Gannett Co., Inc. (NYSE: GCI) reported 31% growth year-over-year in digital-only subscribers for the second quarter of 2020, bringing total digital-only subscribers to 927,000. Gannett Co., Inc. is the new corporate name for the media organization that combined Gannett with hedge fund New Media Investment Group last November. Gannett reported $767.0 million in Q2 revenue, an 89.7% increase over Q2 2019, reflecting the acquisition. Looking at same store pro forma revenue, however, revenue actually dropped 28.0% because of the COVID-19 pandemic.

CEO comments on highlights

Michael Reed, Gannett Chairman and CEO, commented on the quarterly financials for the combined company:

“While the second quarter was significantly impacted by the COVID-19 pandemic, our revenue was in line with the guidance we shared on our last earnings call and our EBITDA performance benefited from our expensive reduction efforts,” Reed said.

“We saw sequential improvement to revenue each month during the quarter and successfully realized over $125 million of incremental expense savings during the quarter. In addition, we continued to execute on our operating and integration plans from the acquisition, with over $160 million of cumulative annualized synergies implemented by the end of the quarter. Combining our incremental expense savings, our synergy implementation, and the normal course expense savings that rolled forward from the first quarter, our operating expenses included in adjusted EBITDA were down 26%,” added Reed.

Overall financial highlights from the quarter include the following:

• Reed referred to $160 million in annualized synergies. Approximately $41.2 million in savings were realized during the quarter.
• The company recorded a $393.4 million non-cash goodwill and intangible impairment charge
• GAAP net loss attributable to Gannett was $436.9 million, including the $393.4 million mentioned above plus a $66.3 million depreciation and amortization charge.
• The company repaid $6.3 million in principal debt during the quarter.
• Gannett sold $7.5 million in real estate, using the net proceeds to reduce debt. It expects to sell another $100 million to $125 million in real estate by the end of 2021 which will also be used to reduce debt.
• Capital expenditures for the quarter were $8.4 million for product development, technology and maintenance projects.
• At the end of the quarter, the company had cash and cash equivalents of $158.6 million.

Segment highlights

Segment highlights include the following:

• Publishing revenue was $695.9 million.
• Circulation revenue was $342.6 million. Same store pro forma circulation revenues dropped 13.6% due to a reduction in single copy and home delivery sales.
• Print ad revenue was $187.9 million; digital ad and marketing services revenue was 104.4 million.
• Commercial printing and other revenues were $61.0 million in the second quarter.
• Marketing solutions revenue was $94.7 million.

COVID-19 impacts

Gannett broke out COVID-19 related impacts in its earnings report. Highlights include the following:

• The $125 million in expense reductions included furloughs, pay reductions, reductions in force and the cancellation of non-essential travel and spending.
• The company reduced capital spending for the year by 20%.
• Gannett has suspended quarterly dividends until the economic situation stabilizes.
• The company adapted its workplaces to support the health and safety of employees. By late March, 95% of non-production and delivery employees were able to work from home. They continue to explore opportunities to provide safe environments for employees to return.
• In terms of content, the company created tailored content for readers related to COVID-19. This content has received more than 885 million views since mid-February at no charge. This included Nation’s Health daily COVID-19 specific section in USA Today (print and digital) and newsletters from USA Today and 35 local markets for readers.
• In late May and early June, when social justice protests and demands for police reform followed the death of George Floyd, Gannett websites saw a 45% increase in daily visit to local websites.
• The company’s Support Local platform launched and had more than 1.6 million page views to help support local businesses. For businesses, they offered free business listings for those who offered special services like gift cards or delivery.

The elephant in the room

What Gannett did not address in its second quarter financials was the elephant in the room – the elimination of the CEO position held by Paul Bascobert who headed up the operating company, Gannett Media Corp.  Bascobert took the role in August 2019, helping to facilitate the $1.1 billion merger between New Media Investment Group and Gannett last fall.

According to a June 18 news release, Gannett Co. said the decision to end Bascobert’s employment was mutual. It was not due to any inappropriate action, violation of company policy, accounting irregularity or material deterioration of the business. Prior to joining Gannett, Bascobert was a former executive with Dow Jones, Bloomberg and XO Group Inc., said USA Today. Michael Reed, who serves as chairman and CEO of parent company Gannett Co., will take over Bascobert’s responsibilities.

What doesn’t make sense about this move is that Bascobert was let go when he wasn’t drawing a salary. He gave it up as part of the salary reductions earlier in the year to help the company cut costs. It seems there is more to the story than what we are hearing.

Insider Take

The second quarter was an eventful one for all news organizations. In Gannett’s case, impacts included everything from COVID-19 related ad revenue losses, increased readership and costs related to work-from-home arrangements to increased social justice coverage and determining how Gannett can play a stronger role internally to support racial equity and diversity in their own news rooms.

In the third quarter, the company will continue to reduce expenses which may include additional layoffs or furloughs and the sale of additional assets, including real estate. It will also likely include a spike in ad revenue. Though most publications have lost significant ad revenue due to the pandemic, the presidential election season will be in full swing, and we expect both sides to invest heavily in advertising. This could benefit Gannett to help offset COVID-related ad losses in the third and fourth quarters. What we don’t know is what Gannett will look like after the election and how many of their temporary measures will become permanent ones.