USA TODAY Co., Inc. (TDAY) Q1 2013 Earnings Report, Transcript and Summary

Good day, everyone. Welcome to Gannett's First Quarter 2013 Earnings Conference Call. This call is being recorded. [Operator Instructions] Our speaker for today will be Gracia Martore, President and Chief Executive Officer; and Victoria Harker, Chief Financial Officer. At this time, I'd turn the call over to Jeff Heinz, Vice President, Investor Relations. Please go ahead.

Thanks, James. Good morning, and welcome to our conference call and webcast. Today, our President and CEO, Gracia Martore; and Victoria Harker, our CFO, will review Gannett's first quarter results. After their prepared commentary, we'll open up the call for questions. Hopefully, you've had the opportunity to review this morning's press release. If you've not seen it yet, it's available at gannett.com. Before we get started, I need to remind you that this conference call and webcast includes forward-looking statements, and our actual results may differ. Factors that may cause them to differ are outlined in our SEC filings. This presentation also includes certain non-GAAP financial measures. We have provided a reconciliation of those measures to the most directly comparable GAAP measures in the press release and on the Investor Relations portion of our website. With that, let me turn the call over to Gracia.

Thanks, Jeff. Good morning, everyone, and let me add my welcome to our call. First off, I'm going to discuss some highlights from our strong first quarter and provide a brief update on the progress of our growth plan, and then I'll turn it over to Victoria, who will provide additional color on our results and the performance highlights of each of our business segments. After that, we'll move on to your questions. Now as you saw in our press release this morning, we are delighted to announce today that our earnings per share were up 9% in the quarter to $0.37 per share, excluding special items. Several factors contributed to our growth, including the initiatives we announced last year. We've made smart investments to implement these growth initiatives while keeping our expenses in check. As you saw, total revenue was $1.24 billion, an increase of 2% over the first quarter of 2012, representing our third consecutive quarter with year-over-year revenue growth. And as importantly, it is also the first quarterly increase in total revenues in a non-Olympic or political quarter since the second quarter of 2006. Our Digital and Broadcasting segments drove top line growth again this quarter, and most notably, our Publishing segment generated revenue roughly in line with last year's first quarter on the growing contribution of the all-access content subscription model. As a result, operating income for the quarter, excluding special items, was approximately $161 million, an increase of 3%, and operating cash flow totaled $209 million. This growth was primarily driven by strong results in Digital and Broadcasting, and these numbers include the impact of almost $12 million of investments in our strategic initiatives during the quarter, which we expect to ramp up to total $35 million to $40 million over the course of the year. We are extremely pleased with the strong performance across our businesses, especially in light of a continued tepid economic recovery in the U.S. And while recent gains in the stock market and increasing home prices give some positive signs of a turnaround, the percentage of Americans in the workforce dropped to its lowest level since 1979, and consumers remain cautious. While these conditions are certainly not ideal, our strategy is strong. We are succeeding with our superior execution. In 2012, we achieved outstanding results, including record revenue and profitability in Broadcasting despite publishing industry headwinds and tepid economic backdrop. During the same time, we designed, implemented and began the execution of the Digital initiatives that serve as our roadmap to sustained revenue growth, improved profitability and increased shareholder value. So while today's uncertain economic landscape presents us with challenges, we have a long history of using our financial and operational strength to counter weak macroeconomic conditions. And 2013 will be no different for us. And we are happy to note at our 1-year milestone along this multiyear journey that we are gaining momentum and achieving steady progress on all fronts, with each of our business segments performing well during the quarter. In our Publishing segment, revenue held steady in the quarter as circulation revenue overall increased almost 9%, to $286 million, including a 15% increase in our local community publishing group. Circulation revenue now represents 1/3 of our Publishing revenues and growing. The 9% increase is our third consecutive quarter of higher circulation revenue, and the driver of this growth is due almost entirely to the success of our all-access content subscription model. Circulation growth resulted in an increase in total revenue at our domestic publishing operations. Now that's our first increase since mid-2006 despite declining advertising demand of about 4.5% company-wide. That said, the year-over-year comparisons for advertising were the best since early 2007. We are, frankly, encouraged by the early successes of our initiatives, but we are in the early innings. We know that customers are demanding more choice than ever before, and we've worked hard to uncover new ways of meeting their needs. In fact, a new study from the Newspaper Association of America and Nielsen found that overall newspaper media, print and Web, scored highest of all media on overall engagement. As well, that same study noted that where newspapers and their websites stood out most was in the efficacy of advertising. Our all-access subscription model is just one example of how we are adapting to the changing habits of our readers and capitalizing on the fact that news consumption is at an all-time high, thanks to an explosive increase in the use of digital and mobile devices, even while many consumers continue to subscribe and engage with their local newspapers. Now at the end of 2012, we completed the rollout, as we told you, in all 78 publishing markets of our all-access content model. Our subscribers now have access to our content on any platform, and 1.3 million of our home delivery subscribers, about 45%, have already activated their subscription's digital access. Now waves that launched over a year ago are meeting or exceeding our goal of 60% activation. We are especially encouraged by this, as it validates what we've long suspected, that today's readers want their information via more than one platform during different times of their daily consumption of the news on brands they trust. A growing portion of our subscriber base are existing power users of our local website. More importantly, we are reaching demographics that previously we underserved. The majority is male, and as a group, they over-index the market, profile for homeownership, incomes over 100,000 and college education. The first markets in which we launched our new all-access model have now cycled through their first year, and their results are tracking with and in some cases, exceeding our expectations. Many of our digital-only subscribers have also upgraded their subscriptions to include home delivery of the Sunday print edition. We are thrilled to see such a strong conversion rate so early in the rollout. It underscores the fact that the appeal of the traditional Sunday newspaper experience is still very much alive. Our digital-only subscription base has been ramping up steadily, growing a next generation of subscribers who may not ever read us in print but builds a sustainability. In fact, nearly half of our current digital subscribers are under the age of 45. Of course, we obviously had younger people reading our content digitally before the subscription model was launched. What's different now is that we can count them as subscribers, gain a better understanding of their news consumption habits and use that knowledge to help our advertisers target and engage our readers more effectively. Expanding our digital-only subscriber base will continue to be a strong focus this year, and we are accelerating our marketing efforts with the goal of growing our digital subscribers by 5x to 7x 2012 levels by the end of the year. To achieve this, we're making strategic investments in talent, marketing, the development of sales tools to ensure we continue to build on this momentum and reach our goals. We're also bolstering our pipeline through highly targeted and multifaceted marketing efforts. Specific tactics include search engine marketing, special offers, remarketing, performance-based display media and an aggressive Facebook campaign that is already netting good results. In addition, in-app subscriptions for native iPad and iPhone apps will be rolled out this summer, providing us with a new channel for attracting digital-only subscribers. The customer response to our all-access model has been overwhelmingly positive, and as you can see, it's contributing to top line and bottom line growth. But there's still more work to be done. We continue to look for new ways to better engage our subscribers, both digitally and in print. Now let me move on to our Digital and Broadcasting segments. These businesses, once again, delivered revenue growth of approximately 4% and 9%, respectively. Together, Digital and Broadcasting accounted for over 65% of this year's operating income, excluding special items. The 4% revenue growth in our Digital segment resulted in revenue of $175 million in the first quarter, driven in large part by CareerBuilder's strong performance this quarter, gaining more than 5% over last year, netting a 45% increase in segment operating income. As you know, because Gannett's Digital revenue transcends all segments of the company, it isn't solely reported in our Digital segment. Digital revenues company-wide totaled over $350 million in the quarter. That reflects an increase of almost 29% and represented more than 28% of our total revenues. And while our content subscription model is a primary driver of this growth, our Digital revenues also include revenue from digital products and services, including our Digital Marketing Services offerings, which are reflected in our Publishing and Broadcasting segment results. Digital Marketing Services are in increasing demand within our community Publishing and Broadcasting businesses, and we continue to build out solutions that we believe will further accelerate adoption. Revenue from small- and medium-size businesses is up significantly year-over-year and continues to have a very strong and active pipeline. Overall, we saw about an 80% year-over-year increase in Digital Marketing Services revenues across the company, albeit over a modest base in 2012. But there's much more to come. In addition, BLiNQ, the social media marketing solutions service company we acquired last year, launched a social circular during the quarter that allows retailers to locally activate their circular content at scale on Facebook. This solution, which is being integrated into Gannett Local, leverages the BLiNQ platform to deliver highly targeted Facebook ads in an efficient, fully automated manner. Now our total Digital audience company-wide continues to grow, reaching over 63 million through desktop and mobile devices in February, according to data from comScore. We ranked #6 in the News and Information category, and USA TODAY was also ranked 6th in the General News category. The increase in the number of Digital users is driven really in large part by mobile phone access to our rich local content. Downloads of the USA TODAY app continue to climb and reached 18 million devices across iPad, iPhone, Android, Kindle Fire and Windows through March. According to comScore Mobile Metrix, unique visitors to our mobile sites and applications have increased nearly 75% since March of last year. This is tremendous mobile audience growth and a clear sign that our investments are paying off. And to ensure that this growth continues, we'll enhance our Digital portfolio on an ongoing basis, including key investments in tablet device content platforms and technology and an expansion of our iPad apps, which we expect to roll out in the summer. Let me turn quickly to Broadcast, where revenues were $192 million, up almost 9% primarily due to substantially higher retransmission revenue and stronger core advertising that more than offset lower advertising associated with the Super Bowl, which, to remind you, moved to CBS, where we have 6 stations, from NBC, where we have 12 stations, as well as lower political advertising. Now let me shift gears and spend just a few moments discussing our growth strategy. As I said, a little over a year ago we announced a new capital allocation strategy that was fully integrated with our transformation plan. The plan had been carefully crafted to play to our unique strengths: our hometown advantage, our brand advantage and our financial advantage. We've made remarkable progress implementing the initiatives critical to our planned success, and some, like our all-access content subscription model, as you can see, are already beginning to have a significant impact on our results. But it is still early in this game, and while the theme for 2012 was implementation, in 2013, it is all about superior execution. Many of our initiatives are aimed at changing the way we do things. We're delivering our valuable content to customers in new ways and across multiple platforms. We're providing innovative, results-driven solutions to our advertisers, and we are connecting with our audiences and communities on multiple levels: locally, virtually and around their passions such as sports and travels. To show just how we are building and leveraging these community connections and to paint an accurate picture of where we're headed, we held our inaugural Gannett Front, our own upfront event, in February. We hosted key members of the advertising community, told them our story and explained the new Gannett. We are undergoing a radical transformation, and we were ready to get in front of the advertising and consumer communities and show them that we are very different from the Gannett of the past. Our overall theme was building communities through connections, and we highlighted how we understand, connect with and deliver for different audiences and different communities. The response from our advertisers has been overwhelmingly positive, and it has helped us create a better dialogue with them about the full spectrum of tools and solutions Gannett now offers and how those resources can be best integrated into a successful advertising strategy. If you look back at Gannett's history, we have taken every opportunity to expand and evolve the way we engage with our audiences, starting with print, then adding television, now with Digital. Our goal is to keep expanding, keep evolving while never losing sight of the fact that keeping our content fresh, appropriate and useful will always be of paramount importance. Another of our guiding tenets is a commitment to maintaining a strong balance sheet and a financially disciplined approach to the allocation of capital. We continuously assess our capital allocation opportunities and, of course, that includes potential investment and acquisition opportunities, the continued return of capital to our shareholders in the form of dividends and share repurchases, and debt repayment. As a company, we remain 100% committed to executing on our initiatives, and we are confident that we can continue on an improving trajectory. We look forward to much more execution and potential for growth ahead of us in the remainder of 2013. And with that, I'm going to turn it over to Victoria for a more detailed financial review. Victoria?

Thanks, Gracia, and good morning, everyone. Now that you've heard the highlights for the quarter, I'll provide some additional detail on drivers of financial performance for each of our reported business segments, including several of our new initiatives under way. I'll then conclude with an update on capital allocation and balance sheet metrics for the quarter. As Gracia already noted, we are very pleased with our strong financial results again this quarter. Total revenue was up across the portfolio and expenses remained in alignment, balancing continued investment in 2013 initiatives, as well as ongoing base support for those already launched in 2012. As anticipated, this drove higher operating and net income, as well as earnings per share. Before I drill down into business segment results, I'd like to detail several special items which occurred during this quarter, impacting the quarter by about $14 million on a pretax basis, or about $0.04 a share. The majority of these items reflect our ongoing efforts to create a more efficient and effective workforce while optimizing our real estate portfolio across the businesses. As a result of these actions during the quarter, there was approximately $10 million impact to operating income, while the balance, or about $4 million, impacted nonoperating income. During the quarter, we also realized a $28 million tax benefit, or approximately $0.12 a share, as a result of several favorable federal and state tax resolutions generating credits to the income tax provision. You'll note that in our press release, we've also included a reconciliation of our GAAP to non-GAAP results to help provide context and clarity on these drivers. Now moving to the Publishing segment. As Gracia already mentioned, the favorable impact of the all-access content subscription model was a significant driver of revenue stability again this quarter despite advertising declines of 4.5%. This is such a noteworthy impact that I'd like now to provide some additional color on the performance metrics we track for the all-access subscription model to help provide context for the benefits we're seeing across the customer base. As previously mentioned, the all-access content subscription model continues to perform as well or better than we originally projected at launch across all 78 U.S. community publishing markets. Not only are the features of the model compelling for new and existing customers but is also generating subscriber retention increases of nearly 2 percentage points on a year-over-year basis. In addition, EasyPay customer penetration continues to grow. The all-access content subscription model now boasts more than 61% of all customers on automatic payment methods, a 9 percentage point year-over-year increase. As a result, both the ease of access to content-rich digital news as well as the ease of payment continues to generate both customer satisfaction and longer-term loyalty. We anticipate that we will continue to see the benefit of all of these aspects of the all access content subscription model in the quarters to come as it becomes an even greater portion of our business. That said, given last year's staggered launch schedule, we expect cycling will drive somewhat less dramatic prior period comparables over the span of the year. As already mentioned, these publishing circulation benefits were significant enough to nearly offset all of the decline in advertising revenues during the quarter, which continued to reflect the slow growth of economic recovery. That said, year-over-year comparisons for the retail, real estate and national advertising revenue categories were all better than the prior consecutive quarter, even though they decreased by mid-single digits from the prior year. By contrast, classified auto and employment advertising revenues continue to reflect sluggish economic trends. Further muddying the water on a year-over-year comparative basis was the timing of the Easter holiday advertising. As a result of these varying trends within the quarter, advertising results were mixed and provide little visibility into drivers with trends. Overall, it appears that April has begun in line with our first quarter results. For your reference, additional category-specific detail is contained in our press release. Moving on now to Digital performance. Digital revenues company-wide, as well as within the Publishing segment, continued to grow again this quarter, buoyed by the success of the all-access content subscription model as well as our digital marketing solutions offerings. Digital revenues in the Publishing segment alone were 76% higher, while local domestic publishing digital revenues were up 98%. USA TODAY and its associated business digital revenues were 9% higher than the same quarter last year. Newsquest also experienced a 17% increase in Digital revenues during the quarter. As I noted earlier, we're excited by the early successes we're seeing in the initiatives and continue to invest to them. Total strategic investment in new initiatives is approximately $12 million during the quarter, with just over $10 million spent in the Publishing segment, with an additional $17 million spent on the customer base, training and marketing support. As you may recall, we invested over $74 million in the initiatives in 2012 and continuing to support them to ensure the very best customer experience. In addition, on a comparative basis, last year, we benefited from $8 million in cost reductions due to furloughs during the first quarter, which did not repeat again this quarter. Altogether, Publishing segment expenses, including these new 2013 initiative investments, as well as ongoing support costs, were relatively flat, up just 1.5%, to $801 million, excluding special items. As I noted, this would have been an even better comparative without the $8 million furlough cost benefit to last year. On the same basis, operating income was $70 million, and operating cash flow was $98 million for the quarter. Within the Digital segment specifically, positive trends also continued there as well, driven by CareerBuilder's continued product expansions, as well as its acquisition of EMSI, which contributed to both domestic and international growth. Expenses were down by less than 1%, which, when combined with revenues results, drove a sharp uptick in profits for the quarter. Turning now to the Broadcast segment. It was another terrific quarter there in spite of the year-over-year revenue comparison declines due to Super Bowl shift from NBC to CBS this year and a decline of $3.4 million in political advertising compared to last year. Overall, however, Broadcast revenues were still up 9% and reflect a very strong 59% increase in retransmission revenues. In addition, higher core advertising was driven by automotive, Broadcasting's largest ad category. It's important to note that Broadcasting segment core advertising revenues would have been almost 4% higher year-over-year, excluding the impact of the Super Bowl shifts. In addition, excluding political variances year-to-year, television revenues would have been up 11%, as we had projected. Expense growth was in the mid-single digits, supporting these revenue increases, as well as investment in digital marketing solutions within the Broadcast segment. As a result, Broadcast segment operating income and operating cash flow growth were exceptionally strong in the mid-teens. As you might expect, the significant ramp in last year's political advertising broadcast spending due to national and state-level campaigns will provide some more challenging comparatives as the year progresses. For example, television revenues during the second quarter of 2012 benefited from nearly $12 million in politically related advertising. Despite this challenging comparison, we expect to see fairly significant television revenue growth in the second quarter due in part to retransmission revenues. Based on current trends, we expect second quarter total television revenue growth to be in the mid-single digits compared to last year. Excluding the incremental impact of political ad spending last year, we project total television revenue growth to be in the high single digits. Now turning to balance sheet and capital allocation. Free cash flow for the quarter was impacted by $75 million in pension contributions made during the quarter to the company's principal retirement plans in both the U.S. and the U.K., as well as by significantly higher cash tax payments. Cash tax payments were greater this quarter than for the same period last year due in part to the timing of deductions year-over-year. As you know, we announced the capital allocation plan during the first quarter of last year, which included 150% increase in the annual dividend to $0.80 a share, and a $300 million share repurchase plan targeted for completion within 2 years. To this end, during the first quarter of this year, we repurchased approximately 1.6 million shares for $32.8 million, bringing our total repurchase to 11.9 million shares for $186.7 million since the beginning of last year. We remain confident in and committed to both our dividend and share repurchase programs as yet another component of providing ongoing value to our shareholders. component of providing ongoing value to our shareholders. Total debt outstanding at the end of the quarter was $1.4 billion, with capital expenditures in the first quarter of just over $16 million. As I noted last quarter, a growing and significant percent of our overall capital budget is now spent on investment in our Digital products, platforms and businesses company-wide. During the first quarter, these areas comprise nearly 2/3 of our capital expenditures. Just as a reminder, we expect capital expenditures to be in the $110 million range for the full year, with expected ramps over the following quarters as we develop and implement new products and features. All in all, these capital allocations are both fueling growth in our businesses, as well as near-term shareholder value. We look forward to updating you on our progress on all of these efforts in the quarters to follow. With that, let me turn the call back over to Gracia for some concluding remarks before we start to take questions.

Thanks. I think what we want to do is to go to the questions right now.

[Operator Instructions] And we'll take our first question from William Bird with Lazard.

A question on circulation. Gracia, if we adjust out the extra week in Q4, it looks like your circulation revenues in Q4 were above Q1. Can you just help us understand, I guess, how and why this is and how you see circulation revenues developing going forward?

Let me start, and I have the good fortune of having Bob Dickey here with us, as well as Dave Lougee. But let me start, and then, Bob, if there's anything else you want to add. When I look at circulation revenue adjusted in the fourth quarter for the extra week compared to circulation revenue in our local community publishing, which is really where the full access content model impacts, actually, revenues were up about 15% in the fourth quarter and are up again a similar level in this quarter. And I think with respect to circulation revenue in the first quarter this year versus last year, I think the slight difference may be in Newsquest. There's obviously some currency drag from the lower currency rate in the first quarter versus the fourth quarter last year. And then at USA TODAY, as they are transitioning more of their model, especially with some of the hotels like Hilton, from a pure print model to a digital access and a digital portal, as we're doing with Hilton through the point, and that's gaining a lot of, lot of traction. It's in over 3,000 hotels. They're seeing some slippage, obviously, on the print side, which is planned slippage, given the combination that we're getting with the digital access in some of those hotels and the portals that we're doing.

Let me ask you then in a simpler way because it sounds like I didn't ask the question very well. If I take that $313 million of circulation revenues from the December quarter and I take $13 million, $14 million of it, I get about $290 million in circulation revenues. And then if I look at Q1, it looks like you're at $285 million, so I'm looking at kind of the absolute number and the run rate and just trying to understand why it would have ticked down.

Right. And again, as I said, you're looking at a total circulation number for the entire company. I've just been dissecting the pieces of it, which would suggest that Bob's number, in fact, is doing what we had hoped it would do. Newsquest is impacted a bit by the currency being weaker in the first quarter. So therefore, even on a same basis of revenue in pounds, it would be less in dollars. And then as I said on USA TODAY, we are managing a transition there with some of our hotel partners like Hilton, where it was simply a print-only solution we were providing the hotels. There's a diminishment in the print number, but there is an addition of a digital portal that's being offered in 3,000-plus Hilton hotels. And so when you take the combination of all those factors, that, I think, addresses the issue that you raised.

Okay. So yes, clearly, there are some puts and takes.

Yes.

And then I'm just curious, where are you at in terms of the number of paying digital subs?

On a digital-only basis, Bob is here. Just a quick comment: What I think that we are very pleased about on the digital-only sub is the fact that we're seeing folks who are beginning with digital-only, then upselling them to digital-plus of Sunday newspaper. So really, the digital-only number now is a net of all of those upsells that we're attaining, and I think we're in the 50,000-plus range, Bob, but...

Yes, when you take into consideration that a number have upgraded that started at digital -- digital-only, that right around 54,000 digital subs, about 50,000 today are digital-only. So we've upgraded just over 4,000 actually. That's about 8% conversion rate at this point. We're doing a number of -- as Gracia pointed out, we have a number of new sales channels that are new to us because of this new approach to business, and we're doing A/B testing, introductory offers, a number of things to see how we can best resonate with these new, younger consumers. And we're very happy that about half of them right now to date are under 45 years old.

And can you -- just one final question. Can you give us the absolute number for retrans in the quarter?

The absolute number for retrans in the quarter, I think, was around $37 million, $36 million or 37 million.

. Next, we'll hear from Kannan Venkateshwar with Barclays.

So I have a couple of questions. First is on the Publishing front. Obviously, you have the benefit from the price increase last year. But with 50,000 digital-only subs, that's clearly not an additional source of revenue. It's not a new revenue line that you're adding. As the price increase cycles through into late this year and early next year, we should expect the effect to wear off. So what's the longer-term plan on the Publishing side once the price increase wears off?

Well, perhaps, we haven't explained it as clearly as we should. Those digital-only subscribers are paying subscribers. So they are incremental to -- in 2012, we spent all of our time, frankly, rolling out 78 locations, simply moving them to the full-access content model. As we said at the end of 2012, we really didn't focus on digital-only -- picking up new digital-only subscribers. We were, first and foremost, in 2012, focused on taking the existing subscribers we had and moving them to this new model. We have subsequently gained an additional 50,000 -- actually, a net 50,000 because we gained more than that because some of those folks have been new digital-only subscribers and then converted to digital-only plus Sunday. So those are incrementally new subscribers. And as I said in our prepared remarks, our plan is that we are going to see that number increase five- to sevenfold by the end of 2013. So those are all brand-new subscribers.

Yes, that's true, Gracia, but the broader question is you're still losing subscribers on the print side. So overall, when you look across the whole subscriber base, the 50,000, and even if that continues to grow, it's not enough to offset what you're losing on the print side. So to that extent, we should expect, I guess, to some extent, the effect to wear off next year.

Well, if you assume that the only thing we are doing around our subscribers is the price increases that we did last year, that would obviously be the case because you would cycle those pricing increases. But there are a number of additional new platforms, and Bob, why don't you talk a little bit about that, that we are introducing, and we see more opportunities to impact pricing with new ways and additional content that we're going to provide. But, Bob, why don't you...

Certainly. And that's very important because, as noted earlier, we have just over 1.3 million digital active subscribers as well, on top of the 50,000 are digital-only. So our current subscribers are clearly performing and using our content across all the various platforms. Midyear, we will be launching native iPhone app followed by Android and iPad. We believe that product enhancement will be very well received by our subscribers. Later in the year, we will be relaunching a new desktop experience for all of our subscribers, another opportunity. And we have gone through extensive training with our editors to create new content following a broadcast model of really day-parting, and day-parting that content against the various platforms, taking in mind how the consumer uses those various devices. And we're seeing a number of product improvements on existing products across all of our markets. That is a major focus. So the combination of all of those will lead us to an opportunity to look at what pricing leverage that will bring to us later in this year and certainly, early in 2014.

Thanks for the question, Kannan.

Yes. And I have one more question, which is on the Digital side, it looks like -- I mean, if I just look at the trend over the last 8 or so quarters, it's been consistent, and the growth rates have been consistently coming down year-over-year. I just wanted to get some clarity on what's driving that.

Well, I think number one, obviously, we're comparing against higher and higher base numbers. It also depends on the mix of Digital revenues. Are you just -- you may be just looking at our Digital segment only rather than the totality of our Digital revenues across the company because, in fact, those Digital revenues across the company have accelerated in their growth pattern over the last 2 to 3 quarters rather than diminished over the last 2.

Yes, just the Digital segment.

Okay, just the Digital segment [indiscernible] in that mix. That's a substantial business. They have achieved strong growth rates, which are going to vary quarter by quarter, depending on where employment opportunities are and employment numbers are combined with their new opportunities. So the Digital segment only is just a small microcosm of all of the Digital revenues around the company that, in fact, where we are seeing accelerated growth over these last few quarters.

. We'll move on to Alexia Quadrani with JPMorgan. Alexia S. Quadrani - JP Morgan Chase & Co, Research Division: Just a couple of questions. Circling back to the USA TODAY comments and the little slippage you saw in circulation revenue coming from there and the migration to more of a digital platform, I guess could you talk a bit about how you can monetize that migration to the digital platform you're doing through hotels like Hilton? Because I think there's no pay wall right now. So is it more through the advertising opportunity?

Well, it's a combination of things, Alexia. That's a great question. It's a combination of charging for the digital portal. So this isn't something that we're giving away free to the hotels. And we have a number of other hotels that we're talking to about it. So it's a combination of charging for it and, as well, additional advertising opportunities that we anticipate will arise from our penetration of hotel rooms across the country. We're already in over 3,000 with Hilton, and we're looking at other opportunities with others. So it isn't the pure circulation revenue, but it's a combination of paying for the portal as well as additional ad opportunities. Alexia S. Quadrani - JP Morgan Chase & Co, Research Division: And when you get revenue for being paid for the portal, will it fall under circulation revenue or fall under just pure Digital?

I believe it falls under pure Digital revenues. Alexia S. Quadrani - JP Morgan Chase & Co, Research Division: And then just a second question. If you can remind us when you circle some of the larger market rollouts from last year, and do you believe you have any room for further price increases maybe either of similar size or just price increases in general on the print product when you circle those markets?

Bob, do you want to...

Sure. We cycle -- the second half of the year, we'll start to cycle the larger sites. Fourth quarter, actually, our 3 largest sites in Phoenix, Indianapolis, Cincinnati, I would suggest that based on what I mentioned a moment ago, we will be looking at pricing, but it's not for the print products but for all of the new products that we're bringing into the marketplace. So it's all about increasing and enhancing the subscription value across all of those. So in the second half of the year, it's really going to be an opportunity to look at the new desktop product as well as the native apps that we're going to launch, what that might mean with regards to a pricing action.

. The next question will come from John Janedis with UBS.

Gracia, sticking with circulation, I understand the model, but is there any difference in renewals between your small and large markets? And maybe along these lines, is there anything to highlight on churn in maybe big versus small markets?

Bob would know all of those details, so I'm going to ask him to respond.

John, there's not a wide variance at this point. I mean, we're very happy that our retention is up 2%. You can appreciate in the metro market, there is definitely more competition for content for the consumer. But it's really a little early for me to answer that. I can gladly get back to you. We need a little more time in Cincinnati, Indianapolis and Phoenix to really give you a solid answer on that. And we're probably another month away from being able to speak more to that as people start to cycle out of that first 13-, 26-week cycle. But overall, our churn number is holding, and our retention is actually better.

And I think we're helped by -- I think Victoria mentioned on the EasyPay front, we are continuing to see -- that number is, I think, 61% or 62% now. That has continued to grow as we have been launching and as we do additional things. So that helps with all of those metrics on retention and the like. So we feel very, very good about being at or better than all the metrics that we had talked with you about last February.

Okay, Gracia. Maybe one quickie, Victoria. If we annualize the 1Q retrans, it would seem as though it's trending above the top end of the guidance range. Was there any kind of true-up in there is, or maybe it's a few million above as we go through the year?

I think it's probably a little early to look at a full year impact of that, and we obviously had some end-of-year benefit that we talked about, I think, in December, and so we had some carryover to first quarter. But I'm not sure that we're seeing anything that would be above the high end of guidance at this point for the full year.

We'll hear from Doug Arthur with Evercore.

Victoria, a question on the Publishing segment costs, the $35 million to $40 million, I think, for the full year of '13, of which $12 million's been spent. Is that incremental to the $74 million-ish number last year, or is that, in essence, the new investment cost coming down year-over-year?

We have -- let me address it in 2 categories. We spent $74 million last year on new initiatives. All of those initiatives are now embedded in our base, and so we have ongoing costs to support for them, whether it's travel programs, whether it's the all-access content subscription model for customer service. In addition to that, we have $13 million that we spent in new initiatives, which will be comparable to last year's $74 million in new initiatives for this year. So it is incremental.

Okay. So I'm sorry. The $13 million, how does that fit in the context of $34 million to $40 million for the year?

We're still within that range of expected incremental spend for new initiatives.

Okay. And then last question. Gracia, the 50,000 digital-only, I don't want to beat a dead horse here, and obviously, you've had some conversions to print, so it's maybe not an apples-to-apples comp, but is that -- when you say 5x to 7x over the next, I don't know, 3, 4, 5 quarters, you're basing that off the 50,000?

I think we were in the 40s when we talked about that at the end of the last year. So we expect to be in the 250,000 to 300,000 range by the end of 2013 into early 2014. There's going to be a big ramp-up. I mean, we've been working on it. First quarter is never a significant quarter, Bob, on starts and the like.

I mean, just like anything, people come out of the holidays, and so consumers -- plus on top of all the changes that were happening in the consumers, definitely, we saw a slowdown in some of the sales channel. But we're happy to report that we've seen that turn back around the first few weeks of April. So that is the goal that we're shooting for, absolutely.

And we're feeling good about it.

Next, we'll hear from Jim Goss with Barrington Research.

A couple of things. I'd like a little more color on retrans, if that's possible. I know you'd mentioned $36 million to $37 million as the current number. Can you talk about the stage of that development? Have you gone through all the negotiations and you're coming up on renewals, and what would be the timing of renewals? And maybe even discuss a little of the pricing trends on the first deals versus the newer deals and if you can lay out how that's developing.

We're happy to talk about the deals. We cannot talk about the rate, as you can appreciate, but Dave Lougee is here, and he can address that.

Yes, so I think if I understand the question correctly, we will have another major deal up at the end of this year, as well as a lesser one. And the market is continuing to move up and appropriately so, as we said in the past. The market and our market is still not aligned with what our share of audience is, and so -- and that rearrangement -- appropriate rearrangement of the marketplace continues to take place. And so we still see good upside for ourselves, as well as the industry.

And the dollar amounts you talk about right now reflects at least some transaction with all of your markets to this point?

When we talk -- most of our retrans -- most of our distribution comes from 8 or 9 large players that cover the whole country, so they're in all of our markets. So only probably 8% or 9% of our distribution come from smaller operators who don't cover all of our markets. So when we do these larger deals, one major cable MSO may be in a 1/3 to 1/2 of our markets, another one might be in a 1/3 to 1/2, and then the satellite guys are in all, if that answers your question.

So we did 2 large ones at the end of last year. That's what drove the increase this year. As Dave said, we have another large one coming up next year. We have been in retransmission mode across the company for 2 or 3 years. So everyone is touched by it across company. It's just a question of as these deals come up and as you appropriately asked, we have a big one coming up at the end of this year, and then we'll cycle more deals...

They're relatively evenly spaced.

Yes.

Okay. And just one follow-up to a lot of the discussion you had about circulation. All things being equal, and I assume churn levels don't really change, my recollection is that there should be an upward bias on a year-over-year comparison to your circulation dollars over the course of this year as you cycle through this program. Is that a correct perception?

Yes. If we did nothing else on pricing, obviously, by the fourth quarter, we would be cycling the lion's share of that. But as Bob and I have alluded to a couple of times now on the call, there are additional opportunities as we are providing more platforms and deeper and richer content across our local markets to certainly look at pricing and other opportunities towards the latter part of the year.

. We'll hear from Michael Kupinski with Noble Financial.

Just a couple of questions, Gracia, on your appetite for Broadcast properties at this point. I know that there's some on the market. I was just wondering in terms of the fact that you have renegotiated some of your retransmission rates, that if those rates seem to be higher than what maybe some of the stations are currently on the market and if that presents an opportunity for you and if you can just talk about maybe what multiples there might be in terms of stations, if you are interested in buying more there.

Okay. I'll try to take them in, I think, the order that they were dealt out. On the TV acquisition front, as you can appreciate, lots of stations are coming up, and we're getting lots of calls on them. In some situations vis-à-vis overlap situations or other things, they don't necessarily make sense for us to do. But I would say as a general comment, as you know, our Broadcast business had its best year in its history last year. We believe conceptually in the fact that more scale and a bigger footprint matters in the broadcast arena given retrans conversations and other things. We have very, very good scale now, but improving on that scale could only be a positive going forward. But as always, we would be incredibly disciplined in what we would look at and what multiple we would pay. It would depend a lot on our ability to have a deal that was accretive very quickly, value-adding very quickly. We have a high standard for allocating capital in that arena. So it would have to be an interesting situation for us that would meet all of our fairly stringent hurdles that we have. I can't comment on multiples because, frankly, it really depends. If you're buying a station that has low margins and there's no opportunity, then that's a difficult -- that might be an interesting multiple compared to somebody else that might be buying in a duopoly situation. So it's kind of difficult to really pinpoint multiples at this point. Certainly, we have heard in some others who have purchased stations that they have after-acquired clauses in their retransmission agreements that allow them to move up the acquired properties to higher rates. I certainly couldn't comment specifically about Gannett, but I would think that we've done a good job.

Our final question will come from Craig Huber with Huber Research Partners.

A few housekeeping questions. I believe last quarter, your daily and Sunday circulation volume for U.S. community newspapers was down about 11% year-over-year. What's the update on that number first, please? And I have some follow-ups.

Yes. On the daily, down about 7%, and on Sunday, down about 4%, which, as you may recall, is right in the sweet spot of where we thought, if not slightly lower on the Sunday side, where we thought that circulation would be as a result of the all-access model.

Okay. Then can you also, on the cost side, just give us the metrics around newsprint, what the percent change was there plus consumption and average price percent change?

Well, we continue to see some improvement relative to our expected -- on the specifics on it for the quarter. We had been able to see some improvements there, about -- almost 10%, I think, in terms of our price relative to terms on the expense side. So I think with that, we can continue to see better trending than we had originally anticipated, and I think that flows through nicely.

So was the pricing consumption different there if the total is down 10%?

Price, I have it close to where it was last year, and usage down, almost consistent with how much expense was down.

Okay. Gracia, your $75 million contribution to your pension so far this year, are you planning to put any more in later this year?

We have no requirement to at this point. Obviously, we'll continue to look at it from just a pure capital allocation standpoint. But at this point, we've already put as much in as we would be required to.

More, in fact.

Actually, yes.

Thanks, Craig. I appreciate your questions, really appreciate all of you joining us this morning for the call. And I know that if you have any additional questions, that Jeff Heinz, at 703-854-6917, will be delighted to hear from you. Thank you all for your attention and time this morning. Bye-bye.

That does conclude today's conference. Thank you for your participation.