various factors and could significantly impact, either individually or in the aggregate, our comparable GAAP measures. For forward-looking Adjusted EBITDA and Same store revenues, the reconciliation is unavailable because it would include forward-looking financial statements in accordance with GAAP that are unavailable without unreasonable effort. For these reasons, we use a projected range of the aggregate amount of certain items in order to calculate our projected non-GAAP Adjusted EBITDA outlook (see Table 11 below), our projected non-GAAP Same Store revenues outlook (see Table 12 below) as well as our projected non-GAAP Free cash flow outlook (see Table 13 below). Accordingly, we are unable to provide a full reconciliation of these non-GAAP measures used in our outlook without unreasonable effort as certain information necessary to calculate such measures on a GAAP basis is unavailable, dependent on future events outside of our control and cannot be predicted without unreasonable efforts by the Company.

KEY PERFORMANCE INDICATORS

A key performance indicator ("KPI") is generally defined as a quantifiable measurement or metric used to gauge performance, specifically to help determine strategic, financial, and operational achievements, especially compared to those of similar businesses.

We define Digital-only average revenue per user ("ARPU") as digital-only subscription average monthly revenues divided by the average digital-only paid subscriptions within the respective period. We define Core platform ARPU as core platform average monthly revenues divided by average monthly customer count within the period. We define Core platform revenues as revenue derived from customers utilizing our proprietary digital marketing services platform that are sold by either our direct or local market teams.

Management believes Digital-only ARPU, Core platform ARPU, digital-only paid subscriptions, and core platform average customer count are KPIs that offer useful information in understanding consumer behavior, trends in our business, and our overall operating results. Management utilizes these KPIs to track and analyze trends across our segments.

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