USA TODAY Co., Inc. Q1 FY2026 earnings call

Mike Reed mentioned that the company had an excellent start to the year with year-over-year total revenue trends improving, digital revenues increasing, adjusted EBITDA up, net income up, first lien net leverage down, and positive free cash flow. Operational highlights include a large digital audience with 180 million average monthly unique visitors and 1.4 billion total page views per month. Digital-only subscription revenue returned to year-over-year growth and had third consecutive quarter of sequential growth, with digital-only ARPU at a new high. USA TODAY Media's initiatives like expanding High School Sports hub, launching soccer hub, and USA TODAY Style Meter. LocaliQ's progress in shifting to results-driven approach and expanding higher growth areas. Kristin Roberts talked about USA TODAY Media's initiatives to drive monetization through content experiences and product portfolio, progress in digital-only subscription business, and disciplined experimentation in monetization. Michael Reed also discussed AI as a growth opportunity, creating unique content, digitizing archived content, and leveraging AI-driven personalization.

USA TODAY Media segment: Segment adjusted EBITDA totaled $59.5 million, increasing 89.9%, while segment adjusted EBITDA margin expanded 720 basis points to 14.3%. Total revenues decreased 5.4%, representing an improvement of 180 basis points from Q4 sequentially. Newsquest segment: Total revenues in the first quarter were $59.8 million, up 7%, representing the fourth consecutive quarter of revenue growth. Segment adjusted EBITDA was $14.9 million, up 6.6%, while segment adjusted EBITDA margin totaled 24.9%. LocaliQ segment: Core platform revenue totaled $99.3 million. Segment adjusted EBITDA totaled $6.8 million and reflected the inherent seasonality associated with the first quarter in our LocaliQ business. We ended the quarter with approximately 11,900 core platform average customer count and core platform ARPU remained near record highs at approximately $2,800. Total revenues in Q1 were $548.5 million, a decrease of 4% or 1.8% on a same-store basis. Total adjusted EBITDA was $73.1 million in the first quarter, an increase of 44.7% or $22.6 million. Total adjusted EBITDA margin expanded to 13.3% in Q1 compared to 8.8% in the prior year quarter. Total digital revenues in the first quarter were $261.9 million, up 5.2% on a same-store basis, representing the second consecutive quarter of growth. Digital-only subscription revenues totaled $45.9 million in the first quarter, up 6.2% year-over-year and marks the third consecutive quarter of sequential growth. Digital-only ARPU reached a record high of $10.30, up 42.7% year-over-year. Digital other revenues, which includes digital content syndication, affiliate content and AI partnerships and licensing revenues, grew 125.6% or $18.8 million.

We are reaffirming our full year 2026 business outlook. Expect to largely sustain the top line momentum with total revenue figures and same-store revenue trends remaining largely in line with Q1. Believe our strong new business activity, combined with stabilizing retention trends, continued growth in digital-only subscription revenue and year-over-year growth in digital other, supports ongoing digital revenue growth. Expect continued year-over-year growth in total adjusted EBITDA in Q2, though at a notably more moderate pace than Q1. Adjusted EBITDA in Q2 will be impacted by the mix of digital revenue with a higher contribution of DMS revenue and a lower contribution of licensing revenue. View Q2 as a continuation of the progress made in Q1, along with significantly higher free cash flow generation quarter-over-quarter. Remain confident in delivering year-over-year free cash flow and profit growth on the back of improving revenue performance.

Certain statements made during this call are or may be deemed to be forward-looking statements as defined under the U.S. federal securities laws, including those with respect to future results and events and are based upon current expectations. These statements involve risks and uncertainties that may cause actual results and events to differ materially from those discussed today. We encourage you to read the cautionary statement regarding forward-looking statements in the earnings supplement as well as the risk factors described in our filings made with the Securities and Exchange Commission. Litigation risks, such as the DOJ case remedies ruling expected any day now and the state of Texas's case going to trial within 60 days after the remedies ruling, and our case's judge ruling on Google summary judgment filing expected in the next few months and a trial date being set for either late this year or early next year.

Q: Congratulations on the impressive results in the first quarter. It seems like you're making very strong progress, especially early in the year, and it's great to see the outlook reiterated. I'm curious if there are any specific drivers that we should be focused on that are driving the results early in the year and how sustainable a lot of those drivers are throughout the year? I'm thinking about the AI potential deals and other things around that, that are obviously great positive contributors at this point?

A: Yes. Giuliano, thank you. Yes, the -- there is a -- there are a lot of drivers in the first quarter and then there are -- and those are sustainable not only this year, but throughout the coming years. We have -- licensing deals were definitely strong in the first quarter following a strong fourth quarter. And on top of that, their digital subscription revenues have really turned the corner and were a strong performer in the first quarter. Obviously, we expect that to continue not only this year, but for years to come. And our affiliate revenue has really started to turn and grow as well, which is also captured in that digital other category. And we feel really good about the progress we're making on the audience side in terms of engagement, which leads to digital advertising growth. And finally, we feel good about the progress we're making underneath the DMS business, which will also lead to growth in the back half of the year soon. When we look out over the rest of this year, Giuliano, we see all those factors contributing to digital revenue growth, starting with DMS, digital advertising, digital subscription and then digital other with contributions from both licensing and from affiliate revenue. So all of those will be contributors.

Q: There's obviously been a lot of progress when it comes to AI licensing deals. I'm curious where things stand in terms of the opportunity set that's still out there and the potential for more transactions or more deals on that front?

A: Yes, Giuliano, we think there's a lot of opportunity for more deals. As I mentioned on the last call, and I'll say again on this call, it's hard to predict the timing of those deals, so they will be a bit lumpy. However, we are taking all of the appropriate actions in our view, which start with creating really unique, at scale, valuable content every single day, combine that with we're digitizing more and more of our archived content so that we have a larger offering of archived content. And then finally, we're blocking those that don't have licensing deals with us from being able to scrape our content. So creating new content at scale, blocking those that want to scrape and then digitizing more of our archived content, we think make us one of -- probably the premier news media company for AI tech companies to partner with. There are a lot of big companies out there, as you all know, that we have not partnered with yet. We have ongoing conversations with many of them. There are also new entrants and new marketplaces coming on board. So this opportunity is really massive in our view. We're taking a long-term approach rather than near term because in the very near term, it's a little bit lumpy or unpredictable. But over the long term, lots of opportunity. We think we're the premier partner, and we're doing, we think, all the right things to make sure that we are the right partner for those companies.

Q: There's obviously a great improvement when it comes to your EBITDA margin as well. And I'm curious if there's still any opportunities on the cost side to continue working on your cost structure and other cost improvements around the company?

A: Yes, absolutely. Giuliano, it's Trisha. We think there is opportunity there. We were very smart in the way that we addressed costs last year, took $100 million out of the business. And I think you can see that we're still improving our revenue trends at a pretty good clip even with those expenses coming out of the business. And we'd look to be balanced and thoughtful in how we do it going forward. We're always optimizing our costs around our print infrastructure. We'll continue to do that. You've heard us talk about changes that we're making to our delivery structure, for example. We'll continue to explore those type of things. The other things, we are seeing efficiencies, whether it comes from things like AI licensing or using vendors and partners, outsourced vendors. We're getting efficiencies within the organization. I think more so, those will eventually drive revenue upside for us, but they should also help us manage costs like software or outsourcing with our partners as well. So I would say, yes, long answer, but yes, we have the opportunity to continue to manage our expenses. You saw it in Q1, you'll see it for the rest of the year as well.

Q: Maybe one final one. I'm just curious if there's any update or changes to kind of the timing or process around litigation and if you have any opinion around that?

A: Yes. No changes. Obviously, we remain very optimistic there. The next big things are really the -- outside of our case, the DOJ case, we expect the remedies to be ruled on by the judge here any day now. And then that would, we think then lead to the state of Texas's case going to trial probably within 60 days after the remedies ruling. And with regard to our case specifically, the next big milestones are the judge ruling on Google summary judgment filing, which we expect in the next few months and then a trial date being set, which we expect for either late this year or early next year.

Q: My first one is just on the DMS side of the business. You obviously are seeing some underlying trends that give you confidence in the acceleration of growth in the back half of this year. Can you maybe just dig in on what a few of those catalysts or products that should drive that growth in the back half of this year are?

A: Matt, it's Trisha. Thanks for the question. Yes, we see a lot of promise in our DMS business. I think the first big thing to point out is that it's a product that our advertisers really view as a critical component of their marketing spend. And so we think that having it as part of our portfolio really allows us to capture more dollars across the advertising ecosystem, including on our own platforms. So the things that we've done over the past year or so, things like integrating CRMs, leveraging AI search capabilities with Google on the platform, as well as bringing our own inventory or our owned and operated inventory into the Local IQ platform, really gives us confidence that we can continue to grow our customer account in our business. I think one of the things that we've seen is that we're maintaining near record high ARPU at about $2,800. And so our customers are seeing a lot of value in what we're providing to them. Now the work is really about growing our client count. And the other thing I would highlight is that we're continuing to invest in Dash, which is our AI-driven platform, which allows our customers to address their leads and turn those leads into revenue much faster. As we build out capabilities on that platform, build out CRM-type solutions on that platform, we are finding that customers are stickier, and we should see that play out in our results as well.

Q: I wanted to just drill in a little bit more into the Google Discover thing that you were talking about. And just to be clear,你're saying that this is not related to AI overviews. This is a separate mechanism? I just want to be clear on that. And then could you give us a little bit more kind of quantification of how much of an impact this had? And given that it seems to be like a choice that Google has made, I mean, what can you do about it?

A: I'm happy to take that, Barton, and it's nice to hear from you. Google Discover and the AI overviews are separate issues for us. And so AI overviews have had an impact primarily in local, but not uniformly. Google Discover also has seen -- also is surfacing less of our local content. But what we've been seeing over the course of Q1 has been sort of a new norm. So we've begun to see some calibration, some normalization in what we're seeing from Google. The impact varies. It varies by market, depending on market size, on total number of audience we already have. It also varies between local and USA TODAY. And it is why we have begun moving and shifting our content-related resources to things that we see working in real time. So for example, there are some content categories that continue to overperform for us, whether they're overperforming on local page views or for geo-neutral audience, we are shifting resources to those places. And you can see the impact of that both in local and the USA TODAY. So for example, for local, the things that continue to work for us are obviously sports, from high school all the way through college and pro sports. Also breaking news, also local opinions, these are content categories for us in addition to service journalism that continue to drive significant audience for us. And so we're leaning into those places. And where we see content categories that are not working or not appearing in Google Discover, for example, we are shifting those resources to develop a kind of exclusive and distinctive content that Mike just referenced in his answer to what is the future value of AI deals. Right? On USA TODAY, what we're seeing is we have ongoing ability to drive significant audience via Google, right? And that is around content categories that we have a right to win, where we are, if not the dominant player, in contention to be the dominant player. So think about sports, think about entertainment, again, think about breaking news and think about lifestyle. These are content categories for us that continue to drive significant audience. And it's the reason why, according to Comscore, we are still serving the largest audience in America among content creators. The other piece that I will just throw in here before giving you the mic back Barton is, that video is increasingly driving audience for us, especially on USA TODAY. And so we took a deliberate step last year to begin expanding our catalog of video content, and that's paying off now as Google begins to shift what it is surfacing.

Q: I don't know if there's anything to say on this question, but as you guys are aware, a Google executive made a blog post earlier this year about presumably in response to some U.K. proceedings about being open to separating the search crawl from the AI crawl, allowing people essentially to opt out, which presumably would, maybe that happened would give you leverage. Has there been any advancement on that front? Or is there anything happening in the U.K.? Any developments there? Or is that just kind of a post and then follow through?

A: Yes. No, Barton. To state the obvious, Barton, we're very supportive of that, and we'd like to see that be followed through on. There hasn't been any movement at this case at this point in time, but we're hopeful that, that moves forward. I think it's more likely to move forward in the U.K. before there's any traction here in the U.S., but that's obviously something我们would like to see. And Barton, just on the last question, too, because I don't want to overplay anything here on the downside in terms of audience. One of the reasons we mentioned the 180 million uniques and 1.4 billion page views on the call this morning is that those are higher numbers than we saw in the Q4. And so, I know there's so many in the media industry that are seeing overall audience declines, page view declines, things of that nature. We have not seen that. We've been very proactive in driving this business, driving our audience. And our audience does have scale and our biggest opportunity is engagement with that audience. More engagement with that audience is obviously is our biggest opportunity, but we're not seeing any large declines. Google does adjust algorithms all the time, and we have to adjust our strategy based on those changes, and that's what Kristin outlined, and we're confident we'll be able to do that. But the biggest driver for us over the last 2 years in audience growth has been what Kristin mentioned, which is really recognizing you can't be too dependent on one source of referral traffic. And so we've been very aggressive in building traffic from a lot of different sources, including direct, and we really reap the benefit of that. And so we're pretty excited even about the digital advertising strategy going forward and don't view anything that happened in Q1 as permanent or long-term.