Gannett Co., Inc. (GCI) (“Gannett” or “company” or “we” or “our”) today reported fourth quarter and full-year 2017 financial results for the period ended December 31, 2017. Our full-year 2017 results include 53 weeks as compared to 52 weeks in 2016, with the extra week impacting the fourth quarter. For comparability purposes, our same store revenue comparisons exclude the 53rd week.

“We are pleased with our financial results for the full-year 2017. Digital revenues grew to $1.0 billion and now comprise 31.6% of total revenues, evidence that our transformation to a next-generation media company is well underway,” said Robert J. Dickey, president and chief executive officer. “Additionally, we delivered year-over-year revenue growth and flat Adjusted EBITDA, despite continued secular pressures in print advertising and circulation.”

Dickey continued, “In the fourth quarter, we improved Adjusted EBITDA, despite a more challenging print advertising environment than expected. Strong profitability gains in our ReachLocal segment and solid overall cost management offset print revenue pressures. Looking ahead to 2018, we remain focused on growing our marketing solutions and consumer businesses, while driving additional operating efficiencies.”

“We are excited by the momentum in the ReachLocal North America business, especially with the newly migrated Gannett clients,” said Sharon Rowlands, president of USA TODAY NETWORK Marketing Solutions and chief executive officer of ReachLocal. “There is a tremendous opportunity to increase penetration across our local markets by growing both new digital marketing services customers and wallet share. In 2018, we plan to capitalize on this significant opportunity with our newly aligned sales organization, which we expect will drive revenue growth and margin improvement.”

Fourth Quarter 2017 Consolidated Results

• Operating revenues were $854.2 million, including approximately $49.1 million from the 53rd week, compared to $867.0 million in the prior year quarter.
• Favorable changes in foreign currency exchange rates benefited revenues by $4.2 million.
• Same store operating revenues declined 8.8%, an improvement compared to a decline of 9.4% in the third quarter of 2017, due to our strategic subscriber pricing initiatives and the inclusion of a full quarter of ReachLocal revenue in our same store calculation.
• Total digital revenues increased to $272.3 million, or approximately 31.9% of total revenue.
• GAAP net losses were $13.6 million, including a $42.8 million tax expense from the Tax Cuts and Jobs Act of 2017 and $27.6 million of after-tax restructuring, asset impairment charges and other costs.
  • The effective tax rate was impacted by one-time items related to the reduction in deferred tax assets that resulted from the decrease in the federal statutory tax rate from 35% to 21% and valuation allowances recorded on certain deferred tax assets. The effective tax rate for the fourth quarter without charges related to our deferred tax assets and other adjustments was 25.7%.
• Adjusted EBITDA ⁽¹⁾ totaled $132.7 million compared to $129.8 million in the prior year quarter with a 50 basis point margin improvement year-over-year; the 53rd week contributed approximately $3.6 million in Adjusted EBITDA.

Fourth Quarter 2017 Publishing Segment

• Publishing segment operating revenues were $764.8 million compared to $790.5 million in the prior year quarter.
• Same store publishing segment operating revenues declined 10.0% year-over-year.
• Same store print advertising revenues declined 18.5% year-over-year, consistent with the 18.7% decline in the third quarter of 2017.
• Same store circulation revenues fell 6.7% from the prior year quarter compared to a 7.6% decline in the third quarter of 2017, primarily reflecting the positive impact from our subscriber pricing strategies.
• Digital-only subscriber volumes grew 49.5% year-over-year and now total approximately 341,000.
• Digital advertising revenues increased 7.3% to $118.9 million compared to the prior year quarter.
  • Same store digital revenues increased 0.7% with growth in areas such as digital marketing services, audience extension, mobile and branded content, offset in part by weaknesses in digital classified and local desktop display.
• Publishing segment Adjusted EBITDA was $149.2 million compared to $145.9 million in the prior year quarter reflecting continued operational efficiencies.

Fourth Quarter 2017 ReachLocal Segment

• Operating revenues were $101.4 million, a 34.9% increase compared to the prior year quarter; excluding the 53rd week, the increase was approximately 25.6%.
  • The increase was attributable to continued solid growth in North America and the migration of Gannett clients onto the ReachLocal platform.
• Adjusted EBITDA was $7.0 million, representing a 6.9% margin, up from the 5.6% margin in the third quarter.
  • Improved profitability in the quarter was driven by solid growth in average revenue per client due to more successful cross-selling and the continued ramp up of Gannett clients on the ReachLocal platform.

Fourth Quarter 2017 Cash Flow

• Net cash flow from operating activities was approximately $72.8 million compared to $47.6 million in the prior year quarter.
• Capital expenditures were approximately $25.4 million, primarily for product development, technology investments, and maintenance projects.
• The company paid dividends of $17.9 million; there were no share repurchases.
• The company had a cash balance of $120.6 million and a balance on its revolving line of credit of $355.0 million, or net debt of $234.4 million.
• Long-term pension liabilities totaled $421.9 million at year end, down $256.1 million from the end of the third quarter 2017 primarily due to strong asset returns during 2017.

Subsequent Event

On February 5th, we closed on the sale of one of two parcels of property in downtown Nashville, generating net proceeds of approximately $38 million. The second parcel is planned to close in the second quarter of 2018 for an additional $6 million. We have entered into a leaseback for the next 15 months. As a result of the sale, plus additional cash generated during the first quarter, we have paid down an additional $50 million on our revolver in the first quarter, resulting in a revolver balance of $305 million.

Outlook

For 2018, the company expects the following:

• Consolidated revenues of $2.930-3.030 billion.
• Consolidated Adjusted EBITDA of $330-340 million.
  • The slight margin compression reflects rising newsprint prices, our continued transformation to digital and a contribution to our charitable foundation.
• Capital expenditures of $65-75 million, excluding real estate projects.
• Depreciation and amortization of $140-150 million, excluding accelerated depreciation related to facility consolidations.
• The non-operating cost associated with our pension plans, recorded in other non-operating items, is currently estimated to be a credit of $5-10 million as compared to an expense of $21 million in 2017.
• An effective tax rate between 25% and 27%.

We will be moving our reporting calendar to the Gregorian calendar in 2018 as compared to our 5-4-4 reporting calendar in 2017. From a quarterly perspective, this change will impact our traditional print operations as we will lose one Sunday in the first quarter of 2018 and gain one Sunday in the third quarter. As Sundays are our most profitable days, this change will reduce our first quarter margin and benefit our third quarter margin. Additionally, we expect softer revenue and Adjusted EBITDA in the first quarter as our sales transition is implemented but do anticipate trend improvement in total advertising revenues and Adjusted EBITDA margins as we progress throughout the year.

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