Good afternoon, everyone, and welcome to Needham's Nineteenth Annual Technology, Media, and Consumer Conference. With me today, we have Gannett. From Gannett, we have Chairperson and CEO Mike Reed and CFO Doug Horne, as well as Trisha Gosser. So I guess maybe a good way to sort of start is maybe give a bit of a overview of Gannett, for maybe people who are less familiar with the story and sort of start from there, and yeah.
Yeah, so I'll jump in. Thanks for having us. We've been coming here for quite a few years now and have really enjoyed being part of the conference and have met several great investors, you know, as a result of this conference. For those who might be new to the story, Gannett is a media business that's, you know, focused primarily on news in small, mid-size, large markets here in the U.S. and in the U.K., and we have a national business as well, the USA TODAY, which is our big kind of flagship brand. We have a media business that's in transition from legacy print to a digital business. We're nearing the end of that transition, which is great.
It's taken a while, but our digital revenues are growing rapidly and represent about 42% of total revenue. So getting close to that inflection point where digital revenue is more than half of our revenue and growing faster than our legacy print business is declining. We also have a complementary digital marketing solutions business called LOCALiQ, that's reached about $500 million in revenue now. That's also growing nicely. So we're a media business that has massive scale. We reach 187 million uniques a month, one of the largest media businesses in the U.S. We have multiple digital revenue streams, so we're not dependent on one thing. And then we have, as I mentioned, a complementary digital marketing solutions business, which is a great B2B business.
So pretty excited about the opportunity in front of us and, you know, where we are in our journey, our life cycle of the transformation of this legacy news business into a growing digital media business, not just a news business. So that's a little bit of an overview. We have about $2.6 billion-$2.7 billion in revenue and, you know, about $270 million of EBITDA. We've we had a pretty good first quarter, which we released a week ago and, you know, part of our projections or forecasts with our earnings was we expect to reach our revenue inflection point by the end of this year.
We expect to grow EBITDA and Free Cash Flow this year, and we forecasted a 40% CAGR for the next three years on Free Cash Flow growth. Our First Lien Net Leverage is down to two times on a net basis, and we expect that to continue to come down as we primarily use Free Cash Flow to pay down debt to our capital allocation strategy today. And so we have a, we have a value creation strategy for shareholders that is both a delevering story combined with a revenue growth story, moving from a declining business to a growing business. We think that in and of itself, combined with our delevering story, really will result in a pretty significant multiple re-rating on the company over the next 12 months.
All right, great. That was a great overview. And you alluded to the digital revenue transition there, and so maybe start with my first question there. Obviously, it really jumped in the first quarter of this year. Just sort of wanted to get a gauge if that was in line with the expectations and sort of further improvement possible going forward, and what your sort of long-term sort of goals with that are.
Yeah. So, you know, we were not, we're not surprised by the performance. The actions that we really started to put in place over the last 12 months to 18 months, we expected to show up in our financial results, and they now are showing up in the financial results. These are things we've been talking to investors about to keep them apprised of progress in terms of execution on the strategy now showing up in the financials. So we're not surprised at the results. What I would say, though, is the results in the first quarter were actually better than we thought, which was encouraging, and not better than we thought just in one place, but broad-based across all of our digital revenue categories, we saw more strength than we anticipated.
So we expected to see nice growth in the first quarter. We expect to see nice growth through the full year. We forecasted 10% growth through the full year. We had about 2.3% growth in the fourth quarter last year, so you can see we're making a pretty big jump from 2.3 to 10. You know, we had 8% growth in the first quarter, which was a little bit ahead of our expectations, but we do expect to continue to see that growth accelerate this year. And as we, you know, we did reiterate 10% growth for the full year. And as we move into next year, we expect to grow 10%+ year-over-year for the next few years.
We do expect our digital revenue, which is about 42% of total revenue today, to surpass 50%, you know, this time next year. As we look out over the next couple of years, we see revenue, digital revenue getting to 60% of our total revenue growing at 10%.
... All right, great. And that's probably a good segue into the next question, which is sort of the mix between digital revenue and non-digital revenue. Now, you put out a target for 2026 of 55% digital revenue. Is that- and you've sort of alluded to 60% there. Is 60% a sort of a good number to think of as a long-term for digital revenue contribution, or are we expecting it to be a little bit higher?
Yeah, I think we'll get to 55% in 2026, and as we end 2026, and you look at, like, the individual month or the first quarter of 2027, you'll see, 'cause that number is gonna continue to get bigger as digital grows and print declines. So we'll be into that 60 percentile range as we get into 2027.
Okay. And then sort of with print revenue as well, how are we sort of feeling with that? Obviously, we saw sort of less of a decline in the first quarter.
Yeah.
How are we expecting that to sort of go forward as well? Are we seeing that returning to growth at a certain point this year or next year?
No. Well, we do expect. The print business, the legacy print business, is in secular decline. We do expect that decline to continue. We have taken actions to improve service and improve the quality of the product, which is leading to stability in those declines. So not declining as fast as it was, which is great, but we don't expect the print business to return to growth. We think that will continue to decline, you know, at a rate of 10% or less than 10% per year. However, as we go out into next year and the next couple of years, as we just went through with digital, getting past 50% and eventually 60% of the total business, those declines in print will have less of an impact on the overall business.
Okay. Well, great. And I guess sort of now moving down the, the P&L sort of statement down to adjusted EBITDA and then also Free Cash Flow as well, trends are above consensus. How do you feel you're sort of tracking with that and sort of long-term targets there and goals?
Yeah, I would say, based on, you know, where we sit for Q1, we're exactly where we wanted to be in terms of our objective this year of growing both EBITDA and Free Cash Flow. When you think about kind of the upcoming quarter, I think Q2 Free Cash Flow is gonna look a lot like Q1 did. And so the Free Cash Flow growth is gonna be a little bit weighted towards the back end of the year. And then, you know, when you think about EBITDA, you know, we're gonna see that consistent improvement through the year, a little bit more predominantly weighted to the back half. And so, you know, we feel good about the growing EBITDA and growing Free Cash Flow guidance.
And, you know, longer term, you know, we've put out kind of benchmarks in terms of our expectations around that. And as we sit here today, I think we're exactly where we wanted to be. We feel the momentum in the business, and, and feel like we're executing well.
Great. And then sort of shifting, obviously, you talked about at the start in terms of the de-leveraging that has been taking place over the last couple of years. Sort of, obviously, you've done an incredible job sort of bringing that down. What is the target for that going forward? Are you sort of targeting a net debt number that you want to get to before your prioritization for Free Cash Flow spend changes?
Yeah, I mean, this year we've talked about paying down at least $110 million between fixed amortization and asset sales. And, you know, debt repayment remains really our top kind of capital allocation priority. Longer term, we'd like to see, you know, our net First Lien leverage below that 1x. You know, where it exactly sits, you know, we'll have to determine at the time, but we believe having that below 1x will give us more flexibility. And at that point, you know, it opens up, you know, you know, either further investment in the business, M&A opportunities, you know, stock buybacks, all sorts of things. And so that's what we're really targeting.
Do you have sort of a rough timeline of when that might sort of start to happen or occur?
Well, we're at 2x First Lien Net Leverage now. You know, I think we'll make some incremental progress, obviously, this year through the growth in EBITDA and the debt repayment. And so, I would say it's, you know, within the next two-three years, we'll be at that spot.
Great. I guess, shifting gears here towards sort of the audience engagement piece. So you referenced all the growth in audience and page views sort of recently, and just sort of wanted to get an understanding of what's driving that, and can you replicate that going forward?
Yeah. You know, I think we're actually very pleased with what we've been doing on the audience side, both from a growth perspective as well as an engagement perspective. And, you know, I would say it's really a shift in strategy that goes back 12 months to enact a strategy where the work that our content teams do across the country, number one, is not just local service journalism and not just local news, but creating content that's relevant to people, that has value to people, brings joy to people, and it elicits interests that people have. So things like sports, financial services, pets, things that are beyond just hard news. News has always been a core thesis for us, and it's definitely great lead gen to bring audience in.
But what we've really enacted is a strategy. In one sentence, I would say we've gone from a news business to a content business, and we create content every day that engages more with the audience and brings more audience in. So more specifically, things around sports, things around puzzles and gaming and crosswords. Another one-off example, we hired a full-time beat reporter to cover Taylor Swift this year. So we have new Taylor Swift content every day across our platform, and that's bringing in a whole different audience than might be coming to us to get a report on, you know, what's going on with Joe Biden today. So we've really enacted a strategy that is leading to how do we grow and broaden our audience, but more importantly, how do we engage more with that audience?
And then beyond the content that we create, so we've built teams and added content creators to embrace this strategy. It's working really well. The other thing we've done is we've gone out and found partners who create great content in certain categories that are relevant to where we wanna grow with consumers, like gambling, like financial services, like home services. And we've brought that content onto our platform without any cost to us on a revenue share basis, based on actions consumers take from that content. That's allowed us to continue to build audience at no cost to us, but also to bring in revenues as consumers engage with that content. That's 100% monetization to us, so that's our partnership strategy.
So I think we've really embraced the notion of going from a news business to a content business, and that's really helped us create this this massive audience and better engagement. We're still in the early stages, though. As I said, we really just embraced this 12 months ago, so we still have the majority of the opportunity in front of us. So we're pretty excited about the sustainability of this as we go forward.
All right. Great. Sounds fantastic. I guess sort of you alluded to as well of a product launch of DMS business in quarter two as well. Maybe we can sort of go through a little bit more detail about the product itself, the market opportunity, what are you trying to solve for? Yeah.
Yeah. So, the DMS business is really a business that is responding to the advertising ecosystem we live in today in the digital world, where most marketers, most businesses want to pay for performance. So our digital marketing solutions business helps businesses acquire customers, maintain customers through lead gen work in the digital world. And so we're able to produce, you know, accountable ROIs, if you will, so businesses can understand exactly what their spend with us is producing for them. We've continuously updated our product set to respond to what our businesses tell us they want.
The latest software product that we mentioned on our last earnings call that you're asking about now is specifically in response to the biggest pain point that our customers have today and small businesses have today, which is about 30% of all leads that we bring to them or somebody else brings to them fall through the cracks, and they don't get responded to, whether it's a missed email or a missed text or a phone call that never gets answered. So can you imagine being a business, and you spend a certain amount of money to bring in 10 leads, and you only follow through on seven of those? And then how many of those actually get converted?
What we're answering the bell there with a product, an AI-powered solution for businesses that will allow them to have 100% of the leads followed, responded to, if they choose. And so we're really excited about this product and the opportunity. Obviously, our own customer base is where we'll go first with this, but then from a broad-based perspective, we think the addressable market is tremendous. Look, there's 30-plus million small businesses in the country. The smaller the business, the more leads fall through the cracks. So this has a lot of opportunity for us over the next, you know, several years, if not more. So we're pretty excited about it.
You know, we'll launch it here in the U.S. this year, and we'll do it with our own customers, and then from there, we'll make adaptations as we need to, improve the product, and then broaden the reach of it from there.
Right. Well, I guess now sort of shifting towards sort of AI more broadly as well. Obviously, it's a bit of a trendy topic at the moment. So there's obviously been a lot of news in the quarter about other publishers seeking compensation from AI, with another lawsuit announced. How is Gannett approaching the AI landscape?
Yeah, you know, look, it's a, it's a tricky one, right? We, we produce highly relevant and valuable content every day. If we didn't, we wouldn't have 187 million people come to us every month, right, uniques. So what we're producing is really relevant to people, and it's valuable. And for AI companies to take that copyright-protected content without paying for it and using it for commercial purposes is basically just against the law. And so our view is we need to be paid fairly for that content. So of course, we're looking to negotiate deals with all of the various AI platforms that want to ingest our content to train their models, but also to keep their models relevant on a going-forward basis, right? That's really the most important part of this. Once you train your model, that's only one step in the equation.
In order to stay relevant for consumers a month from now, six months from now, they're gonna be asking questions that are, that are six months from now, right? Like, you know, next, next February or March, people might be wanting to understand stuff about next year's Super Bowl. So the AI training models from last year don't have any information on next year's Super Bowl. So what, what we really are taking, our approach here at Gannett is to, to work with these various AI companies to strike the right balance on what's fair compensation for our content in order to have it in those models. We're not there today. You've seen a few companies, mostly international, like, Axel Springer and Financial Times, strike deals. Those deals aren't for a lot of monetary compensation.
So the thought process in those companies behind that, and I'm not exactly sure of, we don't agree with it. But you haven't seen any major U.S. news media companies strike deals with these companies because we haven't really found the playing field for fair compensation. And that's why you've seen a few companies sue, like New York Times has sued OpenAI. The old Tribune Newspaper Company is now owned by Alden Global, recently sued OpenAI. I think you'll see more of that, you know, as well. So, you know, our view is that this content is extremely relevant to artificial intelligence platforms. Having relevant, updated content is gonna be extremely valuable.
The big organizations like ours are where so much of that content exists today and will continue to exist, and so we want to be paid fairly for the use of that content. We're working on that with that in mind, thinking that we will get to a good spot at some point with these companies.
Right. Shifting towards sort of more, I guess, legal topics, sort of any updates on the legislative process around the JCPA, and then also sort of updates on the lawsuit with Google as well, would be great.
Yeah. So, you know, as it relates to the Google case, you know, we're extremely confident in the case that we've laid out. And our case is very similar to the DOJ's case against Google. I think the next big milestone in the process around our case is really the DOJ's case, 'cause that's slated to go to trial end of third quarter, early fourth quarter of this year. And so, you know, our case is so similar to theirs that I think that, you know, we're waiting to see how that plays out. Our case is not scheduled to go to trial for quite a bit of time out past the DOJ case. So really, the DOJ case is the next big milestone in ours.
We feel extremely confident about the case that we laid out. We feel really confident about the DOJ's case and are, you know, anxious to see this thing get to the court so we can have our day in court. On the JCPA front, it's hard to predict 'cause today's political climate is pretty crappy. And it's an election year, and there's so much infighting that sometimes the stuff that even though it makes so much common sense, it's hard to get the two parties to focus on and agree on it. So I think that we're likely to see JCPA legislation really start to pick up steam next year in 2025, post the election cycle, when we have a settled Senate, House, and whoever controls the White House.
So we have seen bipartisan support for this type of legislation. This bill, JCPA, a similar bill has been introduced in California in the past. It's a great step that will have bipartisan support. I think the timing is just unlikely in this election year that this comes to fruition. The JCPA, if enacted, that will be very similar to legislation already enacted in Australia, in the U.K., and in Canada. And in those particular countries, the platforms that scrape news content from copyright-protected news producers, they've cut deals with those to be fairly compensated for it.
So we think it's an important piece of legislation for us to have a better opportunity for a seat at the table to negotiate fair deals for our content with the big tech platforms that leverage our content for commercial purposes without fair remuneration coming back to us. So I think that's likely to be a 2025 event. And, so that's kind of the update on JCPA and on Google.
All right. I guess shifting again to sort of asset sales and sort of the expectations for that in 2024 and beyond, yeah, would be great to sort of get sort of an understanding of that update.
Yeah. So our guidance right now for the year is $45 million-$50 million. You know, I think a lot of that will come towards the back half of the year, but we feel very good about that guidance, very solid about that. And what that'll do is that'll allow us to pay down at least $110 million of debt this year when you combine that with our fixed amortization. When you look, you know, beyond 2024 into 2025, you know, I think similar level of asset dispositions is probably reasonable because there are a number of non-core businesses that we have still to monetize.
Although, you know, a lot of our real estate has been sold previously, there are still some facilities with regard to our print infrastructure that we'll continue to optimize as well. So definitely feel good about where we sit today and the guidance for the year.
Right. And I guess sort of my final question is sort of, sort of an overview of sort of any sort of upcoming things as investors that we should keep an eye out for, any sort of catalysts that could sort of help drive shareholder value more that we haven't discussed already today?
Yeah. So I think there are a couple of big ones that are right here in front of us, you know, between now and this conference next year. One is reaching that revenue inflection point, which we've noted, you know, we believe will happen towards the end of this year. We think that will put us in a position where we are now a company that has a growing revenue line, that's accompanied with growing EBITDA and Free Cash Flow. That in and of itself should lead to a multiple re-rating. A company with a growing revenue, business with profitability attached to it and growing margins with the scale we have of close to 190 million consumers, you know, is deserving of a multiple, much higher than, say, five times EBITDA.
If you look at the New York Times, they trade, you know, closer to 20 times EBITDA. While that may be on the high side, there's somewhere in the middle of that that we think there's a re-rating of our multiple once we hit that inflection point. You combine that with our debt repayment focus and the continued lower leverage, and that, that's a transfer of equity from debt to equity for shareholders. And that, as leverage continues to come down, we think that also helps with the multiple re-rating because there won't be concern on the street about whether a traditional media company is over-levered.
We've made a ton of progress there, and as Doug indicated, you know, earlier in this call here, our First Lien Net Leverage of two today, we expect to continue to make progress on this year and next year, reaching that, you know, one times number in the not too distant future. So two big opportunities for value creation that have a multiple re-rating, the inflection point, de-levering story. On top of that, I would point to two more things in our digital growth story. One is the launch of our software SaaS business and the DMS business that we reviewed earlier today, and that could really be a revenue growth accelerator with high margins, with a huge addressable market. That could really start to differentiate our DMS business and create significant value for shareholders in the future.
Then the other one I'll mention, the last one I'll mention, is the scaling of our partnerships. I mentioned the affiliate revenues we're generating from our partnerships, where other businesses that create great content, they wanna leverage our platform into 187 million uniques a month, and our ability to share the revenues at no cost to us, just by giving them access to our platform, is a big opportunity for us. It's one that we started a couple of years ago, so we started from zero, did $10 million last year. We're gonna do $20 million this year, but it's really, we're just getting started. There's much more organic growth from those partnerships we have today, and then there's much more inorganic growth as we sign new partnerships going forward.
So I think those are the four big shareholder value unlocked opportunities: inflection point, when that then we'll be a growing company. Continued debt repayment, getting that leverage down to one. Launch of our SaaS business inside of our LocaliQ business. And then the scaling of our partnerships, which comes with almost 100% margin revenues.
Well, I think that's a pretty good way to sort of end the conversation here, and we're in agreeance as well that you definitely deserve a bit more of a multiple re-rate going forward, and that five times is definitely way too cheap for what you guys are doing and what you guys are setting out to achieve over the next couple of years. But it was great to have you here today and sort of go through all this and, for, to answer the questions, and, yeah, I'll sort of leave it there, and thank you.
Yeah. Thank you.