USA TODAY Co., Inc. Q4 FY2024 earnings call

• 2024 was a year of progress with significant improvement in key metrics, including same-store revenue trends, adjusted EBITDA, net income, and free cash flow. • Digital revenues grew 5% in 2024 to ~$1.1 billion, making up 44% of total revenue, aiming for 50% in 2025 with 7%-10% same-store growth. • Content team focused on audience growth, with 12 consecutive months of at least 1 billion page views, and initiatives like expanding sports content and video strategy. • DMS business focused on improving account performance, client experience, retention, and expanding total addressable market. • Partnership revenue growth tempered by Google's policies, but opportunities in e-commerce and affiliate marketing with bundled content offering with Reuters. • 2025 expects adjusted EBITDA and free cash flow growth, top line same-store growth, and continued investment in technology and product portfolio.

In Q4, total operating revenues were $621.3 million, down 7.2%. Adjusted EBITDA was $78.2 million, up 5.5%. Total digital revenues in Q4 were $280.4 million, up 1.2% or 3.4% same-store, accounting for 45.1% of total revenues. Domestic Gannett Media segment adjusted EBITDA was $58.7 million, up 4.7% year-over-year with 12.2% margin. Newsquest segment adjusted EBITDA was $11.2 million with 19.2% margin. Digital Marketing Solutions business core platform revenue was $116.2 million, adjusted EBITDA $11.4 million with 9.7% margin, ~13,900 core platform customers and $2,800 ARPU up 4.7% year-over-year.

• 2025 expects adjusted EBITDA growth driven by improving revenue trends and cost management. • Total digital revenues to grow 7%-10% same-store. • Total revenue declines low single digits same-store, Q1 same-store revenue trends in line with Q4 2024, sequential improvement from Q2, same-store revenue expected to grow overall by end of 2025. • Adjusted EBITDA expected to decline in Q1 2025, then improve and grow in back half. • Capital expenditures to increase in 2025, impacting free cash flow by $10 million, Q1 free cash flow expected to decline year-over-year but full year growth over 40% expected. • 2026 targets remain strong factoring in 2024 refinancing interest impact.

• Macro environment and higher churn in DMS business can impact performance. • Google's updated search policies and algorithm changes negatively impacted partnership revenue. • Uncertainty around timing and outcome of legal cases like DOJ case and Texas case against Google could impact business. • Asset sales and debt paydowns depend on successful closures and market conditions which may have uncertainties.

Q: Congrats on the continued execution on the long-term plans here. One thing I was curious about asking you is when you look at the 7% to 10% same-store digital growth outlook for 2025, I think you guys were at 5.8% in 2024 and DMS was effectively flat. I'm curious when you look at the 7% to 10% range, how much of that is flat to up outside of DMS versus DMS coming back up into positive territory? And then how should I think about the contribution from those two different parts in driving kind of a reacceleration in the digital revenue growth rate?

A: Yes, Giuliano, thanks for the question. We -- there's a combination of both accelerated digital advertising growth as well as DMS growth. The DMS growth would be more of an enhancer towards the last two quarters of the year and the digital advertising growth would be more consistent throughout the year. But I think overall, moving from 5.8% to 7% to 10% is going to be a combination of both digital advertising and DMS. And it's hard to say exactly which one will be the dominant one but we expect, as I said, digital advertising to be more of an enhancer all year versus DMS which will be an enhancer in the back half of the year.

Q: And then going back to the asset sale and the debt paydown topic. There were a couple of asset sales that were going to be pushed from 4Q into 1Q and then there's also the announcement of the sale to Hearst. I'm curious, when we think about kind of the aggregate of those, assuming those things close in 1Q, is there a rough sense of like how much that could be in total? And I would assume you'd use all the proceeds to pay down debt.

A: Yes. Yes, we'll use all the proceeds to pay down debt. I think 1Q, it's probably in the $50 million to $60 million range. And then when you look at the first half of the year, it's more like $60 million to $70 million.

Q: Then you obviously put out some commentary around asset sales. I'm curious when we think about the asset sales so far, is there any -- is there a rough sense of what the revenue impact is for kind of digital versus nondigital for the existing sale and then how impactful that trend could be for other asset sales throughout the year?

A: Yes. For the sale of Austin, their business was very reflective of our overall business. So, kind of that 45-55 mix of digital and print. The other asset sales, Giuliano, that we're working on are primarily around kind of real estate nonstrategic stuff. But as you can hear from our remarks, not only today but on all of our quarters, one of the key components to our long-term strategy is the scale we're building in the digital world. So, while we will always take inbounds on properties at potentially high multiples, we're not actively out there trying to sell anything because our long-term strategy is dependent upon the scale that we're building on the digital side. So, I wouldn't -- we're not actively out there trying to market things but certainly, we look at inbounds. And as we said, we're only going to sell assets that come with a very compelling multiple that is accretive to our shareholders. I hope that answers your question.

Q: And thinking about the debt paydowns, it kind of implied the bit of an acceleration in debt paydowns with asset sales specifically in the first half of the year. I'm curious, is there a point at which it would make sense to consider working on a different capital structure set up, whether it's hopefully getting a better cost on the term loan or moving into a hybrid of a different term loan and some notes and/or trying to work on reducing the dilution going forward. I'm curious how you're thinking about that and like if there are any events that would help from a deleveraging perspective on the front end?

A: Yes. Look, I think we're -- first of all, with the asset sales that Doug mentioned in his comments today of potentially $60 million to $70 and then combine that with our regular way amortization and our excess cash flow that we'll generate this year, we expect pretty significant debt paydown well north of $100 million. And as we get towards the end of the year, our first lien net leverage should be down closer to 2x. And that's probably a good tipping point to go to maybe the more regular way bank markets for refinancing. And then our goal with the converts that remain is to try to do something similar to what we did this past year where we're able to convert those at some premium into debt and reduce further dilution. We're not quite there yet. That's probably not a 2025 event but that would be the goal. So, refinance the current first lien debt into a lower cost of capital structure and then tackle the second lien converts.

Q: Very helpful. And then one last one on inevitable topic to ask about. But我'm curious when you think about the -- I guess, you obviously have your case against Google and then there's the DOJ case and there's also other attorney generals. I'm curious if there's any update or any perspective from your side around the potential timing of a ruling in that case or how you think that impacts your case?

A: Yes. Well, the timing of the ruling on the DOJ case really doesn't impact our case. Our case is proceeding along as we expected. Information has been shared back and forth. Expert witnesses have been hired and that's all proceeding just as we planned. We feel as good about our case today as we have all along. So, nothing changes there. The timing of the DOJ case, as I said, doesn't impact us. We also don't believe that the timing of the ruling shows any kind of weakness or anything like that. We think the DOJ put on a strong case and we expect we expect the DOJ to have a favorable ruling. But obviously, that -- we haven't seen anything there yet. The other thing that's coming around the corner is the Texas case against Google in the same -- for the same ad tech antitrust issue is going to trial late in the first half of this year and that's Texas and 17 states. So, we're kind of excited to see that get going, too. But nothing's changed on our end and things are on track and we feel good about our position here.

Q: My first one is just back on the asset sales. Mike, it sounds like你 aren't looking proactively to sell off any more trophy assets unless something comes in with the right multiple. But maybe can you just remind us where are we as far as what assets are left from the nonstrategic portfolio that you think that you can sell off here, not only in 2025 but in 2026 and beyond?

A: So this is Doug. First, we definitely agree with your kind of first point there in terms of marketing other properties. I mean it definitely is really dependent on a facts and circumstances basis and has to be kind of at a premium relative to our implied trading multiple. With regard to other asset sales, we gave the information this morning about $60 million to $70 million for the year. The vast majority of that relates to Austin and then there is some component of real estate that we expect to sell during the year. So, those are the biggest components as we look at this year. Going further out, I would say that we're at the tail end of that real estate pipeline. We still have some properties. And as we continue to optimize our footprint, we'll generate some new properties for that pipeline. But it will primarily be real estate as we move forward.

Q: Great, that's super helpful. And then, my second one is just on -- can you contextualize the opportunity with Reuters and the bundled content offering? Is there anything you can provide in the size of budgets from local publishers and broadcasters that are available to license your content?

A: Yes. Matt, it's -- I would characterize the opportunity over the next couple of years as kind of a low to mid-single-digit millions type opportunity. Over the long run, depending on our offerings and where we can expand through with Reuters distribution in combination with USA TODAY, it could get bigger. But right now, I'd think about it more in that low to mid-single-digit millions type opportunity.

Q: And then just a final one for me. Can you just talk about the key levers that you guys have at your disposal for 2025 for growing digital subscriber growth? Just yes, what are the key levers there? And how do you think about pushing that going forward?

A: Yes. Matt, it's primarily through the personalizing the experience by understanding when consumers come to our platform, each individual consumer, what are they engaged with, what do they spend the most time with and how can we use our vast array of content to continue to serve more personalized experiences to that consumer which will lead to, we believe, better -- or better conversion from users to paid subscribers. And then really, one of the things we mentioned in the earnings call was really going back and doubling down on the work we're doing in local markets. And so, with more focus on local content creation, that's listening to the data on what consumers are using, what are they engaging with, personalizing that experience and having a broader set of content that we understand from the data is what consumers want and then making that more personalized experience, we believe will accelerate the local subscriber paid -- the local paid subscriber numbers. So, it's really a data play and a personalization play.