Just weeks after Gannett Co., Inc. (NYSE: GCI) rejected MNG Enterprises’ unsolicited takeover bid, Gannett reports its fourth quarter and full year 2018 results, including total operating revenue of $751.4 million, compared to $854.2 million in Q4 2017. This represents a 12 percent decrease year-over-year. Advertising and marketing services revenue totaled $427.2 million, circulation was $273.8 million and other revenue was $50.4 million for the fourth quarter.

Looking at full year 2018 results, Gannett reported total operating revenue of $2.92 billion, with advertising and marketing services revenue of $1.67 billion, circulation revenue of $1.06 billion and other revenue of $192.7 million. For the full year 2017, Gannett had total operating revenue of $3.15 billion, representing a 7.3 decrease year-over-year.

“Overall, we are pleased with the fourth quarter revenue trends in our publishing segment, which showed improvement as compared to the third quarter. Our domestic operation results were more encouraging, while our UK operations experienced weaker trends as Brexit continues to create uncertainty that is impacting the UK economy. Our ReachLocal segment delivered another strong quarter of revenue growth and margin improvement, and work stream continues to perform in line with our expectations,” said Gannett president and CEO Bob Dickey on the February 20 earnings call, transcribed by Seeking Alpha.

Additional highlights for the quarter include:

• Adjusted operating revenues decreased 8.6 percent year-over-year.
• Publishing segment operating revenues were $660.0 million, compared to $764.8 million in Q4 2017.
• Adjusted print advertising revenue was down 21.3 percent year-over-year.
• Total digital revenue was $272.3 million, or 36 percent of total revenue.
• Total digital advertising and marketing services revenue was $204.5 million, or 48 percent of total advertising and marketing services revenue.
• Digital classified revenue was $16.4 million, a 12.9 percent decrease.
• Adjusted circulation revenue was down 4.6 percent compared to Q4 2017.
• Digital-only subscriber volumes grew 46.3 percent year-over-year. Gannett now has approximately 504,000 digital-only subscribers.
• Net cash flow from operations was $16.1 million, compared to $72.8 million in the same period last year, due, in part, to lower operating earnings and higher pension and other post-retirement payments of $14.2 million.
• Capital expenditures were approximately $19.3 million for product development, technology and maintenance projects.
• Adjusted EBITDA was $111.0 million, compared to $132.7 million in Q4 2017.
• GAAP net loss was $14.2 million, including $56.3 million of after-tax restructuring, asset impairment charges and other costs.
• At the end of the quarter, the company had a cash balance of $93.6 million.

Additional highlights for the full year include:

• Digital revenue was $1.1 billion, representing 36 percent of revenues.
• Digital advertising and marketing services revenue was $781 million.
• ReachLocal revenue increased 15 percent with “strong margin improvement.”

“During 2018, our B2B organization implemented a strategic sales transformation that has positioned us well for future expansion and our B2C organization delivered strong audience gains while also winning three Pulitzer prizes. As we look forward to 2019, we remain committed to producing award-winning journalism, driving growth across our digital businesses to reach a key milestone of more than half our advertising revenues from digital sources and continuing our cost rationalization efforts to support our transformation,” said Dickey in a news release.

The company provided the following outlook for 2019:

• Consolidated revenue between $2.74 billion and $2.81 billion
• Consolidated adjusted EBITDA between $285 million and $295 million, including $8 million in costs resulting from the CEO transition
• Capital expenditures between $50 million and $60 million, not including real estate projects

On the February 20 earnings call, Dickey addressed the MNG proposal that the Gannett board rejected on February 7 and MNG’s intent to nominate six new members to the Gannett board of directors. MNG currently owns 7.5 percent of Gannett.

“After careful review and consideration conducted in consultation with financial and legal advisors, the Gannett Board concluded that MNG’s unsolicited proposal undervalued Gannett, is not in the best interest of the company and our shareholders and is not credible,” Dickey said.

On February 7, Gannett held a meeting with MNG so MNG could provide answers to Gannett’s questions about MNG’s proposals. Gannett said they did not receive satisfactory answers to their questions.

J. Jeffry Louis, chairman of the Gannett board, said, “We are disappointed that at the meeting on February 7, MNG again failed to provide substantive answers to the basic questions Gannett has repeatedly raised. Instead, MNG offered vague and generic statements that further confirmed the board’s decision to reject MNG’s proposal.”

At that same meeting, MNG provided Gannett with notice that it intended to nominate six directors to the board. Each of those six is somehow tied to MNG or its majority shareholder Alden Global Capital. In a statement, Gannett said it does not believe these directors could “fairly, and in a disinterested way, evaluate and advise Gannett shareholders on MNG’s proposed transaction.”

“MNG’s credibility was further undermined by its decision to nominate six director candidates, all of whom are affiliated with MNG and/or its majority shareholder Alden Global Capital, to stand for election to Gannett’s board. MNG’s acknowledgement that these nominations are indeed intended to advance its efforts to acquire Gannett further underscores the proposed nominees’ clear and irreconcilable conflicts of interest and inability to satisfy fiduciary responsibilities to all Gannett shareholders,” said Louis.

Besides the battle with MNG, Gannett has some other plans on tap for this year. The company will continue to focus on efficiency, including outsourcing some technology functions during the first half of the year and the restructuring of some newsrooms. Gannett has implemented a more strategic approach to pricing for 2019, offering lower price points which will negatively impact incremental revenue and overall circulation revenue.

Gannett stock has been somewhat volatile over the last 30 days with a sizable drop from February 19 ($11.26 per share) to February 22 when the share price as $10.78 per share. On February 26, 2018, Gannett stock was valued at $10.69 a share. MNG’s proposal would pay Gannett $12 per share, which the company has not hit in the last year.

Insider Take:

Gannett is in a precarious spot right now with less-than-impressive financials and stock values and a premium offer on the table from MNG, also known as Digital First Media. It is clear that Gannett leadership does not want the company to go to MNG, but they may not have a choice if MNG stacks the board against them. We’ll be watching this tug-of-war carefully.