USA TODAY Co., Inc.: Form 10-Q for the period ended Mar 31, 2024

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, 2023, 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, 2023, 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 diversified media company with expansive reach at the national and local level dedicated to empowering and enriching communities. We seek to inspire, inform, and connect audiences as a sustainable, growth focused media and digital marketing solutions company. We endeavor to deliver essential content, marketing solutions, and experiences for curated audiences, advertisers, consumers, and stakeholders by leveraging our diverse teams and suite of products to enrich the local communities and businesses we serve.

Our current portfolio of trusted media brands includes the USA TODAY NETWORK, comprised of the national publication, USA TODAY, and local media organizations in the United States (the "U.S."), and Newsquest, a wholly-owned subsidiary operating in the United Kingdom (the "U.K."). Our digital marketing solutions brand, LocaliQ, uses innovation and software to enable small and medium-sized businesses ("SMBs") to grow, and USA TODAY NETWORK Ventures, our events division, creates impactful consumer engagements, promotions, and races.

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. 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. Our strategy prioritizes maximizing the monetization of our audience through the growth of increasingly diverse and highly recurring digital businesses. We expect the execution of this strategy to enable us to continue our evolution to a predominantly digital media company. We deliver value to our customers, advertisers, partners and shareholders with essential content, joyful experiences, and relevant digital solutions.

We report in three segments: Domestic Gannett Media, Newsquest and Digital Marketing Solutions ("DMS"). We also have a Corporate and other category that includes activities not directly attributable to a specific reportable segment. This category primarily consists of broad corporate functions, including legal, human resources, accounting, analytics, finance, marketing and technology, 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 Print circulation revenues have and are expected to 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 growing a digitally-oriented audience across multiple platforms and revenue streams.
• Our revenues and results of operations continue to be influenced by general macroeconomic conditions, including, but not limited to, interest rates, housing demand, employment levels, and consumer confidence. We believe that these factors are contributing to uncertainty, which is resulting in lower levels of advertising performance and reduced spending.
• Data privacy standards continue to evolve and implementation of standards may result in incremental costs. Privacy standards, such as third-party cookie deprecation, are anticipated to impact the advertising industry more significantly over the next 12 to 18 months. We utilize first-party data to assist our customer's advertising needs but an industry-wide solution to address impacts to programmatic advertising has not yet been developed.

Recent Developments

Corporate office relocation

On March 1, 2024, we exited and ceased use of our leased facility in McLean, Virginia and moved our corporate headquarters to our existing office space in New York. We will continue to seek subleases for the leased facility in McLean. As a result of the headquarters relocation, we recorded an impairment charge of approximately $46.0 million during the three months ended March 31, 2024 related to the McLean operating lease right-of-use asset and the associated leasehold improvements.

Debt Repurchase

In March 2024, we received a waiver from certain lenders of our five-year senior secured term loan facility in an original aggregate principal amount of $516.0 million (the "Senior Secured Term Loan") that reduced the scheduled quarterly amortization payments payable to those lenders by approximately $12.0 million for the three months ended March 31, 2024 (the "First Quarter 2024 Waiver"), so long as such amount was used to repurchase a portion of our $400 million aggregate principal amount of 6.00% first lien notes due November 1, 2026 (the "2026 Senior Notes"). Also, in March 2024, we entered into a privately negotiated agreement with certain holders of our 2026 Senior Notes, and repurchased $13.0 million of principal of our outstanding 2026 Senior Notes at a discount to par value. As a result of this repurchase of our 2026 Senior Notes, we recognized a gain on the early extinguishment of debt of approximately $0.6 million during the three months ended March 31, 2024, which included the write-off of unamortized original issue discount and deferred financing costs.

In addition, during the three months ended March 31, 2024, we repaid approximately $3.3 million of our Senior Secured Term Loan (net of the First Quarter 2024 Waiver), including quarterly amortization payments. As a result of the repayment related to our Senior Secured Term Loan, we recognized an immaterial loss on the early extinguishment of debt during the three months ended March 31, 2024, which included the write-off of unamortized original issue discount and deferred financing costs.

Certain Matters Affecting Comparability

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

Asset impairments

For the three months ended March 31, 2024, we recorded an impairment charge of approximately $46.0 million related to the McLean, Virginia operating lease right-of-use asset and the associated leasehold improvements. For the three months ended March 31, 2023, we recorded an immaterial asset impairment related to our continued plan to monetize non-strategic assets.

Loss (gain) on sale or disposal of assets, net

For the three months ended March 31, 2024, we recognized a net loss on the sale of assets of $0.6 million, primarily related to a net loss of $0.9 million at the Domestic Gannett Media segment, partially offset by a net gain of $0.4 million at the Newsquest segment, as part of our continued plan to monetize non-strategic assets.

For the three months ended March 31, 2023, we recognized a net gain on the sale of assets of $17.7 million, primarily related to a net gain of $16.3 million at the Domestic Gannett Media segment primarily related to the sale of a production facility as part of our plan to monetize non-strategic assets, and a gain of $1.4 million at our Corporate and other category related to the sale of intellectual property.

Integration and reorganization costs

For the three months ended March 31, 2024, we incurred Integration and reorganization costs of $17.9 million. Of the total costs incurred, $5.3 million were related to severance activities and $12.6 million were related to other costs, including $9.7 million expensed as of the cease-use date related to certain licensed content as well as costs for consolidating operations, mainly related to systems implementation.

For the three months ended March 31, 2023, we incurred Integration and reorganization costs of $12.1 million. Of the total costs incurred, $10.3 million were related to severance activities and $1.9 million were related to other costs, including costs for consolidating operations, primarily related to systems implementation and the outsourcing of corporate functions, partially offset by the reversal of a withdrawal liability related to a multiemployer pension plan of $2.0 million based on the settlement of the withdrawal liability.

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. For example, our international revenues are favorably impacted as the U.S. dollar weakens relative to other foreign currencies, and unfavorably impacted as the U.S. dollar strengthens relative to other foreign currencies. Foreign currency exchange rate fluctuations positively impacted our revenues and profitability during the three months ended March 31, 2024.

Strategy

We are committed to inspiring, informing and connecting audiences as a sustainable, growth-focused media and digital marketing solutions company. We endeavor to deliver essential content, marketing solutions and experiences for curated audiences, advertisers, consumers, and stakeholders by leveraging our diverse teams and suite of products to enrich the local communities and businesses we serve. The execution of this strategy is expected to allow us to continue our evolution from a more traditional print media business to a sustainable, growth-focused media and digital marketing solutions company.

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 to strengthen our capital structure.

Stable foundation for ongoing growth

We continue to optimize and improve our foundation – completing systems consolidations and migrations, improving process workflows, and ensuring we have synergy across the organization to deliver the stabilization required to fuel our plan into the future. We also continue to invest in our people and in the skills needed to support our future aims and to retain our talent by remaining an attractive place to work.

Expand reach with our customer segments

Key to our ongoing growth is expanding our base – whether clients in our DMS segment or audience in our Domestic Gannett Media and Newsquest segments – and optimizing our revenue streams across this growing base. For both the Domestic Gannett Media and Newsquest segments, this includes content expansion, establishing a seamless print to digital continuum to introduce clients, readers, viewers, and listeners to a broader range of products we offer. For the DMS segment, expanding our client base and core revenue is anticipated to be supplemented by the development of a complementary software model.

Diversify digital revenues

We expect to continue to expand the ways that we grow digital revenues through innovative partnerships and developing new products and services that meet the needs of consumers and businesses. Examples of this growth strategy include our intention to continue to expand partnerships that rely on our unique and large audience base and developing new DMS software solutions.

Foundational commitment to environmental, social, and governance matters that impact our customers and communities

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

We are exposed to certain risks and uncertainties caused by factors beyond our control, including economic and political instability and other geopolitical events. We believe that these uncertain economic conditions have adversely impacted and may continue to have an adverse impact on our 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.

We are exposed to potential increases in interest rates associated with our Senior Secured Term Loan, which accounted for approximately 31% of our outstanding debt as of each March 31, 2024 and December 31, 2023, 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.

Seasonality

We experience some seasonality in our revenues. The Domestic Gannett Media segment typically witnesses the greatest impact from seasonality in the third quarter, primarily attributed to reduced population in seasonal markets and decreased holiday related spending. The DMS segment generally experiences the greatest impact from seasonality in the first half of the fiscal year, which can be attributed to the advertising needs of specific verticals, which are generally lower in the first half of the year.

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 2024, we published our 2024 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 and Strong Institutions. The 2024 ESG Report included noteworthy highlights such as improving our workplace diversity, expanding our systems infrastructure to provide Scope 1 and Scope 2 emissions for our global carbon footprint, and reducing the number of manufacturing facilities.

We are committed to ensuring our coverage is widely available, actively promoted across our media sites and marketed to our millions of registered users. In January 2024, we published our network-wide 2023 Journalism Impact Report, which highlighted what we believe are the most influential articles we produced in 2023 and covers topics such as coverage on ID&E, as well as climate change. We are committed to the ongoing publishing of an annual network-wide Journalism Impact Report, which surfaces the top stories we produced that led to action.

The well-being of our employees is of paramount importance to us and we are committed to maintaining a corporate culture that conducts business in a responsible and ethical manner that includes promoting, protecting and supporting human rights across our operations and throughout our entire organization, which is why we have adopted a company-wide Human Rights Policy. This policy expands upon an existing policy enacted by our U.K. operations. Our Human Rights Policy covers areas such as our commitment to diversity and inclusion, a safe and healthy workplace, our communities and stakeholders, and freedom of association and collective bargaining, which helps ensure our employees' right to form and choose whether to join a labor union without fear of reprisal, intimidation, or harassment. The Human Rights Policy also reflects our commitment to bargaining in good faith with chosen representatives of such groups in accordance with applicable laws.

Use of Website to Distribute Material Company Information

Our website is www.gannett.com (http://www.gannett.com). Information contained on our website is not part of this quarterly report. We use our website as a distribution channel for material company information. Financial and other important information regarding the Company is routinely posted on and accessible on the Investor Relations and News and Events subpages of our website, which are accessible by clicking on the tab labeled "Investor Relations" and "News and Events", respectively, on the website home page. Therefore, investors should look to the Investor Relations, and News and Events subpages of the Company's website for important and time-critical information.

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) Amounts are net of intersegment eliminations of $38.8 million and $34.4 million for the three months ended March 31, 2024 and 2023, respectively. Intersegment eliminations represent digital marketing services revenues and expenses associated with products sold by sales teams in our Domestic Gannett Media and Newsquest segments but fulfilled by our DMS segment. When discussing segment results, these revenues and expenses are presented gross but are eliminated in consolidation.

Revenues

Digital revenues are primarily derived from digital advertising offerings such as classified advertisements and display advertisements run on our platforms as well as third-party sites, digital marketing services 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, digital distribution of our publications, as well as digital syndication, affiliate, partnership, and licensing revenues.

Print and commercial revenues are generated from the sale of local, national, and classified print advertising products, the sale of both home delivery and single copies of our publications, as well as commercial printing and distribution arrangements, and revenues from our events business.

Operating expenses

Operating expenses consist primarily of the following:

• Operating costs at the Domestic Gannett Media and Newsquest segments include labor, newsprint, delivery and digital 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 costs as well as other reorganization costs associated with individual restructuring programs, designed primarily to right-size the Company's employee base, consolidate facilities and improve operations;
• 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 expenses

Interest expense: For the three months ended March 31, 2024, Interest expense was $26.6 million compared to $28.3 million for the three months ended March 31, 2023. For the three months ended March 31, 2024, interest expense decreased compared to the three months ended March 31, 2023, primarily due to 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, partially offset by an increase in interest rates on the Senior Secured Term Loan.

Non-operating pension income: For the three months ended March 31, 2024, Non-operating pension income was $3.1 million compared to $1.8 million for the three months ended March 31, 2023. The increase in Non-operating pension income for the three months ended March 31, 2024, compared to the same period in 2023 was primarily due to the decrease in the discount rate, partially offset by a decline in the projected benefit obligation.

Provision (benefit) for income taxes

The following table outlines our pre-tax net 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 March 31, 2024, was mainly driven by the pre-tax book loss, the increase in valuation allowances on non-deductible U.S. interest expense carryforwards, the global intangible low-taxed income inclusion and state tax expense. The provision was calculated using an estimated annual effective tax rate of negative 11.1%. The estimated annual effective tax rate is principally impacted by valuation allowances on non-deductible interest expense carryforwards, foreign tax expense, and the global intangible low-taxed income inclusion, 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.

The benefit for income taxes for the three months ended March 31, 2023, was mainly driven by the tax benefit of the pre-tax book loss, the change in valuation allowances on non-deductible U.S. interest expense carryforwards, the global intangible low-taxed income inclusion and stock compensation. The benefit was calculated using the estimated annual effective tax rate of negative 273.3%.

Net (loss) income attributable to Gannett and diluted (loss) income per share attributable to Gannett

For the three months ended March 31, 2024, Net loss attributable to Gannett and diluted loss per share attributable to Gannett were $84.8 million and $0.60, respectively, compared to Net income attributable to Gannett and diluted income per share attributable to Gannett of $10.3 million and $0.07, respectively, for the three months ended March 31, 2023. The change for the three months ended March 31, 2024, compared to the same period in the prior year reflects the various items discussed above.

Segment Results

Domestic Gannett Media segment

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

In thousands

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

Revenues

The following table provides the breakout of Revenues by category:

In thousands

For the three months ended March 31, 2024, Digital advertising revenues increased compared to the three months ended March 31, 2023, primarily due to an increase in sponsored link and national programmatic revenue, as well as higher spend on automotive advertisements, partially offset by lower spend on obituary and employment notifications.

For the three months ended March 31, 2024, Digital marketing services revenues increased compared to the three months ended March 31, 2023, primarily due to an increase in client spend.

For the three months ended March 31, 2024, Digital-only subscription revenues increased compared to the three months ended March 31, 2023, primarily driven by an increase in Digital-only subscription average revenue per user ("Digital-only ARPU") of 24%, mainly due to product mix. Refer to "Key Performance Indicators" below for further discussion of Digital-only ARPU.

For the three months ended March 31, 2024, Digital other revenues increased compared to the three months ended March

31, 2023, primarily due to an increase in affiliate and partnership revenues.

For the three months ended March 31, 2024, Print advertising revenues decreased compared to the three months ended March 31, 2023, primarily due to a decrease in local and national print advertisements and lower advertiser inserts, mainly due to a reduction in spend from customers driven by macroeconomic factors, and lower spend on classified advertisements, mainly associated with obituary notifications.

For the three months ended March 31, 2024, Print circulation revenues decreased compared to the three months ended March 31, 2023, due to a decline in home delivery and single copy as a result of a reduction in the volume of subscribers, partially offset by an increase in rates.

For the three months ended March 31, 2024, Commercial and other revenues decreased compared to the three months ended March 31, 2023, primarily due to a decrease in commercial print revenues, driven by the decline in production volume, as well as facility closures, and a decrease in the price of newsprint, partially offset by an increase in event revenues, driven by an increase in ticket sales related to higher attendance.

Operating expenses

For the three months ended March 31, 2024, Operating costs decreased $28.5 million compared to the three months ended March 31, 2023. The following table provides the breakout of Operating costs:

In thousands

For the three months ended March 31, 2024, Newsprint and ink costs decreased compared to the three months ended March 31, 2023, primarily due to lower volume due to the decline in revenues, as well as a decrease in the cost of newsprint of approximately $4.9 million.

For the three months ended March 31, 2024, Distribution costs decreased compared to the three months ended March 31, 2023, primarily due to a decrease of approximately $12.0 million associated with lower home delivery and single copy revenues, partially offset by an increase in postage costs of approximately $2.5 million, mainly due to conversion to mail delivery in multiple markets.

For the three months ended March 31, 2024, Compensation and benefits costs decreased compared to the three months ended March 31, 2023, primarily due to a decrease in headcount tied to ongoing cost control initiatives, including facility closures and conversion to mail delivery in multiple markets.

For the three months ended March 31, 2024, 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 months ended March 31, 2023, primarily due to higher third-party media fees of approximately $2.6 million, partially offset by a decrease of approximately $0.6 million in miscellaneous expenses.

For the three months ended March 31, 2024, Other costs decreased compared to the three months ended March 31, 2023, primarily due to lower facility related expenses of approximately $3.8 million, mainly associated with real estate sales and facility consolidations and lower miscellaneous expenses of approximately $3.8 million, mainly related to lower technology costs, partially offset by higher promotion costs of approximately $2.1 million.

For the three months ended March 31, 2024, Selling, general and administrative expenses decreased $6.2 million compared to the three months ended March 31, 2023. The following table provides the breakout of Selling, general and administrative expenses:

In thousands

For the three months ended March 31, 2024, Outside services and other costs, which include services fulfilled by third parties, decreased compared to the three months ended March 31, 2023, primarily due to lower miscellaneous expenses of approximately $5.5 million, including promotional expenses, and lower bad debt expense of approximately $1.2 million.

For the three months ended March 31, 2024, Depreciation and amortization expense decreased compared to the three months ended March 31, 2023, reflecting the impact of fewer print facilities in 2024 compared to 2023.

For the three months ended March 31, 2024, Integration and reorganization costs increased compared to the three months ended March 31, 2023, mainly due to an increase in other costs of $12.3 million, partially offset by a decrease in severance costs of $1.4 million. The change in other costs for the three months ended March 31, 2024 was primarily due to $9.7 million expensed as of the cease-use date related to certain licensed content and the absence in the first quarter of 2024 of a reversal of a withdrawal liability related to a multiemployer pension plan in the first quarter of 2023 of $2.0 million based on the settlement of the withdrawal liability.

For the three months ended March 31, 2024, we recognized a net loss on the sale of assets of $0.9 million as part of our continued plan to monetize non-strategic assets. For the three months ended March 31, 2023, we recognized a net gain on the sale of assets of $16.3 million, primarily related to the sale of a production facility as part of our plan to monetize non-strategic assets.

Domestic 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 Revenues.

For the three months ended March 31, 2024, the increase in Domestic Gannett Media segment Adjusted EBITDA compared to the three months ended March 31, 2023, was primarily attributable to the changes discussed above.

Newsquest segment

A summary of our Newsquest segment results is presented below:

In thousands

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

Revenues

The following table provides the breakout of Revenues by category:

In thousands

For the three months ended March 31, 2024, Digital advertising revenues increased compared to the three months ended March 31, 2023, primarily due to an increase in local revenues, partially offset by lower spend on employment notifications.

For the three months ended March 31, 2024, Digital-only subscription revenues increased compared to the three months ended March 31, 2023, primarily driven by the increase in digital-only paid subscriptions. Refer to "Key Performance Indicators" below for further discussion of digital-only paid subscriptions.

For the three months ended March 31, 2024, Digital other revenues increased compared to the three months ended March 31, 2023, primarily due to higher syndication revenues.

For the three months ended March 31, 2024, Print advertising revenues decreased compared to the three months ended March 31, 2023, primarily due to a decrease in sponsorship revenues due to timing and the ongoing shift in spend to digital platforms.

Operating expenses

For the three months ended March 31, 2024, Operating costs increased $0.3 million compared to the three months ended March 31, 2023. The following table provides the breakout of Operating costs:

In thousands

For the three months ended March 31, 2024, Newsprint and ink costs decreased compared to the three months ended March 31, 2023, primarily due to a decrease in the cost of newsprint of approximately $1.0 million.

For the three months ended March 31, 2024, Distribution costs decreased compared to the three months ended March 31, 2023, primarily due to the decline in revenues.

For the three months ended March 31, 2024, Compensation and benefits costs increased compared to the three months ended March 31, 2023, primarily due to higher headcount.

For the three months ended March 31, 2024, Other costs increased compared to the three months ended March 31, 2023, primarily due to an increase in miscellaneous expenses.

For the three months ended March 31, 2024, Selling, general and administrative expenses decreased $0.6 million compared to the three months ended March 31, 2023. The following table provides the breakout of Selling, general and administrative expenses:

In thousands

For the three months ended March 31, 2024, Compensation and benefits costs increased compared to the three months ended March 31, 2023, primarily due to an increase in bonuses.

For the three months ended March 31, 2024, Outside services and other costs decreased compared to the three months ended March 31, 2023, primarily due to a decrease in facility related costs as well as lower bad debt expense of approximately $0.3 million.

Newsquest 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 Revenues.

For the three months ended March 31, 2024, the increase in Newsquest segment Adjusted EBITDA compared to the three months ended March 31, 2023, 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.

(a) Digital revenues are solely generated by digital marketing services revenues.

Revenues

For the three months ended March 31, 2024, Digital revenues increased compared to the three months ended March 31, 2023, 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 6% for the three months ended March 31, 2024. Refer to "Key Performance Indicators" below for further discussion of Core platform ARPU.

Operating expenses

For the three months ended March 31, 2024, Operating costs increased $5.9 million compared to the three months ended March 31, 2023. The following table provides the breakout of Operating costs:

In thousands

For the three months ended March 31, 2024, 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 months ended March 31, 2023, due to an increase in expenses associated with third-party media fees driven by a corresponding increase in revenues.

For the three months ended March 31, 2024, Compensation and benefits costs increased compared to the three months ended March 31, 2023, primarily due to higher headcount.

For the three months ended March 31, 2024, Other costs increased compared to the three months ended March 31, 2023, primarily due to an increase in miscellaneous expenses, including higher facility related expenses.

For the three months ended March 31, 2024, Selling, general and administrative expenses increased $1.8 million compared to the three months ended March 31, 2023. The following table provides the breakout of Selling, general and administrative expenses:

In thousands

For the three months ended March 31, 2024, Compensation and benefits costs increased compared to the three months ended March 31, 2023, primarily due to higher headcount.

For the three months ended March 31, 2024, Outside services and other costs increased compared to the three months ended March 31, 2023, due to an increase in miscellaneous expenses, including higher bad debt expense of $0.7 million.

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 Revenues.

For the three months ended March 31, 2024, the decrease in DMS segment Adjusted EBITDA compared to the three months ended March 31, 2023, was primarily attributable to the changes discussed above. In addition, for the three months ended March 31, 2024, Other non-operating expense, net increased compared to the three months ended March 31, 2023, mainly due to an increase in unrealized foreign currency losses.

Corporate and other category

For the three months ended March 31, 2024, Corporate and other revenues were $1.6 million compared to $1.4 million for the three months ended March 31, 2023.

For the three months ended March 31, 2024, Corporate and other operating expenses increased $47.9 million compared to the three months ended March 31, 2023. 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 months ended March 31, 2024, Corporate and other operating expenses increased compared to the three months ended March 31, 2023, primarily due to the impairment charge of approximately $46.0 million related to the write-off of the McLean, Virginia operating lease right-of-use asset and the associated leasehold improvements, an increase in Selling, general and administrative expenses, primarily due to a higher technology and product costs, as well as the absence in 2024 of the $1.4 million gain on the sale of intellectual property incurred in the first quarter of 2023. These increases were partially offset by a decrease in Integration and reorganization costs, primarily due to a decrease in severance costs of $3.1 million, and a decrease in other costs of $1.5 million, mainly due to a decrease in system integration costs.

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 operating activities is generated by advertising and marketing services, primarily from local and national print advertising, as well as retail, classified, and online revenues. 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.

Cash flows provided by operating activities were $22.5 million for the three months ended March 31, 2024, compared to $6.7 million for the three months ended March 31, 2023. The increase in cash flows provided by operating activities was primarily due to a decrease in severance payments and higher cash receipts related to deferred revenues, partially offset by an increase in contributions to our pension and other postretirement benefit plans.

Cash flows (used for) provided by investing activities: Cash flows used for investing activities was $12.4 million for the three months ended March 31, 2024, compared to cash provided by investing activities of $20.7 million for the three months ended March 31, 2023. The change in cash flows provided by investing activities was primarily due to a decrease in proceeds from the sale of real estate and other non-strategic assets of $28.9 million and an increase in purchases of property, plant and equipment of $4.2 million.

Cash flows used for financing activities: Cash flows used for financing activities were $18.2 million for the three months ended March 31, 2024, compared to $38.6 million for the three months ended March 31, 2023. The decrease in cash flows used for financing activities was primarily due to $20.9 million in lower repayments of long-term debt.

Debt

As of March 31, 2024, the carrying value of our outstanding debt totaled $1.034 billion, which consisted of $341.5 million related to the Senior Secured Term Loan, $269.5 million related to the 2026 Senior Notes, $419.7 million related to the 2027 Notes (defined below), and $3.3 million related to the remaining 4.75% convertible senior notes due and repaid on April 15, 2024 (the "2024 Notes").

The Senior Secured Term Loan bears interest at a per annum rate equal to the 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 of the Company. Subsequent to the amendment effective as of April 8, 2022, the Senior Secured Term Loan is amortized at a rate equal to $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 months ended March 31, 2024, we made $3.3 million 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.

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 three months ended March 31, 2024, 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 March 31, 2024, we were in compliance with all such covenants and obligations.

Refer to Note 6 — Debt in the notes to the condensed consolidated financial statements 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 months ended March 31, 2024, we did not repurchase any shares of Common Stock under the Stock Repurchase Program. As of March 31, 2024, 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 second quarter of 2024.

Beginning with the quarter ended December 31, 2022, and ending with the quarter ending September 30, 2024, the Gannett Retirement Plan's (the "GR Plan") appointed actuary has and 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, we 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 our 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 we have made a total of $5 million of contractual contributions subsequent to June 30, 2022. As of March 31, 2024, the GR Plan was more than 100% funded.

We expect our capital expenditures for the remainder of 2024 to total approximately $47 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.

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 ESTIMATES

See our most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2023 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 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 performance measures we believe offer a useful view of the overall operations of our business. These non-GAAP financial performance measures, which may not be comparable to, and may be defined differently than, similarly titled measures used or 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.

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) 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, (13) Other non-operating (income) expense, net, and (14) Non-recurring items. We define Adjusted EBITDA margin as Adjusted EBITDA divided by total 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 net income (loss), margin, or any other measure of performance or liquidity derived in accordance with U.S. GAAP. We believe these non-GAAP financial performance 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 core 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. 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 performance 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), margin, or any other measure of performance or liquidity derived 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 performance 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) income attributable to Gannett to Adjusted EBITDA and Net (loss) income 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, core platform revenues 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 the Domestic Gannett Media, Newsquest and DMS segments:

In thousands, except ARPU

In thousands

41

We are exposed to market risk, including from changes in interest rates, commodity prices, 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 March 31, 2024, we had variable and fixed-rate debt totaling $347.1 million and $767.1 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 100 basis points would have increased our interest expense related to our variable-rate debt and likewise decreased our income and cash flows by approximately $0.9 million for the three months ended March 31, 2024. See Note 6 — Debt to our condensed consolidated financial statements for further discussion of our debt.

Commodity Prices

Certain operating expenses of ours are sensitive to commodity price fluctuations, as well as inflation. Our primary commodity price exposures are newsprint and, to a lesser extent, ink, which in the aggregate represented approximately 3.1% and 5.2% of operating expenses for the three months ended March 31, 2024 and 2023, respectively. A hypothetical $10 per metric ton increase in newsprint price would not have materially impacted our results of operations or cash flows based on newsprint usage for the quarter ended March 31, 2024 of approximately 25 thousand metric tons.

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.

Translation gains or losses affecting the condensed consolidated financial statements have not been significant in the past. At March 31, 2024 and 2023, cumulative foreign currency translation losses reported as part of equity were $1.9 million and $8.5 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 months ended March 31, 2024.

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 March 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

There have been no material changes to the risk factors described in Part I, Item 1A, Risk Factors of our Form 10-K for the fiscal year ended December 31, 2023.