USA TODAY Co., Inc.: Form 10-Q for the period ended Sep 30, 2023

The following discussion and analysis of our financial condition and results of operations and quantitative and qualitative disclosures should be read in conjunction with our unaudited condensed consolidated financial statements and related notes and with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission. Management's Discussion and Analysis of Financial Condition and Results of Operations contains a number of forward-looking statements that reflect our plans, estimates, and beliefs, all of which are based on our current expectations and could be affected by certain uncertainties, risks, and other factors described under Cautionary Note Regarding Forward-Looking Statements, Risk Factors, and elsewhere throughout this Quarterly Report, as well as the factors described in our Annual Report on Form 10-K for the year ended December 31, 2022, and subsequent periodic reports filed with the Securities and Exchange Commission, particularly under "Risk Factors." Our actual results could differ materially from those discussed in the forward-looking statements.

OVERVIEW

We are a subscription-led and digitally-focused media and marketing solutions company committed to empowering communities to thrive. We operate a scalable, data-driven media platform that aligns with consumer and digital marketing trends. We aim to be the premier source for clarity, connections, and solutions within our communities. Our mission is to provide unbiased, unique local and national content and unrivaled marketing solutions to the communities we serve. We seek to drive audience growth and engagement by delivering valuable content experiences to our consumers, while offering the unique products and marketing expertise our advertisers desire. Our strategy prioritizes the growth of highly recurring digital businesses, while maximizing the lifetime value of our legacy print business, and we expect the execution of this strategy to enable us to continue our evolution to a digitally-focused content platform.

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 (the "U.S."), and Newsquest, a wholly-owned subsidiary operating in the United Kingdom (the "U.K."). 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 ("SMBs") 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.

Through USA TODAY, our network of local properties, and Newsquest, we deliver high-quality, trusted content with a commitment to balanced, unbiased journalism, where and when consumers want to engage with it on virtually any device or platform. Additionally, we have strong relationships with hundreds of thousands of local and national businesses in both our U.S. and U.K. markets due to our large local and national sales forces and a robust advertising and digital marketing solutions product suite. We report in two segments: Gannett Media and Digital Marketing Solutions ("DMS"). We also have a Corporate and other category that includes activities not directly attributable to a specific reportable segment and includes broad corporate functions, such as legal, human resources, accounting, analytics, finance and marketing, as well as other general business costs. A full description of our reportable segments is included in Note 12 — Segment reporting in the notes to the condensed consolidated financial statements.

Business Trends

We have considered several industry trends when assessing our business strategy:

• Print advertising and circulation revenues continue to decline as our audience increasingly moves to digital platforms. We seek to optimize our print operations to efficiently manage for the declining print audience. We are focused on converting a growing digitally-focused audience into paid digital-only subscribers to our publications.
• Inflationary prices across a number of categories such as labor, fuel, delivery costs, newsprint, ink, and printing plates have had and are expected to continue to have a negative impact on our overall cost structure year over year. In the short term, we believe the impact of inflationary pressure peaked in 2022.
• Our revenues and results of operations have been and can be significantly influenced by general macroeconomic conditions, including but not limited to, interest rates, inflation, housing demand, employment levels, and consumer confidence. We believe that these factors are contributing to uncertainty in SMBs, which is resulting in lower levels of advertising performance and reduced spending in categories such as home services.

Recent Developments

Debt Repurchase

During the three and nine months ended September 30, 2023, we entered into privately negotiated agreements with certain holders of our $400 million aggregate principal amount of 6.00% first lien notes due November 1, 2026 (the "2026 Senior Notes"), and repurchased $33.5 million and $39.6 million, respectively, of principal of our outstanding 2026 Senior Notes at a discount to par value. As a result of the repurchases of our 2026 Senior Notes, for the three and nine months ended September 30, 2023, we recognized net gains on the early extinguishment of debt of approximately $3.3 million and $4.2 million, respectively, which included the write-off of unamortized original issue discount and deferred financing costs. In addition, for the three and nine months ended September 30, 2023, we repaid approximately $31.7 million and $78.1 million, respectively, of our five-year senior secured term loan facility in an original aggregate principal amount of $516.0 million (the "Senior Secured Term Loan," formerly referred to as the New Senior Secured Term Loan), including quarterly amortization payments. As a result of repayments related to our Senior Secured Term Loan, for the three and nine months ended September 30, 2023, we recognized net losses on the early extinguishment of debt of $0.6 million and $1.0 million, respectively, which included the write-off of unamortized original issue discount and deferred financing costs. In September 2023, we received a waiver from certain lenders of our Senior Secured Term Loan that reduced the scheduled quarterly amortization payment payable to those lenders by $13.1 million for the three months ended September 30, 2023, which was the amount we used to repurchase a portion of our 2026 Senior Notes.

Certain Matters Affecting Comparability

The following items affect period-over-period comparisons and will continue to affect period-over-period comparisons for future results:

Gain on sale or disposal of assets, net

For the three and nine months ended September 30, 2023, we recognized a net gain on the sale of assets of $23.3 million and $40.9 million, respectively, primarily related to net gains of $23.5 million and $39.7 million, respectively, at the Gannett Media segment due to the sales of domestic production facilities as part of our plan to monetize non-core assets, and for the nine months ended September 30, 2023, the gain on the sale of assets also included the sale of intellectual property of $1.4 million at our Corporate and other category. For the three and nine months ended September 30, 2022, we recognized a net gain on the sale of assets of $7.2 million and $9.6 million, respectively, primarily at the Gannett Media segment mainly related to the sales of domestic production facilities as part of our plan to monetize non-core assets.

Integration and reorganization costs

For the three and nine months ended September 30, 2023, we incurred Integration and reorganization costs, including $1.5 million and $14.3 million, respectively, related to severance activities and $1.9 million and $10.6 million, respectively, related to other costs, including costs for consolidating operations, primarily related to systems implementation and the outsourcing of corporate functions. In addition, for the three and nine months ended September 30, 2023, other costs were offset by the reversal of withdrawal liabilities related to multiemployer pension plans of $4.3 million and $6.4 million, respectively, based on settlement of the withdrawal liability. For the three and nine months ended September 30, 2022, we incurred Integration and reorganization costs of $33.3 million and $60.5 million, respectively. Of the total costs incurred, $15.7 million and $32.7 million, respectively, were related to severance activities and $17.6 million and $27.7 million, respectively, were related to other costs, including a withdrawal liability of $8.6 million recognized in both the three and nine months ended September 30, 2022, which was expensed as a result of ceasing contributions to a multiemployer pension plan, costs related to consolidating operations, primarily related to systems implementation and the outsourcing of corporate functions as well as facilities consolidation expenses associated with exiting a lease.

Foreign currency

Our U.K. media operations are conducted through our Newsquest subsidiary. In addition, we have foreign operations in regions such as Canada, Australia, New Zealand and India. Earnings from operations in foreign regions are translated into U.S. dollars at average exchange rates prevailing during the period, and assets and liabilities are translated at exchange rates in effect at the balance sheet date. Currency translation fluctuations may impact revenue, expense, and operating income results for our international operations. Foreign currency headwinds have increased significantly as the U.S. dollar strengthened in relation to many foreign currencies, including the U.K. pound sterling. Foreign currency exchange rate fluctuations negatively impacted our revenues and profitability during the three and nine months ended September 30, 2023, and may continue to negatively impact our financial results in the future.

Strategy

Gannett is committed to a subscription-led business strategy that drives audience growth and engagement by delivering valuable content experiences to our consumers, while offering the unique products and marketing expertise our advertisers desire. The execution of this strategy is expected to allow us to continue our evolution from a more traditional print media business to a digitally focused content creator and marketing solutions platform.

We intend to create stockholder value through a variety of methods, including organic growth driven by our consumer and business-to-business strategies, as well as through paying down debt. The five key operating pillars of our strategy include:

Driving digital subscriptions growth

As consumers have become increasingly interested in digital consumption of news, a key element to our consumer strategy is growing our paid digital-only subscriber base. We are able to deliver our unique local and national content to our customers across multiple print and digital platforms, and expect the addressable market for our digital platforms to continue to grow. In service of that, we expect to develop and launch additional digital subscription offerings tailored to specific topics and audiences in the future. We are focused on growing our digital-only subscriber base in order to maximize overall return and, as a result, the volume of new digital-only subscriptions is expected to fluctuate versus historical trends.

Driving Digital Marketing Solutions growth by engaging more customers in recurring monthly revenue offerings

We are now of significant digital scale, with unique reach at both the national and local community levels. We expect to leverage our integrated sales structure and lead generation strategy to continue to aggressively expand our digital marketing services business into our local markets, both domestically and internationally. Given our extensive customer base and volume of digital campaigns, we plan to use data and insights to inform new and dynamic advertising products, such as our "freemium" offering to complement our sales structures, which we believe will deliver superior results.

Optimizing our traditional businesses across print and advertising

We plan to continue to drive the profitability and lifetime value of our traditional operations by focusing on product and property-level performance across our portfolio. We expect the continued evolution of the core print product, but remain committed to providing strong customer service and delivering high quality products for our print subscribers. Advertising, both print and digital, continues to offer a compelling branding opportunity across our network due to our scale and unique reach at both the national and local community levels.

Prioritize investments in growth businesses

By leveraging our unique footprint, trusted brands, and media reach, we identify, experiment with, and invest in potential growth businesses. Some examples of our growth businesses include our community events and promotions subsidiary, USA TODAY NETWORK Ventures, our consumer product review site, Reviewed, and our sports betting presence, which we have expanded through strategic partnerships. We expect to engage in future partnerships and expanded product offerings that can further monetize our significant audience and unique footprint.

Building on our environmental, social and governance focus to foster culture and community both internally and externally

We will continue our environmental, social and governance ("ESG") journey that is rooted in our strategic mission to empower our communities to thrive and putting our customers at the center of everything we do. We support that mission with clearly defined values that aim to influence not only what we do, but how we do it, with one of the core pillars focusing on our ongoing commitments to inclusion, diversity, and equity ("ID&E"). From our internal efforts around recruiting, development and retention, to our external efforts to provide high quality products and excellent customer service, we believe our strategic focus will benefit from our continued commitment to building upon our culture and community values.

Macroeconomic Environment

The U.S. and global economies and markets experienced increased volatility in 2022, and are expected to continue to experience volatility, due to factors, including higher inflation, increased interest rates, banking volatility, and other geopolitical events that are anticipated to continue during the remainder of 2023. Uncertain economic conditions adversely impacted our advertising revenues, and the occurrence of these factors has resulted in a reduction in demand for our print and digital advertising, reduced the rates for our advertising, and caused marketers to shift, reduce or stop spend. The impact of the uncertain macroeconomic conditions has not changed substantially since the initial volatility that began in the second quarter of 2022.

These challenging conditions, especially higher inflation and interest rates, have negatively impacted the consumer and resulted in increased price sensitivity from our print and paid digital-only subscribers. Consumer purchases of discretionary items, including our products and services, generally decline during periods of economic uncertainty, when disposable income is reduced or when there is a reduction in consumer confidence. Increased consumer price sensitivity, along with delivery challenges associated with labor shortages, and ongoing consumer sentiment negatively impacted print circulation volumes as compared to the same periods in the prior year. In addition, SMBs are facing a more complex marketing environment and need to create digital presence to capture audience online. Advertisers are increasingly looking for more effective ways to analyze their return on marketing investments and are seeking solutions that offer greater attribution. We offer a broad suite of digital marketing services products that offer a single, unified solution to meet their digital marketing needs.

As a result of the macroeconomic volatility, we experienced rising costs, including costs associated with labor, newsprint, delivery, ink, printing plates, fuel, and utilities. However, we believe that the inflationary pressures peaked in 2022 and we are beginning to realize and expect we may continue to realize lower prices related to newsprint costs. We are also exposed to potential increases in interest rates associated with our Senior Secured Term Loan, which as of September 30, 2023 and December 31, 2022, accounted for approximately 31% and 34% of our outstanding debt, respectively, as well as fluctuations in foreign currency exchange rates, primarily related to our operations in the U.K. We expect continued uncertainty and volatility in the U.S. and global economies which will continue to impact our business.

Recent U.S. and International Tax Legislation

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the "Inflation Reduction Act"), which includes, among other provisions, changes to the U.S. corporate income tax system, including a 15% minimum tax based on "average adjusted financial statement income" exceeding $1 billion for any three consecutive years preceding the tax year and a 1% excise tax on net repurchases of stock in excess of $1 million after December 31, 2022. During the three and nine months ended September 30, 2023, we did not experience a material financial impact from the Inflation Reduction Act. We do not anticipate a material financial impact from the Inflation Reduction Act during the fourth quarter of 2023.

We are subject to income taxes and various other taxes in the U.S. and in many foreign jurisdictions; therefore, changes in both domestic and international tax laws or regulations have affected and may affect our effective tax rate, results of operations, and cash flows. The Organization for Economic Co-operation and Development (the "OECD")/G20 Inclusive Framework on Base Erosion and Profit Shifting has agreed on a two-pillar approach to address tax challenges arising from the digitalization of the global economy by (i) allocating profits to market jurisdictions ("Pillar One") and (ii) ensuring multinational enterprises pay a minimum level of tax regardless of where the headquarters are located or the jurisdictions in which the company operates ("Pillar Two"). Pillar One targets multinational groups with global revenue exceeding €20 billion and a profit-to-revenue ratio of more than 10%. Companies subject to Pillar One will be required to allocate profits and pay taxes to market jurisdictions. Based on the current proposed revenue and profit thresholds, we do not expect to be subject to tax changes associated with Pillar One. Pillar Two focuses on global profit allocation and a global minimum tax rate. On December 12, 2022, the European Union ("EU") Member States formally adopted the EU's Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the OECD Pillar Two Framework that was supported by over 130 countries

worldwide. The EU effective date is January 1, 2024 for the Pillar Two directive. Other countries are also actively considering changes to their tax laws to adopt certain parts of the OECD's proposals. We will continue to evaluate the potential future impact of Pillar One and Pillar Two proposals on our consolidated financial statements and related disclosures.

Seasonality

Our revenues are subject to moderate seasonality, primarily due to fluctuations in advertising volumes. Advertising and marketing services revenues for our Gannett Media segment are typically highest in the fourth quarter, primarily due to fluctuations in advertising volumes tied to the holidays, regional weather, and levels of activity in our various markets, some of which have a high degree of seasonal residents and tourists. The volume of advertising sales in any period is also impacted by other external factors such as competitors' pricing, advertisers' decisions to increase or decrease their advertising expenditures in response to anticipated consumer demand, and general economic conditions. Uncertain economic conditions continued to adversely impact our advertising revenues during 2023, and the occurrence of these factors has resulted in a reduction in demand for our print and digital advertising, reduced the rates for our advertising, and caused marketers to shift, reduce or stop spend. Refer to "Macroeconomic Environment" above for further discussion.

Environmental, Social and Governance Initiatives

As a leading media organization, our longstanding corporate social responsibility position is driven by our deep commitment to our communities. We are dedicated to ensuring that we have mindful and ethical business practices that positively impact our world. In early 2023, we published our 2023 ESG Report detailing the progress we made on our U.N. Sustainable Development Goals ("U.N. SDGs") that include Reduced Inequalities, Climate Action, and Peace, Justice & Strong Institutions. The 2023 ESG Report included noteworthy highlights such as our efforts to improve our workplace diversity, expand our systems infrastructure to provide Scope 1 and 2 emissions for our entire global carbon footprint and reduce our number of manufacturing facilities. Also in early 2023, we published the inaugural edition of our network-wide 2022 Impact Report, which highlighted what we believe are the most influential articles we produced in 2022 and includes topics such as coverage on inclusion, diversity, and equity, as well as climate change.

RESULTS OF OPERATIONS

Consolidated Summary

A summary of our consolidated results is presented below:

In thousands, except per share amounts

*** Indicates an absolute value percentage change greater than 100.

(a) For the three and nine months ended September 30, 2023, Other revenues included Other Digital revenues, including digital syndication, affiliate, production and licensing revenues of $21.0 million and $59.9 million, respectively, compared to $19.4 million and $57.9 million for the three and nine months ended September 30, 2022, respectively.

(b) Amounts are net of intersegment eliminations of $38.1 million and $36.5 million for the three months ended September 30, 2023 and 2022, respectively, and $110.4 million and $105.4 million for the nine months ended September 30, 2023 and 2022, respectively, which represent digital advertising marketing services revenues and expenses associated with products sold by our U.S. local Gannett Media sales teams but fulfilled by our DMS segment. When discussing segment results, these revenues and expenses are presented gross but are eliminated in consolidation.

Operating revenues

Advertising and marketing services revenues are generated by both the Gannett Media and DMS segments. At the Gannett Media segment, Advertising and marketing services revenues are generated by the sale of local, national, and classified print advertising products, digital advertising offerings such as digital classified advertisements, digital media such as display advertisements run on our platforms as well as third-party sites, and digital marketing services delivered by our DMS segment.

At the DMS segment, Advertising and marketing services revenues are generated through multiple services, including search advertising, display advertising, search optimization, social media, website development, web presence products, customer relationship management, and software-as-a-service solutions.

Circulation revenues, which are generated at the Gannett Media segment, are derived from home delivery, digital distribution, and single copy sales of our publications.

Other revenues, which are primarily generated at the Gannett Media segment, are derived mainly from commercial printing, distribution arrangements, revenues from our events business, digital content syndication and affiliate revenues and third-party newsprint sales, and to a lesser extent generated at our Corporate and other category, mainly driven by sales of cloud-based products with expert guidance and support.

Operating expenses

Operating expenses consist primarily of the following:

• Operating costs at the Gannett Media segment include labor, newsprint and delivery costs and at the DMS segment include the cost of online media acquired from third parties and costs to manage and operate our marketing solutions and technology infrastructure;
• Selling, general and administrative expenses include labor, payroll, outside services, benefits costs and bad debt expense;
• Depreciation and amortization;
• Integration and reorganization costs include severance charges and other costs, including those for the purpose of consolidating our operations (i.e., facility consolidation expenses and integration-related costs);
• Impairment charges, including costs incurred related to goodwill, intangible assets and property, plant and equipment;
• Gains or losses on the sale or disposal of assets; and
• Other operating expenses, including third-party debt expenses as well as acquisition-related costs.

Refer to Segment results below for a discussion of the results of operations by segment.

Non-operating (income) expense

Interest expense: For the three and nine months ended September 30, 2023, Interest expense was $27.9 million and $84.8 million, respectively, compared to $27.8 million and $79.8 million for the three and nine months ended September 30, 2022, respectively. For the three and nine months ended September 30, 2023, interest expense increased compared to the three and nine months ended September 30, 2022, primarily due to the impact of the increase in interest rates on our Senior Secured Term Loan, partially offset by a lower debt balance, mainly driven by quarterly amortization payments and required prepayments on our Senior Secured Term Loan and repurchases of our 2026 Senior Notes.

(Gain) loss on early extinguishment of debt: For the three months ended September 30, 2023 and 2022, we recognized gains on the early extinguishment of debt of $2.7 million and $1.2 million, respectively. For the nine months ended September 30, 2023, we recognized a gain on the early extinguishment of debt of $3.2 million compared to a loss of $2.3 million for the nine months ended September 30, 2022. For the three and nine months ended September 30, 2023, the change in the (Gain) loss on the early extinguishment of debt compared to the same periods in 2022 was mainly due to refinancing activities related to our 2026 Senior Notes and Senior Secured Term Loan. Refer to "Recent Development – Debt repurchases" above for further discussion.

Non-operating pension income: For the three and nine months ended September 30, 2023, Non-operating pension income was $2.9 million and $7.0 million, respectively, compared to $15.0 million and $51.4 million for the three and nine months ended September 30, 2022, respectively. The decrease in Non-operating pension income for the three and nine months ended September 30, 2023, compared to the same periods in 2022 was primarily due to a decrease in the expected return on plan assets mainly driven by a decrease in assets following the annuity contract entered into during the three months ended September 30, 2022, related to the Gannett Retirement Plan (the "GR Plan").

Other non-operating income, net: Other non-operating income, net consisted of certain items that fall outside of our normal business operations. For the three and nine months ended September 30, 2023, we recorded Other non-operating income, net of $0.9 million and $1.3 million, respectively, compared to Other non-operating income, net of $0.7 million and $0.8 million for the three and nine months ended September 30, 2022, respectively.

Provision for income taxes

The following table outlines our pre-tax net income (loss) before income taxes and income tax accounts:

In thousands

The provision for income taxes is calculated by applying the projected annual effective tax rate for the year to the current period income or loss before tax plus the tax effect of any significant or unusual items (discrete events), and changes in tax laws. The provision for income taxes for the three months ended September 30, 2023, was mainly driven by an increase in the estimated annual effective tax rate applied to the full year resulting from a decrease in the net income before tax projections used in the third quarter of 2023, the change in valuation allowances on non-deductible U.S. interest expense carryforwards, and the global intangible low-taxed income inclusion. The provision was calculated using an estimated annual effective tax rate of 159.4%. The estimated annual effective tax rate is principally impacted by valuation allowances on non-deductible interest expense carryforwards, the global intangible low-taxed income inclusion, and foreign tax expense, which is partially offset by the benefit of U.S. pre-tax book loss. The estimated annual effective tax rate is based on the projected tax expense for the full year. During the three and nine months ended September 30, 2023, we did not experience a material financial impact from the Inflation Reduction Act. We do not anticipate a material financial impact from the Inflation Reduction Act during the fourth quarter of 2023. See "Recent U.S. Tax Legislation" above.

The provision for income taxes for the nine months ended September 30, 2023, was mainly driven by the change in valuation allowances on non-deductible U.S. interest expense carryforwards and the global intangible low-taxed income inclusion, partially offset by the tax benefit of the year to date pre-tax book loss.

The provision for income taxes for the three months ended September 30, 2022, was mainly driven by the valuation allowances on non-deductible interest expense carryforwards and the global intangible low-taxed income inclusion from our wholly owned U.K. subsidiary. The provision was calculated using the estimated annual effective tax rate of negative 46.3%.

The provision for income taxes for the nine months ended September 30, 2022, was mainly driven by the valuation allowances on non-deductible interest expense carryforwards, the global intangible low-taxed income inclusion and foreign taxes, offset by the benefit of the pre-tax book loss.

Net loss attributable to Gannett and diluted loss per share attributable to Gannett

For the three months ended September 30, 2023, Net loss attributable to Gannett and diluted loss per share attributable to Gannett were $2.6 million and $0.02, respectively, compared to Net loss attributable to Gannett and diluted loss per share attributable to Gannett of $54.1 million and $0.39, respectively, for the three months ended September 30, 2022. For the nine months ended September 30, 2023, Net loss attributable to Gannett and diluted loss per share attributable to Gannett were $4.9 million and $0.04, respectively, compared to Net loss attributable to Gannett and diluted loss per share attributable to Gannett of $110.8 million and $0.81, respectively, for the nine months ended September 30, 2022. The change for the three and nine months ended September 30, 2023, compared to the same periods in the prior year reflects the various items discussed above.

Segment Results

Gannett Media segment

A summary of our Gannett Media segment results is presented below:

In thousands

*** Indicates an absolute value percentage change greater than 100.

Operating revenues

The following table provides the breakout of Operating revenues by category:

In thousands

(a) For the three and nine months ended September 30, 2023, Other revenues included Other Digital revenues, including digital syndication, affiliate, and production revenues of $19.4 million and $55.3 million, respectively, compared to $18.0 million and $53.9 million for the three and nine months ended September 30, 2022, respectively.

For the three and nine months ended September 30, 2023, Local and national print advertising revenues decreased compared to the three and nine months ended September 30, 2022, primarily due to a decrease in advertiser inserts, mainly due to volume declines, and a decrease in local and national print advertisements, mainly due to the ongoing decline associated with secular trends and both a shift and a reduction in spend from customers driven by macroeconomic factors. In addition, the decrease in Local and national print advertising revenues for the three and nine months ended September 30, 2023, was also due to the absence in 2023 of revenues of $5.3 million and $21.5 million, respectively, associated with non-core products and divestitures which were sunset in 2023 and 2022. For the three and nine months ended September 30, 2023, Classified print advertising revenues decreased compared to the three and nine months ended September 30, 2022, primarily due to lower spend on classified advertisements, mainly driven by lower spend on obituary notifications and real estate advertisements, partially offset by an increase in spend on employment advertisements. In addition, the decrease in Classified print advertising revenues for the three and nine months ended September 30, 2023, was also due to the absence in 2023 of revenues of $1.3 million and $5.0 million, respectively, associated with non-core products which were sunset in 2023 and 2022.

For the three and nine months ended September 30, 2023, Digital media revenues decreased compared to the three and nine months ended September 30, 2022, driven by decreases in both domestic national and local revenue volumes and a reduction in digital advertising demand as a result of a more challenging macroeconomic environment, including declining CPMs (cost per thousand impressions), partially offset by an acquisition in 2022 by our U.K. subsidiary. For the three and nine months ended September 30, 2023, Digital marketing services revenues increased compared to the three and nine months ended September 30, 2022, primarily due to an increase in rates, partially offset by a decrease in client counts. For the three and nine months ended September 30, 2023, Digital classified revenues decreased compared to the three and nine months ended September 30, 2022, primarily due to lower spend on employment and obituary notifications, partially offset by higher spend on automotive advertisements.

For the three and nine months ended September 30, 2023, Print circulation revenues decreased compared to the three and nine months ended September 30, 2022, due to a decline in home delivery as a result of a reduction in the volume of subscribers, partially offset by an increase in rates, as well as a decline in single copy due to a reduction in volume, and for the nine months ended September 30, 2023, also due to increased price sensitivity. In addition, the decrease in Print circulation revenues for the three and nine months ended September 30, 2023, was due to the absence in 2023 of revenues of $1.6 million and $5.8 million, respectively, associated with non-core products which were sunset in 2023 and 2022. For the three and nine months ended September 30, 2023, Digital-only subscription revenues increased compared to the three and nine months ended September 30, 2022, primarily driven by an increase in Digital-only subscription average revenue per user ("Digital-only ARPU") of 14.0% and 6.0%, respectively, mainly due to product mix. Refer to "Key Performance Indicators" below for further discussion of Digital-only ARPU.

For the three and nine months ended September 30, 2023, Other revenues decreased compared to the three and nine months ended September 30, 2022, primarily due to a decline in commercial print volume and a decline in digital syndication, partially offset by an increase in event revenues, mainly driven by an increase in registration fees and higher merchandising revenues, driven by higher attendance, partially offset by fewer events due to a shift in timing, as well as an increase in digital revenues related to affiliate agreements.

Operating expenses

For the three and nine months ended September 30, 2023, Operating costs decreased $48.9 million and $154.0 million, respectively, compared to the three and nine months ended September 30, 2022. The following table provides the breakout of Operating costs:

In thousands

33

For the three and nine months ended September 30, 2023, Newsprint and ink costs decreased compared to the three and nine months ended September 30, 2022, primarily due to a decline associated with lower revenues, and for the nine months ended September 30, 2023, these decreases were partially offset by an increase of $5.3 million in the price of newsprint.

For the three and nine months ended September 30, 2023, Distribution costs decreased compared to the same periods in the prior year, primarily due to a decrease of $11.8 million and $41.6 million, respectively, associated with lower home delivery and single copy revenues, partially offset by an increase of $1.4 million and $2.9 million, respectively, driven by higher postage costs primarily due to conversion to mail delivery in multiple markets. Included in the decline of Distribution costs was the absence of expenses of $3.8 million and $14.6 million during the three and nine months ended September 30, 2023, respectively, of costs associated with both businesses divested and non-core products which were sunset in 2023 and 2022.

For the three and nine months ended September 30, 2023, Compensation and benefits costs decreased compared to the same periods in the prior year, primarily due to lower payroll expense of $18.1 million and $61.2 million, respectively, driven by a decrease in headcount tied to ongoing cost control initiatives, including facility closures and conversion to mail delivery in multiple markets, and to a lesser extent, lower employee benefit costs of $6.2 million and $21.4 million, respectively, mainly due to a decrease in insurance costs due to a decrease in headcount and a decline in employer 401(k) matching contributions, which were suspended in the third quarter of 2022.

For the three and nine months ended September 30, 2023, Outside services costs, which includes professional services fulfilled by third parties, media fees and other digital costs, and paid search and ad serving services, decreased compared to the same periods in the prior year, primarily due to a decrease of $5.0 million and $12.1 million, respectively, in various expenses, including costs related to news and editorial, professional services, outside printing, and software licensing, partially offset by an increase of $1.4 million and $6.2 million, respectively, in third-party media fees.

For the three months ended September 30, 2023, Other costs remained essentially flat compared to the three months ended September 30, 2022, and for the nine months ended September 30, 2023, Other costs decreased compared to the nine months ended September 30, 2022, primarily due to lower promotion expenses and lower facility related expenses associated with real estate sales.

For the three and nine months ended September 30, 2023, Selling, general and administrative expenses decreased $25.2 million and $85.1 million, respectively, compared to the three and nine months ended September 30, 2022. The following table provides the breakout of Selling, general and administrative expenses:

In thousands

For the three and nine months ended September 30, 2023, Compensation and benefits costs decreased compared to the same periods in the prior year, primarily due to lower payroll expense of $6.1 million and $29.3 million, respectively, driven by a decrease in headcount tied to ongoing cost control initiatives, lower commissions related to revenue performance, and to a lesser extent, lower employee benefit costs of $3.0 million and $9.3 million, respectively, mainly due to a decrease in employer 401(k) matching contributions, which were suspended in the third quarter of 2022.

For the three and nine months ended September 30, 2023, Outside services and other costs, which include services fulfilled by third parties, decreased compared to the three and nine months ended September 30, 2022, due to a decrease in costs related to technology, promotions, and professional services.

For the three and nine months ended September 30, 2023, Depreciation and amortization expense decreased compared to the three and nine months ended September 30, 2022, reflecting the impact of fewer print facilities in 2023 compared to 2022.

For the three and nine months ended September 30, 2023, Integration and reorganization costs decreased compared to the three and nine months ended September 30, 2022, mainly due to a decrease in severance costs of $10.8 million and $18.8 million, respectively, and a decrease in other costs of $18.1 million and $19.9 million, respectively. The decrease in other costs for the three and nine months ended September 30, 2023 was primarily due to the reversal of withdrawal liabilities related to multiemployer pension plans of $4.3 million and $6.4 million, respectively, based on settlement of the withdrawal liability, and the absence of an accrual of $8.6 million related to a multiemployer pension plan in both the three and nine months ended September 30, 2022, as well as lower facility and consolidation costs for the three and nine months ended September 30, 2023, compared to the same periods in the prior year.

For the three and nine months ended September 30, 2023, we recognized net gains on the sale of assets of $23.5 million and $39.7 million, respectively, primarily related to sales of domestic production facilities as part of our plan to monetize non-core assets. For the three and nine months ended September 30, 2022, we recognized net gains on the sale of assets of $7.2 million and $9.8 million, respectively, primarily related to sales of real estate, partially offset by losses on the sales of non-core products which were divested.

Gannett Media segment Adjusted EBITDA

In thousands

*** Indicates an absolute value percentage change greater than 100.

(a) See "Non-GAAP Financial Measures" below for additional information about non-GAAP measures.

(b) We define Adjusted EBITDA margin as Adjusted EBITDA divided by total Operating revenues.

For the three and nine months ended September 30, 2023, the increase in Adjusted EBITDA compared to the three and nine months ended September 30, 2022, was primarily attributable to the changes discussed above.

Digital Marketing Solutions segment

A summary of our DMS segment results is presented below:

In thousands

*** Indicates an absolute value percentage change greater than 100.

Operating revenues

For the three and nine months ended September 30, 2023, Advertising and marketing services revenues increased compared to the three and nine months ended September 30, 2022, primarily due to growth in the core direct business, including growth in revenues associated with both local and multi-location customers, and an increase in core platform average revenue per user ("Core platform ARPU") of 5.0% and 8.0% for the three and nine months ended September 30, 2023, respectively, partially offset by the impact of the sunset of non-core products. Refer to "Key Performance Indicators" below for further discussion of Core platform ARPU.

Operating expenses

For the three and nine months ended September 30, 2023, Operating costs increased $4.1 million and $10.9 million, respectively, compared to the three and nine months ended September 30, 2022. The following table provides the breakout of Operating costs:

In thousands

For the three and nine months ended September 30, 2023, Outside services costs, which includes professional services fulfilled by third parties, media fees and other digital costs, and paid search and ad serving services, increased compared to the three and nine months ended September 30, 2022, due to an increase in expenses associated with third-party media fees, driven by a corresponding increase in revenues.

For the three and nine months ended September 30, 2023, Compensation and benefits costs increased compared to the three and nine months ended September 30, 2022, primarily due to an increase in payroll expense driven by higher headcount.

For the three months ended September 30, 2023, Other costs remained essentially flat compared to the three months ended September 30, 2022, and for the nine months ended September 30, 2023, Other costs decreased compared to the nine months ended September 30, 2022, primarily due to lower facility related expenses, mainly as a result of exiting space associated with the sunset of non-core products.

For the three and nine months ended September 30, 2023, Selling, general and administrative expenses decreased $0.1 million and $0.7 million, respectively, compared to the three and nine months ended September 30, 2022. The following table provides the breakout of Selling, general and administrative expenses:

In thousands

For the three and nine months ended September 30, 2023, Compensation and benefits costs increased compared to the same periods in the prior year, primarily due to an increase in payroll expense of $0.5 million and $2.2 million, respectively, driven by a higher bonus accrual, partially offset by lower employee benefit costs of $0.4 million and $1.3 million, respectively, mainly due to a decline in employer 401(k) matching contributions, which were suspended in the third quarter of 2022.

For the three and nine months ended September 30, 2023, Outside services and other costs decreased compared to the three and nine months ended September 30, 2022, due to a decrease in various miscellaneous expenses, including lower outsourcing costs and lower facility related expenses.

For the three and nine months ended September 30, 2023, Depreciation and amortization expense decreased compared to the three and nine months ended September 30, 2022, primarily due to a decrease in amortization expense, resulting from the impact of intangibles becoming fully amortized in the fourth quarter of 2022, partially offset by an increase in depreciation expense related to capitalized software.

DMS segment Adjusted EBITDA

In thousands

*** Indicates an absolute value percentage change greater than 100.

(a) See "Non-GAAP Financial Measures" below for additional information about non-GAAP measures.

(b) We define Adjusted EBITDA margin as Adjusted EBITDA divided by total Operating revenues.

For the three and nine months ended September 30, 2023, the decrease in Adjusted EBITDA compared to the three and nine months ended September 30, 2022, was primarily attributable to the changes discussed above. In addition, for the three and nine months ended September 30, 2023, Other items decreased compared to the same periods in the prior year, mainly due to a decrease in foreign currency losses.

Corporate and other category

For the three and nine months ended September 30, 2023, Corporate and other operating revenues were $1.5 million and $4.6 million, respectively, compared to $1.3 million and $4.0 million for the three and nine months ended September 30, 2022, respectively.

For the three and nine months ended September 30, 2023, Corporate and other operating expenses decreased $4.6 million and $16.0 million, respectively, compared to the three and nine months ended September 30, 2022. The following table provides the breakout of Corporate and other operating expenses:

In thousands

*** Indicates an absolute value percentage change greater than 100.

For the three and nine months ended September 30, 2023, Corporate and other operating expenses decreased compared to the three and nine months ended September 30, 2022, primarily due to a decrease in Selling, general and administrative expenses, mainly driven by a decrease of $6.6 million and $25.0 million, respectively, in payroll and employee benefit costs, as well as a decrease in Integration and reorganization costs, primarily due to a decrease in severance costs of $3.9 million for the three months ended September 30, 2023, and a decrease in other costs of $1.7 million and $3.1 million for the three and nine months ended September 30, 2023, respectively, mainly due to a decrease in system integration costs. These decreases were partially offset by an increase in Operating costs. In addition, the nine months ended September 30, 2023 also reflected a $1.4 million gain on the sale of intellectual property.

LIQUIDITY AND CAPITAL RESOURCES

Our primary cash requirements are for working capital, debt obligations, and capital expenditures.

We expect to fund our operations and debt service requirements through cash provided by our operating activities. We expect we will have adequate capital resources and liquidity to meet our ongoing working capital needs, borrowing obligations, and all required capital expenditures for at least the next twelve months. However, a further economic downturn or an increased rate of revenue declines would negatively impact our revenue, cash provided by operating activities and liquidity. We continue to implement cost reduction initiatives to reduce our ongoing level of operating expense. We believe our ability to realize benefits from our cost reduction initiatives will be necessary to offset the continued secular decline in our legacy print business revenue streams. We believe that these measures are important in response to the overall challenging macroeconomic environment that we are facing. Refer to "Overview - Macroeconomic Environment" above for further discussion.

Details of our cash flows are included in the table below:

In thousands

Cash flows provided by operating activities: Our largest source of cash provided by our operations is Advertising revenues, primarily generated from Local and national advertising and marketing services revenues (retail, classified, and online). Additionally, we generate cash through circulation subscribers, commercial printing and delivery services to third parties, and events. Our primary uses of cash from our operating activities include compensation, newsprint, delivery, and outside services.

Our cash flow provided by operating activities was $73.4 million for the nine months ended September 30, 2023, compared to $33.0 million for the nine months ended September 30, 2022. The increase in cash flow provided by operating activities was primarily due to a decrease in contributions to our pension and other postretirement benefit plans, lower inventory and lower compensation costs, partially offset by lower cash receipts related to deferred revenues, a decrease in accounts payable due to timing, a change in receivables due to timing of payments and collections and an increase in severance payments.

Cash flows provided by investing activities: Cash flows provided by investing activities was $54.1 million for the nine months ended September 30, 2023, compared to $19.1 million for the nine months ended September 30, 2022. The change in cash flows provided by investing activities was primarily due to a decrease in cash paid for acquisitions, net of cash acquired of $15.4 million, an increase in proceeds from the sale of real estate and other assets of $12.8 million and a decrease in purchases of property, plant and equipment of $6.2 million.

Cash flows used for financing activities: Cash flows used for financing activities was $112.9 million for the nine months ended September 30, 2023, compared to $58.0 million for the nine months ended September 30, 2022. The increase in cash flows used for financing activities was primarily due to the absence of new borrowings, offset by lower repayments of long-term debt.

Debt

As of September 30, 2023, the carrying value of our outstanding debt totaled $1.063 billion, which consisted of $353.1 million related to the Senior Secured Term Loan, $293.7 million related to the 2026 Senior Notes, $412.5 million related to the 2027 Notes (defined below), and $3.3 million related to the remaining 4.75% convertible senior notes due April 15, 2024 (the

"2024 Notes").

The Senior Secured Term Loan bears interest at a per annum rate equal to Adjusted Term SOFR (which shall not be less than 0.50% per annum) plus a margin equal to 5.00% or an alternate base rate (which shall not be less than 1.50% per annum) plus a margin equal to 4.00%. We are required to repay the Senior Secured Term Loan from time to time with (i) the proceeds of non-ordinary course asset sales and casualty and condemnation events, (ii) the proceeds of indebtedness not permitted under the Senior Secured Term Loan, and (iii) the aggregate amount of cash and cash equivalents on hand at the Company and its restricted subsidiaries in excess of $100 million at the end of each fiscal year. Subsequent to the amendment effective as of April 8, 2022, the Senior Secured Term Loan is amortized at $15.1 million per quarter (or, if the ratio of debt secured on an equal basis with the Senior Secured Term Loan less unrestricted cash of the Company and its restricted subsidiaries to Consolidated EBITDA (as such terms are defined in the Senior Secured Term Loan) (such ratio, the "First Lien Net Leverage Ratio"), for the most recently ended period of four consecutive fiscal quarters is equal to or less than 1.20 to 1.00, $7.6 million per quarter). For the three and nine months ended September 30, 2023, we made $31.7 million and $78.1 million, respectively, of prepayments, including quarterly amortization payments, on the Senior Secured Term Loan.

Interest on the 2026 Senior Notes is payable semi-annually in arrears. The 2026 Senior Notes mature on November 1, 2026, unless redeemed or repurchased earlier pursuant to the 2026 Senior Notes Indenture. During the three and nine months ended September 30, 2023, we entered into privately negotiated agreements with certain holders of our 2026 Senior Notes, and repurchased $33.5 million and $39.6 million, respectively, of principal of our outstanding 2026 Senior Notes at a discount to par value.

Interest on the 6.0% Senior Secured Convertible Notes due 2027 (the "2027 Notes") is payable semi-annually in arrears. The 2027 Notes mature on December 1, 2027, unless earlier repurchased or converted. The 2027 Notes may be converted at any time by the holders into cash, shares of our common stock, par value $0.01 per share (the "Common Stock") or any combination of cash and Common Stock, at our election. The initial conversion rate is 200 shares of Common Stock per $1,000 principal amount of the 2027 Notes, which is equal to a conversion price of $5.00 per share of Common Stock (the "Conversion Price"). For the nine months ended September 30, 2023, no shares were issued upon conversion, exercise, or satisfaction of the required conditions.

Our Senior Secured Term Loan, 2024 Notes, 2026 Senior Notes and 2027 Notes all contain usual and customary covenants and events of default. As of September 30, 2023, we were in compliance with all such covenants and obligations.

Refer to Note 6 — Debt for additional discussion regarding our debt.

Additional information

We continue to evaluate our results of operations, liquidity and cash flows, and as part of these measures, we have taken steps to manage cash outflow by rationalizing expenses and implementing various cost management initiatives. We do not presently pay a quarterly dividend and there can be no assurance that we will pay dividends in the future. In addition, the terms of our indebtedness, including the Senior Secured Term Loan, the 2026 Senior Notes Indenture and the 2027 Notes Indenture have terms that restrict our ability to pay dividends.

On February 1, 2022, our Board of Directors authorized the repurchase of up to $100 million (the "Stock Repurchase Program") of our Common Stock. Repurchases may be made from time to time through open market purchases or privately negotiated transactions, pursuant to one or more plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or by means of one or more tender offers, in each case, as permitted by securities laws and other legal requirements. The amount and timing of the purchases, if any, will depend on a number of factors, including, but not limited to, the price and availability of our shares, trading volume, capital availability, our performance and general economic and market conditions. The Stock Repurchase Program may be suspended or discontinued at any time. Further, future repurchases under our Stock Repurchase Program may be subject to various conditions under the terms of our various debt instruments and agreements, unless an exception is available or we obtain a waiver or similar relief.

During the three and nine months ended September 30, 2023, we did not repurchase any shares of Common Stock under the Stock Repurchase Program. As of September 30, 2023, the remaining authorized amount under the Stock Repurchase Program was approximately $96.9 million. We do not currently anticipate repurchasing any shares of Common Stock pursuant to the Stock Repurchase Program during the fourth quarter of 2023.

Beginning with the quarter ended December 31, 2022, and ending with the quarter ending September 30, 2024, the GR Plan's appointed actuary will certify the GR Plan's funded status for each quarter (the "Quarterly Certification") in accordance with U.S. GAAP. If the GR Plan is less than 100% funded, the Company will make a $1.0 million contribution to the GR Plan no later than 60 days following the receipt of the Quarterly Certification, provided, however, that the Company's obligation to make additional contractual contributions will terminate the earlier of (a) the day following the date that a contractual contribution would be due for the quarter ending September 30, 2024, and (b) the date the Company has made a total of $5 million of contractual contributions subsequent to June 30, 2022. As of September 30, 2023, the GR Plan was more than 100% funded.

We expect our capital expenditures for the remainder of 2023 to total approximately $10 million. These capital expenditures are anticipated to be primarily comprised of projects related to digital product development, costs associated with our print and technology systems, and system upgrades. The level of capital expenditures may vary based on investment decisions associated with further opportunities to consolidate systems, improve our product offerings, and other initiatives designed to improve the Company's operating efficiency.

Our leverage may adversely affect our business and financial performance and restricts our operating flexibility. The level of our indebtedness and our ongoing cash flow requirements may expose us to a risk that a substantial decrease in operating cash flows due to, among other things, continued or additional adverse economic conditions or adverse developments in our business, could make it difficult for us to meet the financial and operating covenants contained in our Senior Secured Term Loan, the 2026 Senior Notes, and the 2027 Notes. In addition, our leverage may limit cash flow available for general corporate purposes such as capital expenditures as well as share repurchases and acquisitions and our flexibility to react to competitive, technological, and other changes in our industry and economic conditions generally. We continue to closely monitor economic factors, including, but not limited to, the current inflationary market and rising interest rates, and we expect to continue to take the steps necessary to appropriately manage liquidity.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

See our most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for a discussion of our critical accounting policies and use of estimates. There have been no material changes to our critical accounting policies and use of estimates discussed in such report.

NON-GAAP FINANCIAL MEASURES

A non-GAAP financial measure is generally defined as one that purports to measure historical or future financial performance, financial position, or cash flows, but excludes or includes amounts that would not be so excluded or included in the most comparable U.S. generally accepted accounting principles ("U.S. GAAP") measure.

Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures we believe offer a useful view of the overall operation of our businesses and may be different than similarly-titled measures used by other companies. We define 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. We define Adjusted EBITDA margin as Adjusted EBITDA divided by total Operating revenues.

Management's use of Adjusted EBITDA and Adjusted EBITDA margin

Adjusted EBITDA and Adjusted EBITDA margin 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), 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 and Adjusted EBITDA margin 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 and Adjusted EBITDA margin

Adjusted EBITDA and Adjusted EBITDA margin 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 EBITDA margin and 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 and Adjusted EBITDA margin are not alternatives to Net income (loss) attributable to Gannett and margin 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 measures. We strongly urge you to review the reconciliation of Net income (loss) attributable to Gannett to Adjusted EBITDA and Adjusted EBITDA margin along with our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. We also strongly urge you not to rely on any single financial measure to evaluate our business. In addition, because Adjusted EBITDA and Adjusted EBITDA margin are not measures of financial performance under U.S. GAAP and are susceptible to varying calculations, the Adjusted EBITDA and Adjusted EBITDA margin measures as presented in this report may differ from and may not be comparable to similarly titled measures used by other companies.

The table below shows the reconciliation of Net loss attributable to Gannett to Adjusted EBITDA and Net loss attributable to Gannett margin to Adjusted EBITDA margin:

In thousands

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 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.

The following tables provide information regarding certain KPIs for both the Gannett Media and DMS segments:

In thousands, except ARPU

In thousands

43

We are exposed to market risk, including from changes in interest rates and foreign currency exchange rates. Changes in these factors could cause fluctuations in earnings and cash flow. In the normal course of business, exposure to certain of these market risks is managed as described below.

Interest Rates

We generally manage our risk associated with changes in interest rates through the use of a combination of variable and fixed-rate debt. As of September 30, 2023, we had variable and fixed-rate debt totaling $360.3 million and $794.2 million, respectively. Our variable-rate debt consisted of the Senior Secured Term Loan, which bears interest at the Adjusted Term Secured Overnight Financing Rate. A hypothetical interest rate increase of 150 basis points would have increased our interest expense related to our variable-rate debt and likewise decreased our income and cash flows by approximately $1.4 million and $4.1 million, respectively, for the three and nine months ended September 30, 2023. See Note 6 — Debt to our condensed consolidated financial statements for further discussion of our debt.

Foreign Currency

We are exposed to foreign exchange rate risk due to our operations in the U.K., for which the British pound sterling is the functional currency. We are also exposed to foreign exchange rate risk due to our DMS segment which has operating activities denominated in currencies other than the U.S. dollar, including the Australian dollar, Canadian dollar, Indian rupee, and New Zealand dollar.

At September 30, 2023 and 2022, cumulative foreign currency translation losses reported as part of equity were $10.0 million and $35.8 million, respectively. The fluctuation in cumulative foreign currency translation losses was driven by the impact of changing exchange rates, primarily due to the British pound sterling. A hypothetical 10% fluctuation of the price of the British pound sterling and the currencies in our DMS segment against the U.S. dollar would not have materially impacted operating income for the three and nine months ended September 30, 2023.

Disclosure Controls and Procedures

We evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of the end of the period covered by this Quarterly Report under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures were effective in recording, processing, summarizing and reporting on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and were effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should consider the risks described in Part I, Item 1A, "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2022. Except as set forth below, there have been no material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022. Any of these risks and uncertainties, including those discussed below, could materially and adversely affect our business, results of operations, financial condition, and/or the market price of our Common Stock. The risks described below and in our Annual Report on Form 10-K for the year ended December 31, 2022, are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our financial condition and/or operating results.

Risks Related to Macroeconomic Factors

Actual or perceived events involving banking volatility or limited liquidity, defaults or other adverse developments that affect the U.S. or international financial systems, may result in market-wide liquidity problems which could have a material and adverse impact on our available cash and results of operations.

At any point in time, the funds in our operating accounts with financial institutions or financial services industry companies with which we have financial or business relationships may exceed the applicable Federal Deposit Insurance Corporation ("FDIC") insurance limits. While we monitor the cash balances in our operating accounts and adjust the cash balances as appropriate, these cash balances could be impacted if the underlying financial institutions fail. There is no guarantee that the FDIC, the Financial Services Compensation Scheme in the U.K., or the applicable deposit insurance, if any, in other countries in which we conduct significant business, will provide access to all or some uninsured funds in the event of the closure, default or non-performance of the financial institution or financial services industry company with which we have a relationship, or that they would do so in a timely manner. Additionally, if any parties with whom we conduct business are unable to access funds with their financial institutions or financial services industry companies with which they have relationships, such parties may be unable to satisfy their obligations to us. To date, we have not experienced significant losses of cash in our operating accounts or our invested cash or cash equivalents as a result of any banking volatility; however, we can provide no assurances that access to our operating cash or invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets. Further, banking volatility or adverse developments impacting financial systems may make equity or debt financing more difficult to obtain, and additional equity or debt financing might not be available on reasonable terms, if at all. Difficulties obtaining equity or debt financing could have a material adverse effect on our financial condition and results of operations.

Risks Related to Artificial Intelligence

We use artificial intelligence and may use new technologies in our business, and challenges with properly managing their use by us or third parties could result in reputational harm, competitive harm, and legal liability, and adversely affect our results of operations.

We have incorporated and may continue to incorporate artificial intelligence ("AI") solutions and other new technologies into our platform, offerings, services and features, and these applications may become important in our operations over time. Our competitors or other third parties may incorporate AI into their products more quickly or more successfully than us, which could impair our ability to compete effectively and adversely affect our results of operations. If our competitors and other third parties adopt AI applications that use our content without end users visiting our network of websites, our digital advertising revenue could be reduced and we could lose additional monetization opportunities. The introduction of AI applications into our business may disrupt our relationship with employees if the AI tools are viewed as displacing work from newsrooms, which could adversely affect our business and results of operations. Additionally, if the content, analyses, or recommendations that AI applications assist in producing are or are alleged to be deficient, inaccurate, or biased, our reputation, business, financial condition, and results of operations may be adversely affected.

The use of AI applications has resulted in, and may in the future result in, cybersecurity incidents that implicate the personal data of end users of such applications. Any such cybersecurity incidents related to our use of AI applications could adversely affect our reputation and results of operations. AI applications also introduce risks to our ability to protect our intellectual property, to the extent large language models have used our content to train AI tools. Similarly, if we use open-source AI applications, we could be subject to claims of infringement of others’ intellectual property, which could adversely affect our business and results of operations.

AI also presents emerging ethical issues and if our use of AI becomes controversial, we may experience brand or reputational harm, competitive harm, or legal liability. The rapid evolution of AI, including potential government regulation of AI, will require significant resources to develop, test and maintain our platform, offerings, services, and features to help us implement AI ethically in order to minimize unintended, harmful impact.