USA TODAY Co., Inc. (TDAY) Q3 2014 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to Gannett’s Q3 2014 Earnings Conference Call. This call is being recorded. (Operator instructions.) Our speakers for today will be Gracia Martore, President and Chief Executive Officer; and Victoria Harker, Chief Financial Officer. At this time I’d like to turn the conference over to Jeff Heinz, Vice President Investor Relations. Please go ahead, sir.

Thanks, Jaime. Good morning and welcome to our earnings call and webcast. Today our President and CEO Gracia Martore and our CFO Victoria Harker will review Gannett’s Q3 results. After their 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 www.gannett.com. Before we get started I’d like to remind you that this conference call and webcast include forward-looking statements and our actual results may differ. Factors that might cause them to differ are outlined in our SEC filings. This presentation also includes certain non-GAAP financial measures. We’ve provided reconciliations 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, and good morning everyone, and let me join Jeff in welcoming you to our Q3 earnings call. Today I’m going to provide a high-level summary of Gannett’s performance in Q3 during which we reached some significant milestones in the continuing evolution of the Gannett Company. After that Victoria will review the financial results of each of our segments, provide some detail on special items and cover some balance sheet items. And Dave Lougee and Bob Dickey are here with us as well to help during the Q&A session. So let’s get right to it. We achieved outstanding Q3 results with each of our three businesses turning in solid performances during the quarter. Total company revenue as you saw was $1.4 billion, an improvement of approximately 15% over Q3 2013. On a pro forma basis, revenue growth of 4% once again outpaced expenses during the quarter reflecting our unflagging efforts to ensure that we are operating at the absolute highest levels of efficiency. With a sizable increase in revenue and expenses held in check, earnings per share were $0.59 on a non-GAAP basis, a substantial increase of 37% over Q3 last year. Our operating income and adjusted EBITDA showed meaningful improvement with double-digit growth on a non-GAAP basis and pro forma basis. In addition we achieved another strong quarter of free cash flow, generating an increase of 76% over Q3 last year. Now we had an extremely busy and productive Q3 as you saw, and that included some developments that you all are aware of, such as the announcement we made in early August regarding our acquisition of all of Cars.com and our plans to separate into two highly-focused, industry-leading publicly-traded companies of scale. But we also continued to advance our strategic transformation plan behind the scenes as you’ll hear in a few moments. Now I’d like to spend a few minutes covering each of our businesses at a high level, and I’ll kick things off with our Broadcasting segment which had a stellar performance in Q3 and once again achieved a new high – revenue of $417 million. Obviously the biggest contributor to this growth was the significant expansion in our television station portfolio over the last year including our acquisition of stations from Belo and London Broadcasting. As you know, many of these stations are in the top 25 markets including rapidly-growing areas like Texas and the Pacific Northwest. This serves to not only enhance our broadcasting scale and reach but it has also provided highly attractive new markets for G/O Digital, on which I’ll comment further in a couple of minutes. Broadcasting revenue was also up strongly on a pro forma basis, reflecting robust growth in retransmission revenue and political advertising across our television station portfolio. We had a particularly strong quarter for political-related ad demand reflecting a very strong footprint as well as very effective inventory management and strong stations. Q4 is also shaping up very nicely. Our political footprint is larger than ever with Gannett markets covering the majority of key competitive Senate and Governor races across the country in states such as Arkansas, Colorado, Florida, Georgia, Louisiana, Michigan, and North Carolina. Our stations are also covering ten active House races in cities including Phoenix, Denver, St. Louis, and San Antonio. The surge of advertising in the next two weeks will have a big impact on our political revenue but our initial numbers give us confidence that full-year 2014 political ad revenue can finish substantially above 20% higher than 2012 excluding Presidential dollars and up in the low-teens compared to 2010’s midterm total. Broadcasting advertising remains absolutely essential to a successful political campaign. At the recent TVB Futures Conference in September a bipartisan panel of political media planners and spenders discussed the fact that political spending on television is at the very core of what gets people elected to office. There will of course always be supplementary overflow to other mediums like cable, radio and perhaps digital but the panelists were very forceful in their statement that politicians were, are and for the foreseeable future will continue to be highly dependent on broadcast television to get elected. And we frankly see that in our numbers as well. Another key fact which I alluded to earlier is that Gannett Broadcasting has always been best-in-class at managing pricing and inventory. This is crucial at this time of the year because political advertising is purchased very close to air date and distorts market demand in ways that makes inventory management quite complex. Our top-notch system for handling these intricacies and the reputations of our stations in their respective markets give Gannett a competitive advantage in a core capability for any broadcasting business. We will take more than our fair share of political ads and our strong local news position is key to this revenue. Now as you know the huge demand for political advertising does of course displace some of our core advertising as those advertisers will be seeing higher rates and could be crowded out in some markets due to all the political activity. What we’ve seen in past election years is our core advertisers save their money now and then come back and spend those dollars with us as we get past the elections. Now let me switch gears and turn to Publishing where we achieved solid profitability during the quarter. Pro forma revenue declined 2.5%, largely the result of secular headwinds and a continuing soft but improved national advertising environment as lower advertising revenue was partially offset by circulation revenue growth. We are very pleased that we were able to grow circulation revenue. This improvement clearly shows Gannett is receiving recognition for all of the hard work we have done and continue to do to uncover new and better ways to reach our audiences and deliver content that they truly value. Now we’ve talked in the past about our USA Today content editions and the terrific feedback we received from our subscribers in the markets where we launched this feature. We came up with the framework for our USA Today content editions by asking our readers what they wanted, testing that product, piloting the product in four markets and later expanding it into 34 markets. The end result has been more highly-engaged subscribers that spend more time with their daily print editions, have increased ad recall and ultimately have developed a stronger loyalty towards their local publications. As I mentioned earlier we are never satisfied and we want to build on the success we’ve seen with this initiative thus far. We recently completed a comprehensive market assessment project, providing us information that has been tremendously insightful and frankly quite gratifying. For one, we learned that introducing USA Today to our local papers made a substantial positive impact on overall impressions and satisfaction among current subscribers. Over half of subscribers said their overall impression of their local paper has improved across a number of areas including quality, content, layout and look and feel. Overall about half are more satisfied with the local paper today as a result of this feature. Second, the addition of USA Today sections has increased the amount of time spent with the paper and readers cited a number of reasons for their increased engagement, including the fact that they have more information to share with others, they feel smarter about the important issues they want to keep up with, and they feel that they come up with more ideas about things to do. Ultimately at least half of subscribers believe the product is a better value now that it includes USA Today and other local content improvements, and this is contributing to a strong likelihood of renewing their subscriptions. The creation of our USA Today content editions and the driving force behind our desire to conduct this market research stem from the same core idea: we keep our readers at the epicenter of everything we do. That mantra has served this company well for over 100 years and is something that we have been very focused on these last several years and are 100% committed to maintaining. Now let’s turn to our Digital segment, where operating revenues were higher in Q3 ’14 compared to last year driven by strong revenue generation, up 7%, at CareerBuilder. G/O Digital, our locally-focused digital marketing services business, continues to benefit from our expanded scale and is making inroads in each of the markets we have recently entered including those to which we gained access through our expanded television footprint. G/O Digital again achieved terrific growth during the quarter for local small- to medium-sized businesses with revenues up 71% over the last year. Growth at G/O Digital is coming in two equally important forms: first, the customer base is up more than 50% over last year; and second, average revenue per account increased by 12%. Growth is powered by a combination of search and social products and we are focused on continuing to expand the products used by clients to even better meet their needs and drive results for them. G/O Digital was also selected into the Strategic Ambassador Tier, the highest tier of Yahoo’s Local Ambassador program. This adds to our existing Premier SMB Partner status with Google. G/O Digital also serves large retailers and brands and continues to see traction across several key areas. For example, during the quarter our mobile shopping app Key Ring launched Key Ring Express. The award-winning mobile app is now even more useful, curating loyalty cards, weekly sale ads and coupons. With Key Ring Express, users also can receive notifications that are triggered by Beacon’s and GeoSense locations locally within 100 meters of their location. And for those of you who deal with feet, that’s about 328 feet. These features have been recognized by industry experts including Digiday which last week named Key Ring the 2014 Recipient of Best Mobile App for ecommerce and retail. This speaks to both the dedication and relentless efforts of our talented sales force and also demonstrates the fact that businesses of all sizes are clearly seeing the value and tremendous flexibility that our customized, multi-vehicle approach to digital advertising affords them. Finally as you know we closed our acquisition of Cars.com on October 1st. I’m sure many of you have questions regarding next steps and expectations related to the integration of Cars. We are absolutely thrilled to now be the sole owners of that business. There are many, many factors working in Cars.com’s favor. It has an outstanding product suite and a keen ability to listen to its customers and deliver innovations that set it apart. It has fantastic growth dynamics as advertisers continue to shift more and more of their spending toward digital offerings. And as sole owner of Cars.com we expect to strengthen its operations and further accelerate its growth. Cars is a business we know extremely well. In fact, as I’ve mentioned before Jack Williams, President of Gannett Digital Ventures, has been the one steady hand on Cars.com since its inception in 1998. It has truly terrific growth characteristics and has evolved from a business that was buttressed by the publishing operations of its owners into a standalone, leading-edge digital business and a strong competitor serving over 20,000 dealers. From 2006 to 2013 Cars.com revenue grew at a compound annual growth rate of almost 20% while EBITDA increased at a compound annual growth rate of almost 40% over the same period. To add to that, we believe we are gaining full ownership of Cars at the right time in the cycle as advertisers continue to increasingly shift more and more business to digital solutions. Now with regard to the integration of the business specifically, the great news is that we expect it will be very straightforward as there is not much operational integration that needs to occur. Unrelated to the integration itself but certainly worth mentioning is the immediate and substantial uptick in Cars.com EBITDA we will see as a result of the new affiliation agreements that went into effect at closing. So suffice it to say we were incredibly excited to announce the close of this transaction, and we’ve been hard at work ever since with a focus on accelerating growth at an already rapidly-growing business. Now before I turn it over to Victoria I’d like to comment briefly on our intent to separate into two publicly-traded companies, one focused on our publishing business and its related fast-growing digital components which will be virtually debt-free; and another comprised of our higher-growth, higher-margin broadcast and digital businesses. As standalone companies each of these businesses will have even sharper management focus and resources that are more directly aligned with their individual needs and priorities. As you heard me say back in August all of our businesses have grown stronger as a result of the successful execution of our transformation plan, making this absolutely the right time to separate them into two financially and strategically strong companies with impressive scale and competitive positioning in their respective markets. While clearly we have a great deal of work to do on that front we continue to expect to close and complete the separation transaction in mid-2015. With that I’d like to turn it over to Victoria who’s going to provide a detailed review of our financial results. Victoria?

Thanks, Gracia, and good morning everyone. As Gracia’s already mentioned the Q3 financial results highlight the outstanding progress we’ve made in the strategic transformation of our company. Before I review the results by segment as well as our capital allocation efforts during the quarter I’d like to spend a few minutes reviewing several special items which are included in our results to help provide additional context for our recurring trends. During the quarter, our ongoing efforts to transform the business, initiated over two years ago, resulted in greater operating efficiencies and effectiveness across the portfolio as well as new revenue opportunities. To that end this quarter we incurred $3 million in workforce restructuring expenses coupled with $7 million in other transformation costs related to restructuring our real estate portfolio. These operating special items totaled $10 million with an EPS impact of about $0.03 per share. From a non-operating standpoint during the quarter we incurred $20 million in costs related to the London Broadcast and Cars.com acquisitions as well as our planned spinoff. As a result, total operating and non-operating special items for the quarter were $30 million with an associated GAAP EPS impact of about $0.10 per share. In addition, during Q3 we also recognized a $6 million favorable tax adjustment on the sale of a television station with an associated EPS benefit of $0.02 per share. Beyond this, during the quarter we incurred $11 million in costs associated with our strategic initiatives spending which continue to drive significant cost savings. Our efficiency programs include further consolidation of our printing and distribution platforms as well as our real estate footprint, the hubbing of our financial support organizations and streamlining our customer service efforts. As a result of these savings we continue to invest in our new initiatives. Let’s turn to total company results. As a reminder you can find all of our reported data and comparisons in our press release. As usual I’ll be focusing on our non-GAAP and pro forma numbers today. Across the portfolio total company revenues of $1.4 billion were up 4% year-over-year on a pro forma basis, reflecting the strength of our Broadcasting and Digital segments. On a reported basis, that’s fully 15% above last year. Again this quarter strong political advertising spending and retransmission revenues helped drive these results, propelling the Broadcast segment to an historical revenue high. We could not be more pleased with how well the Belo integration continues to progress, with a third full quarter of results producing strong EBITDA synergies driving the full-year trajectory ahead of the $75 million we had previously projected and non-GAAP EPS accretion of $0.43 per share for this year. Now let’s turn briefly to cost and efficiency efforts on both a company-wide and segment-specific basis. During Q3 total company operating expenses of $1.2 billion on a pro forma basis excluding special items were slightly lower year-over-year as a result of our continued focus on efficiency as well as lower volume in the Publishing segment. Now turning to segment-specific results, pro-forma Broadcasting segment revenues were up 19% year-over-year for the quarter, benefited by strong retransmission fees, political-related advertising and digital revenue. Political campaign spending of $40 million was even stronger than anticipated for the quarter, an increase of $34 million compared to last year and 31% higher than 2010. Political advertising spending of $40 million was even stronger than anticipated for the quarter, an increase of $34 million compared to last year and 31% higher than 2010, which is the best political comparison as 2012 was a political election year, thanks to some hotly-contested state and local campaigns. As a result, our stations in Denver, Little Rock, Tampa, Minneapolis, Phoenix and Charlotte have significantly surpassed 2010 revenue comparisons. Retransmission fees continued to cycle upward as well by about 61% on a pro forma basis. That said, core advertising continued to trend softer during the quarter, mainly attributable to political displacements due to significantly higher demand for television advertising. Broadcasting digital revenues were up 24%, driven by the digital marketing services that continue to see growing strength from the newly-launched Belo stations as well as in the existing stations as these markets are all fully trained on G/O Digital products and starting to see strong sales traction. Based on current trends and including a full quarter of results of the former Belo and London stations we expect the increase in total television revenues for Q4 2014 compared to Q4 2013 to exceed 115%. On a pro forma basis, the percentage increase in total television revenues in Q4 2014 is projected to be in the low 20%s compared to Q4 2013. Broadcast segment operating expenses were up 3.6% year-over-year on a pro forma basis driven by higher revenues from new and existing stations as well as reverse compensation and investments in sales and marketing tools in support of new digital growth initiatives. The Publishing segment advertising revenues of $495 million were impacted by secular pressure, down about 4% on a pro forma basis excluding Apartments.com with the year-over-year print advertising revenue decline partly offset by digital growth of 15%. Within this segment domestic publishing advertising revenues decreased by 5.8% year-over-year. However, advertising revenues posted sequential improvements across many categories while comparisons of auto and employee categories have improved throughout the year, reflecting the recent strength of the US economy in the job market. In the US and the UK Newsquest advertising declined by about 2% year-over-year; however they saw a second year-over-year quarterly bottom line improvement. Pro forma, domestic online advertising revenue in the Publishing segment increased 13% year-over-year with retail advertising up 19%, driven by G/O Digital with a growing base of customers seeking to diversify their marketing expense while increasing the efficiency of their online advertising solutions. National digital revenues also improved 16%. Newsquest online advertising was up a robust 20% driven by retail and employment category advertising. Overall, Publishing segment’s circulation revenue was up year-over-year by about 1% driven by the ongoing strength of the all-access content subscription model as well as strategic price increases in our local publishing sites, which we reported their first year-over-year increase this year. In addition, our local domestic publishing sites also continued to benefit from the 34-market integration of our USA Today content. This allowed us to strategically increase pricing, resulting in year-over-year home delivery revenue growth. USA Today group circulation was down 2% due in part to planned volume loss. In the UK Newsquest circulation revenue decreased by approximately 5% local currency due to the cycling of cover price increases last year. Publishing segment operating expenses were below last year, down approximately 2% due to lower volume as well as efficiency gains generated by Gannett Publishing Services, sourcing and other direct cost reductions. During the quarter Digital segment revenue increased by 4% year-over-year, driven by the continued growth at CareerBuilder which was up 7% year-over-year. CareerBuilder’s strong revenue growth continued to be driven by expanding sales of Human Capital software as a service or SaaS products. Further reinforcing CareerBuilder’s commitment to expanding its SaaS portfolio, CareerBuilder acquired Broadbean earlier this year, partly contributing to its strong year-over-year growth. Beyond CareerBuilder, ShopLocal also had another very strong quarter, driven by search work for major advertisers and increased development revenue. Digital segment operating expenses were up 1% in the quarter reflecting incremental expenses that occurred at CareerBuilder to leverage their recently-acquired assets as well as increased investments to grow CareerBuilder’s market-leading sales presence within the US and other digital investments, including technology development in Human Capital software solutions. During Q3 company-wide Digital revenues totaled $404 million reflecting an increase of 7% year-over-year on a pro forma basis. Digital revenues contributed 28% of total company revenues during the quarter. Total company adjusted EBITDA of $342 million increased by 22% on a pro forma basis with year-over-year gains driven by both Broadcast and Digital segments which generated about three-quarters of total company EBITDA. Free cash flow for the quarter was $186 million which was 76% higher than last year due to our strong operating results. As Gracia noted, we closed our Cars.com acquisition on October 1st. With respect to the near-term financial impact, in Q4 we expect an impact on Publishing segment EBITDA in the range of $7 million as a result of the new affiliation agreements that went into effect October 1st, with significant increases in Digital segment EBITDA. Overall equity income will be lower by about $6.4 million now that we own Cars.com in its entirety. As a result we expect the addition of Cars.com to be about neutral to net income and net EPS in Q4. During the quarter we invested $40 million in capital projects, primarily related to ongoing digital development as well as product integration, automation, and enhancements at CareerBuilder. CAPEX spend for the full year is now projected to be closer to $160 million, reflecting previously-unbudgeted items such as Cars.com and several local publishing real estate initiatives which generate operating cost savings. \ Again this quarter the majority of our capital investments continue to support development of digital products and platforms as well as our efficiency projects. Beyond this in tax, the non-GAAP income tax rate for Q4 is now estimated to be just under 30%. With the completion of our $675 million senior notes offering last month to finance the Cars.com acquisition at highly favorable rates our outstanding debt is $4.1 billion as of the end of the quarter, and cash on the balance sheet stands at $1.4 billion at the end of Q3. Also during Q3 we continued to carry heavier interest expense of $66 million, largely due to the debt associated with the Belo acquisition. As previously indicated on our last call our share repurchase program has been temporarily suspended as of the end of Q2 in support of the Cars.com acquisition. That said, we have already completed over 50% of our $300 million commitment to share repurchases. With that I’ll turn the call back to Gracia for her closing remarks.

Thanks, Victoria. We have clearly momentum building across many areas of our business and we are relentlessly focused on finding every opportunity to better serve our audiences. Our strong, predictable cash flows and healthy balance sheet provide us with the financial flexibility necessary to fuel these efforts and to make investments that will continue to drive growth. We feel really good about the way each of our businesses is positioned amid today’s increasingly digital media landscape. Clearly our Publishing and Broadcasting businesses are buttressed by strong digital strategies. The needs and preferences of our readers and viewers may be changing but we have used that dynamic to our advantage as we have developed and continue to develop new and innovative ways to reach them. We are also very optimistic about where we are with digitally-focused offerings, especially given the addition of Cars.com to our portfolio. We expect to close out 2014 on a very good note, and while we are looking forward to the closing of our separation transaction for the next few quarters we remain laser-focused on executing the strategies we’ve outlined and delivering consistently positive results across each of our business segments. Before we move to Q&A I want to remind everyone that next Wednesday, October 29th, we’re hosting an investor meeting focused on our newly-expanded digital portfolio, specifically the two major pieces Cars.com and CareerBuilder as I mentioned earlier. The meeting will be held at 9:00 AM at the Parker Meridian in New York City and we are looking forward to seeing many of you there. If you have any questions about the event please call Jeff Heinz and you can reach him at 703-854-6917. Now I’d like to open it up for questions. Operator?

Thank you. (Operator instructions.) And we’ll take our first question from William Bird with FBR. William Bird – FBR Capital Markets: Good morning. Gracia, where does your ABC renewal stand? Is your reverse payment in the expense base yet? And though it wasn’t under ownership do you have a sense of how Cars performed in the quarter? Thank you.

Let me start with the ABC negotiation and with respect to whether the expected expense for reverse retrans – we have been accruing at what we think is the appropriate level since the expiration of the affiliation agreement earlier this year. So that is in fact baked into our expense numbers in the quarter. We have been having a very collaborative and good set of conversations I think we are you know, soon to conclude those negotiations and I believe that they will be good for both of our companies and reflect the strong partnership and good feelings we have towards ABC. Dave, I don’t know if you want to add anything?

Yeah, I’ll just add that obviously for the Belo stations, that agreement doesn’t end till the end of this year so those numbers were also already in there as you pointed out. So as you said we’ve been accruing for the Gannett stations and it’s not uncommon for ABC in the past, for those deals to go on for many months just as we work through a lot of issues. But we’ve worked through an enormous amount of issues, more than I think have been done in the past and some signed agreements. So as Gracia said we’re working through them and it’s been a very good process, and we should be wrapping up very soon.

And on Cars.com I frankly haven’t seen the numbers but I believe they’ve done exactly what we had hoped if not slightly better. William Bird – FBR Capital Markets: Thank you.

Thanks, Bill.

And we’ll take our next question from Jim Goss with Barrington Research. Jim Goss – Barrington Research : Thanks, I’ve got a couple of them, one relating to Broadcasting. CBS and FOX have both been more aggressive in terms of programming cost payments or reverse comp demands and also in terms of affiliation agreements. And I’m just wondering your view of the impact on the industry environment in terms of acquisition potential and revenue opportunities.

Yeah, let me start and then I’ll ask Dave of course to jump in. First off, you know, I can’t really speak to FOX because we don’t have any, we have two small FOX affiliates but that’s clearly not an issue for us. With respect to other affiliation agreements, the only negotiations we have had are with ABC so I really can’t speak specifically to CBS or for that matter to NBC at this point. To refresh everyone’s memory, our CBS agreements don’t come up for renewal until the end of next year and NBC in early 2017. But you know, I think I would say conceptually that there’s been a lot of speculation by a lot of folks, with emphasis on “speculation” but not necessarily a lot of facts. And there have been a lot of different-sized groups and individual stations that we hear lots of things about in the marketplace. But I have to tell you I think we all have to remember that there are really two pieces to this equation: first the retrans side where we continue and will continue to work on closing the gap between what we are paid for our content and the value we provide versus what others such as some sports folks are paid. And we are working each and every time we negotiate to close that gap and appropriately reflect our value. Now, on the reverse retrans side you know, there’s lots of different formulations out there that we are hearing but I think it all boils down to we believe in having strong relationships with our network partners. We believe in them getting fair value for what they bring to the table and you know, we particularly appreciate the great job that Les has done with respect to programming and NFL Football. We appreciate the great job that NBC has done in extending the Olympics to 2032 and NFL Football and others, and their great news programming. So we believe they bring things to the table and to the partnership just as we bring things to those partnerships. And our strong stations and the distribution and the promotion that they provide, you know, I think about just earlier this year with the Olympics – the fact that Gannett stations I believe were four of the top five performing stations for NBC. And KARE in Minneapolis was the number one station across the entire NBC affiliate group for their performance from sign-on to sign-off. So I think there’s a lot of things that we provide, there’s a lot of things our partners provide and we will negotiate with our network partners collaboratively but we will negotiate in private. Jim Goss – Barrington Research : Okay, thanks. I was looking more for that philosophical side than specifics. The other question I’d have would be involving circulation experience, have you noticed any difference within your group by market size? Or maybe the USA Today effort has trumped this a little bit but I’m wondering if you’ve noticed any difference by market size and has there been any impact on the ad trends in those markets as you have stabilized circulation? Have smaller markets done better than the bigger markets within your group I guess is the primary issue?

I’ll begin it but then I’ll smartly turn it over to Bob Dickey. What I’d like to say and reinforce is that the addition of those USA Today sections as you heard me talk about earlier and the impact that we are seeing on the value that our subscribers feel and have expressed; and the less likelihood to churn their subscriptions, and their engagement with this content – both the USA Today section and the paper as a whole – I think bodes very well for not only our circulation revenue but I think it bodes well for our conversations with advertisers. But Bob, why don’t you jump in here?

Yeah, we’re very, very happy with the results in our larger markets. Frankly they’ve performed slightly better than we had projected. And to Gracia’s point, in the markets for which the local USA Today edition is included, those markets, our top 30, 35 markets are performing a number of percentage points better than the smaller markets that at this time do not have a full USA Today local edition. So from a circulation standpoint we’re very happy with both the volume, the retention at this point in time, starting with our largest market – Phoenix – which is doing very well with their most recent price increases. As it relates to advertising trends, that is really not as much a market size as a geographic issue. Certain parts of the country like the Northeast are more challenged than where we’re seeing some great results like in the Midwest and the state of Florida. Jim Goss – Barrington Research : Alright, thank you very much.

Thanks, Jim.

And we’ll take our next question from Doug Arthur with Evercore. Doug Arthur – Evercore Partners : Gracia, you lost me a little bit on your expectations for political in Q4. You were making various comparisons to the last midterm and then to ’12. Can you just go over those again? And I’m wondering if Dave could kind of break down the “other” category, the $33.964 million that you broke out in terms of TV – how does that break down? Thanks.

Yeah, let me start and I apologize for any confusion that I caused. Let me start by saying we had record political and we will have record high Q4 political for a non-Presidential year this year. In Q4 what we’re looking at is an expectation that political will be you know, anywhere to high-singles to even potentially, depending on runoffs and the like, low-teens above 2010’s Q4. And against 2012, if you exclude Presidential which is typically I think around 35% of political, then we will see a nice increase against what we accomplished ex-Presidential in 2012. So we feel extremely good about political and believe that once again political is really an important… Political spending finds strong affiliate television in those markets where there are competitive races to be the compelling vehicle to advertise on. You know, getting to the portfolio it depends on your footprint a lot, and in Little Rock for instance we’re having a tsunami of political this year whereas in 2012 and 2010 there was virtually nothing. In Denver we’re ahead of 2012 in Q3 which included Presidential last time and will I think double what we achieved in 2010. And I could go on and on but really it’s the footprint, it’s the strength of your station in the market and then it’s really smart inventory management, and we are blessed with the fact that we have all three of those things going at the same time.

And Doug, to your second question, the majority of that $33 million is digital and a few various other revenue streams that we’ve got at some stations. But the vast majority of that is digital. Doug Arthur – Evercore Partners : Okay, and just as a clarification, Gracia, when you’re comparing Q4 ’14 to ’10 is that pro forma?

Yes, absolutely, yes. Yes, totally. Doug Arthur – Evercore Partners : Okay, thank you.

Thanks, Doug.

And we’ll take our next question from John Janedis with Jefferies. John Janedis – Jefferies : Hi, thank you. Good morning, Gracia. I’m just wondering, back to reverse retrans for a moment, would there be any benefit or would you consider negotiating the CBS or NBC deals early? And then are you increasing your hours of local news?

To be honest with you on CBS, the affiliation agreement is coming up at the end of next year so we will be talking with them into 2015 – so I’m not sure there’s anything really early that we would be doing there. And you know, we’ll just have to see how these things play out. Dave, do you want to talk about additional hours of news programming which is what we’re doing.

The answer is yes we are. I don’t have that number right in front of me but each year we add more and more news programming – not just news programming but also local non-news programming. So we continue on a pro forma basis, to the last question; we are adding all the time. John Janedis – Jefferies : Okay, great. Thank you.

Thanks, John.

And we’ll take our next question from Joan Lappin with Gramercy Capital. Joan Lappin – Gramercy Capital : Good morning and congratulations on more good work. I have one question about Digital, which is it grew 4% but at some point aren’t we expecting that growth to accelerate to a higher percentage than that if that’s your future?

Absolutely and I think you’re going to see that even more manifest in Q4 as we fully consolidate Cars.com. And on a pro forma basis that accelerates certainly that growth rate. I think also at CareerBuilder where they’ve done a fantastic job as Victoria pointed out in not only ramping up their new product developments in what I would think we would all argue has been, at least until fairly recently a very tepid job environment. And I think in the acquisitions that they have done over the last couple of years that Victoria mentioned in Broadbean and EMSI they are very much focused on the faster-growing software as a service business and data analytics around employment solutions. So I think what you’re going to see is absolutely that steady progression of increasing Digital segment revenues over the next several years as many of the investments we’ve been making in that business continue to ramp up. Joan Lappin – Gramercy Capital : One segment, Gracia, that you had made a big fuss about three years ago was sports and you don’t talk about that much anymore. So is that one of those segments or is that, you know…

Well actually sports would not be in the Digital segment. Let me just go back: in our Digital segment we include our ownership, our 53% ownership of CareerBuilder and ShopLocal, PointRoll and a couple of other smaller digital businesses. The digital revenues with respect to our sports initiatives and other initiatives that our Broadcasting group and our Publishing group do are embedded in their numbers. So when we talk about the growth of digital in Publishing for instance and in Broadcasting, that would encompass those kinds of initiatives. And in fact I think we talked about digital growth at USA Today being very, very strong this quarter. So we are seeing that digital growth in those divisions, and then the segment itself includes the businesses that we own like CareerBuilder, soon-to-be Cars.com, ShopLocal, PointRoll and a couple of other small businesses. And then obviously Broadcasting’s digital revenues were up 20% in the quarter. So I think you see that as we mentioned those numbers that we are seeing the growth in digital in our divisions as well as in our Digital segment. Joan Lappin – Gramercy Capital : Thanks.

You’re welcome. Joan Lappin – Gramercy Capital : See you next week.

Yes, I look forward to it.

And we’ll take our next question from Alexia Quadrani with JPMorgan. Alexia Quadrani – JPMorgan : Hi, thank you. Gracia, you mentioned I think in your opening comments about the crowding out of the core advertising due to the strong political in the Broadcasting segment. I guess is there any more color you can give on the health of the underlying advertising. Obviously the softness seems to be skewed because of the political – I guess any color on the overall health of that market just in general would be great. And then just a follow-up on your newspaper commentary, your ability to generate the nice increases in circulation revenue in part because of the insertion of USA Today. I guess when you circle all that do you think there’s still room for any price increases on that printed copy?

Let me start with the Broadcast question and I’ll certainly ask Dave to jump in as well; and then I’ll ask Bob Dickey to share with you pricing opportunities. With respect to the core I think universally folks were disappointed with national advertising in Q2 – it was softer. There were a variety of reasons including The World Cup and other events that perhaps muted national advertising. And at the time, during our Q2 earnings call we indicated that we saw improved broadcasting results – not necessarily positive for Q3 because of that displacement pattern but certainly improved from Q2. And that is in fact exactly what happened. In fact, in July national advertising was up a few percent; and then obviously as political crowded out and pricing obviously for political goes up we saw national being more tempered. But again national in totality in Broadcasting for Q3 was better than what we saw in Q2, and similarly for USA Today they saw a better national outcome in Q3 than they saw in Q2. So it’ll be a little tough in Q4 obviously to be able to demonstrate that underlying strength in our core business because when you think about the level of political that we will write primarily in a month and a week it’s extraordinary. And so I was just in Little Rock a couple of weeks ago and frankly I was tuning into our station of course, and I have to tell you it was political ad after political ad after political ad – which was wonderful to see, great for democracy, but obviously didn’t leave a lot of room for other folks who wanted to advertise their products and services. But Dave, why don’t you add anything you’d like?

Yeah, just to expound on what you said about national – national was better in Q3 on an absolute basis even with political displacement which is significantly higher in Q3 than in Q2. So what we had said on the last call, that national was improving on an absolute basis, is true. Alexia Quadrani – JPMorgan : Alright, thank you.

Thanks, Alexia. I think we have time for one more question.

Thank you, ma’am, and that final question will come from Craig Huber with Huber Research Partners. Craig Huber – Huber Research Partners : Yes, good morning, Gracia, just a few simple questions here. The first one if I could: what was the organic auto TV advertising percent change there in the quarter and how is that tracking for Q4?

Obviously auto advertising like many of our other categories was impacted, and that’s particularly a category… Since it’s about 25% or so of our advertising spend in Broadcast – that’s particularly a category that’s going to be impacted by that phenomenon that I just talked to you about that I saw in Little Rock. So it’s really hard for us to give category numbers because I’m not sure that they’re in any way meaningful. Craig Huber – Huber Research Partners : Okay. And then can you talk a little bit further, if you’d just maybe update us on your outlook for the Belo cost savings and synergy numbers versus what you originally gave investors? It obviously closed about ten months ago but how have those numbers changed please?

You know, we’re very, very pleased with what we have been accomplishing with the Belo stations. As we said at the time that we acquired them these were incredibly strong stations and we could take advantage of number one, our after-acquired clauses in many of our retrans agreements; but as well obviously some corporate expense and some other things that we could just consolidate as we have already consolidated them in the Gannett stations. And so I think at the time we said we would achieve synergies of about $75 million, Victoria?

Right, and it’s been a little bit even better than that as I just said in my remarks, about $0.43 so right on target for us.

Yeah, if not ahead of that number. So that’s a real homerun for us and we’re delighted with the progress that we’ve made there, and we’ve got the new London stations in Texas that we’re equally as excited about and enthusiastic about and they’re doing a wonderful job integrating into the family over these last few months. And we’ll be doing a lot of work there as well to help them with integrating into the scale of the Gannett Company. Craig Huber – Huber Research Partners : Then lastly, Gracia, if I can ask you on network compensation – you touched on a lot about this today – but is there anything you’re hearing from the broadcast networks, or do you see it playing out this way, that the TV station affiliates would maybe take on some more inventory during the prime time hours or other, what had been traditionally broadcast network hours; or more advertising inventory you would take on but you would have to pay a higher network compensation?

I’m going to ask Dave Lougee to speak to that.

Hey, Craig. We’ve always had good dialogs with the networks about where there may be a better trade of inventory. When we did a deal with NBC on the Olympics a few years ago there was some inventory – they coveted that. Maybe it was of more value to them than to us. So that’s always going on at an affiliate board level across the industry, not on a group-by-group basis as part of any discussion. So those would not really be tied into affiliate contracts but it would be part of the overall affiliate relationship and does happen all the time. Craig Huber – Huber Research Partners : Okay, thank you.

Thank you. And we very much appreciate all of you joining us today and sharing in the great news that we had to deliver today. If you have any lingering questions please give Jeff a call and thank you all so much for joining us and spending time with us.