USA TODAY Co., Inc. Q3 FY2025 earnings call

Milestones - Total debt fell below $1 billion for the first time since the 2019 merger. - Digital revenues reached 47% of total company revenue in Q3, expected to near 50% in Q4. - $100 million cost program fully implemented, expected to benefit Q4. - Partial summary judgment in the Google antitrust lawsuit established liability on certain claims. ### Digital Strategy - Audience grew sequentially on a large base, digital advertising revenues grew year-over-year. - Digital-only ARPU reached a new high of $8.80, and digital-only subscription revenue saw sequential growth from Q2 to Q3. ### Media Segment - Focus on video, launched sports hubs for Big Ten, SEC, and NFL with strong early results. - Launched USA TODAY Pets with a video-first content strategy. - Launched PLAY, a digital hub for casual entertainment and gaming. - DeeperDive Gen AI answer engine fully implemented on USA TODAY, with over 3 million questions asked since mid-September. ### AI Initiatives - Partnered with Microsoft on an AI licensing deal, participating in Microsoft's publisher content marketplace pilot. - Blocked over 99% of AI bots scraping content, blocking 75 million bots in September, 70 million from OpenAI. - DeeperDive Gen AI answer engine implemented on USA TODAY, driving engagement. ### DMS Segment - Saw stabilization in core platform revenue and average customer count. - AI smart bidding adoption ramped up, with half of U.S. budgets expected to leverage it by year-end. - Dash voice and SMS agents managing growing customer interactions, driving efficiency for SMBs.

Total revenues in Q3 were $560.8 million, a decrease of 8.4% year-over-year. Digital revenues totaled $262.7 million, a decrease of 5.3% year-over-year, representing 47% of total company revenue. The Domestic Gannett Media segment had segment adjusted EBITDA of $35.4 million with a margin of 8.5%. Newsquest had segment adjusted EBITDA of $14.6 million, up 4.6%, with a margin of 23.9% and revenue growth of 2.5% year-over-year. The Digital Marketing Solutions segment had Core Platform revenue of $114 million, segment adjusted EBITDA of $9.8 million, ended the quarter with approximately 13,400 core platform customers, and core platform ARPU remained near record highs.

Q4 Expectations - Anticipate robust year-over-year growth in adjusted EBITDA for Q4, driven by AI licensing revenue, larger digital advertising campaigns, and platform enhancements. - Digital revenue expected to have low single-digit growth in Q4. ### Full Year - Expected full year adjusted EBITDA growth, with free cash flow to grow 30%. - Digital revenue to be down low single digits for the full year, but Q4 to see low single-digit growth. - Aim to repay over $135 million in debt during 2025.

• Timing of revenue shifts from Q3 to Q4 affecting Q3 results. - Dependence on AI licensing deals and potential issues with major platforms like Google in controlling content usage. - Uncertainties in the development of AI content monetization models and structures limiting publisher control over content usage by major platforms.

Q: What was the development in the Google antitrust lawsuit and its impact?

A: Judge Castell issued a partial summary judgment ruling where the court agreed with the DOJ's findings that Google illegally monopolized the digital advertising market and ruled Google can't relitigate those issues. This establishes liability on key claims and moves the case to focus on damages and remedies.

Q: What drove the revenue timing shift from Q3 to Q4?

A: Timing shifts such as Perplexity's product launch being pushed to October and digital advertising campaigns shifting from Q3 to Q4.

Q: What were the incremental expenses in Q3 and their future impact?

A: Incremental expenses were tied to headcount reductions from the $100 million cost program, including medical and benefit costs from employee exits. These are expected to have a favorable impact on Q4 as the cost program is fully implemented.

Q: How is the digital revenue mix expected to evolve into 2026?

A: Expected to surpass 50% of total revenue in 2026, with diverse digital revenue streams from AI licensing, digital subscriptions, and advertising, including new initiatives like PLAY and AI partnerships.

Q: What about traffic from AI platforms and monetization?

A: There's little meaningful traffic coming from AI search platforms. Monetization is driven by licensing deals as traffic from AI platforms doesn't typically click back to publishers' sites. Blocking of scrapers is important for ensuring fair compensation.

Q: Why are some DMS clients being transitioned to the Media segment?

A: To focus on the ideal customer profile for the DMS platform, and leverage media tools to serve non-ideal clients, particularly large multi-location businesses, to optimize ROI and customer experience.

Q: Where do we stand on debt paydown and real estate sales?

A: $116 million in debt repaid in 2025, aiming for over $135 million repayment in 2025. There are a few small real estate deals in the pipeline, with most real estate portfolio largely monetized, and free cash flow expected to support further debt reduction.