USA TODAY Co., Inc. (TDAY) Q3 2016 Earnings Report, Transcript and Summary

Good afternoon my name is Ben and I will be your conference facilitator. I would like to welcome everyone to Gannett's Third Quarter 2016 Earnings Conference Call. [Operator Instructions]. Thank you. I will now turn the call over to your host, Mr. Michael Dickerson, Vice President of Investor Relations for Gannett. You may begin your conference.

Thank you, Ben. Good morning everyone. I'm Mike Dickerson, Vice President of Investor Relations and Real Estate at Gannett. Welcome to Gannett's conference call to discuss our third quarter 2016 financial results. Joining me this morning are Bob Dickey, our President and Chief Executive Officer, Ali Engel, our Chief Financial Officer, John Zidich, President of Domestic Publishing, Sharon Rowlands, Chief Executive Officer of ReachLocal and Barbara Wall, our Chief Legal Officer. Many of you have already seen a copy of our press release from this morning. For those of you who have not it is available on our website at gannett.com. I want to call your attention to our Safe Harbor Provision for forward-looking statements that could be found at the end of our press release. The Safe Harbor Provision identifies risk factors that may cause actual results to differ materially from the content of our forward-looking statements. Our 2015 Annual Report on Form 10-K and other periodic filings on file with the SEC provide further detail about the risk factors related to our business. During this conference call we may refer to adjusted EBITDA, adjusted earnings-per-share and free cash flow. We define adjusted EBITDA as earnings before income taxes, equity income, other non-operating items which includes interest income and interest expense among other items, severance-related charges including early retirement programs, asset impairment charges, depreciation and amortization. We define adjusted earnings-per-share as EPS before tax affected severance-related charges including early retirement programs, asset impairment charges, acquisition-related expenses and transformational items. The tax impact on these non-GAAP tax deductible adjustments is based on the estimated statutory tax rate for the United Kingdom of 20% and the United States of 38.7%. We define free cash flow as cash flow from operating activities less capital expenditures. These non-GAAP company defined measures are provided because management believes they are useful in analyzing the Company's operating performance and cash flow before the impact of various reorganization and other charges. Reconciliations of adjusted EBITDA to GAAP net income, adjusted EPS to GAAP EPS and free cash flow to cash flow from operating activities is included is our press release. For any of the periods prior to the third quarter of 2015 the accompanying results of operations have been derived from the consolidated financial statements and accounting records of the Company's former parent and presented as if the Company were a separate entity. The most significant changes from the publishing segment results reported by the Company's former parent include adjustments for businesses retained by the parent such us Clipper Magazine and Gannett Government Media and adjustments for corporate allocations related to equity-based compensation, pensions and various other items. Let me describe the change in our reported segments beginning with this third quarter. The first segment is publishing which consists of our portfolio of regional, national and international publications. The results of this segment include retail classified, national advertising revenues, circulation revenues from the distribution of publications on our digital platforms, digital marketing services through our affiliate G/O Digital, home delivery of our publications and single copy sales and other revenues from commercial printing and distribution arrangements. The next segment is ReachLocal which consists exclusively of our ReachLocal digital market solutions subsidiary. The results of this segment include advertising revenues from search and display services as well as other revenues related to web presence and software solutions. In addition to the above operating segments we have a corporate segment that includes activities not directly attributable to a specific segment. This category primarily consists of corporate functions and includes legal human resources accounting, analytics, finance and marketing as well as restructuring, tax elements and other general business costs. The Chief Operating decision maker uses adjusted EBITDA to evaluate the performance of the segments and allocate resources. Management considers adjusted EBITDA to be the appropriate metric to evaluate and compare the ongoing operating performance of our segments on a consistent basis across reporting periods as it eliminates the effect of certain noncash items which we do not believe are indicative offer of its core operating performance. Adjusted EBITDA is considered to be a non-GAAP measure and may be different than similarly titled non-GAAP financial measures used by other companies. The format for today's call will be as follows. First Bob Dickey will lead us off with a discussion and update of our key strategic priorities and recent events. Next Sharon Rowlands will give us a brief overview of ReachLocal and Ali will take us through the financial performance of the third quarter and our outlook for the balance of 2016. And lastly there will be a question-and-answer period. Finally, I would like to note that we do not intend to address or take questions on recent media reports regarding Gannett and merger and acquisition activities. With that I will now turn the call over to Bob Dickey.

All right. Thanks, Mike and good morning everyone. While our third quarter certainly had its challenges I would like to first point out a few exciting events that occurred during the quarter. Driven by dramatic changes in how USA TODAY covers the Olympics traffic from the Rio games exploded when measured against 2012 in London. The unique visitors to the site were up 400% and Olympics related page views more than doubled to 205 million versus 99 million in 2012. August 2016 was the best single month for traffic in the history of USA TODAY sports with Olympics sports coverage generating 114 million views over 17 days. In fact, USA TODAY sports video views were up 270% year-over-year and the video performance from Rio was the best of any Olympics to-date. A total of 300 Olympic videos drove more than 38 million video views in August, a 2400% increase compared to videos from the 2014 Olympics. Our Rio journalist also covered 350 U.S. athletes from 42 local markets as well as 40 British athletes for Newsquest properties. A total of 396 home towner stories were produced by staffers from the USA TODAY Network. USA TODAY 's sports images published more than 50,000 photos from the Rio games for clients around the world. All-in-all the 2016 Olympic games in Rio were a major success for the network achieved with a much leaner organization than just a few years ago. Moving on to the recent political season the USA TODAY Network launched a national outreach campaign #votingbecause to engage readers in this year's election in a positive way and to underscore the importance of voting to our democratic process. As part of this campaign we created the votingbecause.com website. It offers access to the USA TODAY Network's election coverage as well as many resources to get informed, get involved including registering to vote via our Rock The Vote portal. And in just a few short weeks the campaign has delivered over 80 million impressions and has produced a social reach of over 132 million. These outcomes are clear examples of the strength of the network model which is only now beginning to be realized. Moving on to our third quarter earnings, as we headed into the quarter we had been projecting stable print advertising trends offset by improving digital advertising trends which combined with the acquisitions would have driven revenue growth of between 7% to 9%. Instead we saw pullback in spending in print products in both local and national markets similar to others in the industry. Additionally, our operations in the UK were negatively impacted by uncertainty caused by Brexit. As such on an equivalent basis that is without ReachLocal we achieved a growth rate of about 5%. We saw weakness in domestic preprint down 19% and national print advertising down 30%, driven by lower spending from large retailers. We had also been expecting a greater impact from print win ads during the Olympics which just did not materialize. On the positive side, the steps we have taken to build and strengthen our digital assets and infrastructure were evident in the quarter. We saw improved digital trends with video and mobile advertising up a combined 53% and other sources of digital revenues such as affiliates and syndication up 26%. At the national level, digital advertising continues to expand up 16% in the quarter. In fact, despite the increased decline in print the improvement in digital was enough to allow our domestic operations to maintain a consistent same-store total revenue decline in the 7.5% range. And at USA TODAY in the quarter our digital ad revenue was more than enough to offset the decline in print advertising. In fact, digital ad revenue at USA TODAY now represents 64% of total ad revenue, given the revenue challenges let me spend a minute on what we are doing on the cost side to respond. The integration of Journal Media Group is well on track. The previously-announced plant consolidations were completed during the third quarter with benefits beginning to be realized in the fourth quarter. Through this process we consolidated seven design studios into our centralized design operations, adding over 3000 adds per week into the centralized hubs. In addition, we have integrated all consumer and brand marketing, client strategy and research into our organizational structure and aligned staffing and resources appropriately. From a back-office perspective we have successfully migrated the vast majority of the General Media group workstations, software and support onto Gannett's workstations and network. General Media group is expected to be fully onboard with the Gannett platform by the end of year and we're beginning to realize significant reductions in related user support costs by leveraging Gannett's national support infrastructure. With the majority of Journal Media Group sites now on our existing publishing platforms we’re providing improved digital experience with new websites and apps as well as premium ad opportunities to our advertising customers. This was a massive amount of work to accomplish in only six months and required the effort from hundreds of folks throughout the organization. At the same time we have been work to go integrate the North Jersey Media Group which we acquired in July. This acquisition included the record in Bergen County, the Herald News and their affiliated digital properties. These outstanding publications have been in the same family for generations and have a strong record of journalistic excellence, community engagement and effectively connecting advertisers to the audience they seek. Our integration efforts are well under way. We're undertaking a restructuring in the news and sales departments and transitioning to Gannett's content management system. These initial actions will result in a reduction in force which will be completed before the end of the year and that will deliver more than $10 million in annualized savings. These efforts are tracking ahead of our total synergy plan. In addition to the just mentioned actions over the last several days across Gannett we implemented a reduction of about 2% of the workforce. This action combined with other initiatives will result in an additional $10 million of savings in the fourth quarter and a total of $30 million on an annualized basis. Reductions will be broad-based across the organization and corporate. While these actions are never easy they are absolutely necessary to ensure we are structured appropriately for the current environment and have the resources necessary to continue to invest in our digital future. One example of this investment is the recently announced release of the first weekly virtual reality news show called virtually there. This innovative program provides the USA TODAY Network with a new launch pad for telling the nation's stories in the growing medium of virtual reality. Virtually there is an extension of the USA TODAY Network's innovative and pioneering work in VR that enables the network's journalist to tell the nation's stories and deliver immerse and original content to our 117 million monthly unique users. We're very excited the Executive Producer of the show is multi-Emmy winning producer and Director David Hamlin who recently joined us from National Geographic. Virtually there will provide new advertising opportunities for brand partners with the introduction of the [indiscernible] this is a network innovation that showcases our industry-leading DR advertising that works seamlessly within the program and importantly has set the advertising standard for VR. The show's premiere sponsor Toyota is featured in the first ever [indiscernible] promoting the 2017 Toyota Camry. What makes this especially impressive is that these virtual ads are built by our own creative studio here at Gannett GET Creative. Taking the VR theme one step further today we are hosting our second annual story [ph] next event in partnership with the New York television festival and sponsored by Google, Facebook and others. The day long summit brings together more than 500 people in the journalism, technology and advertising community interested in how virtual reality is impacting story telling. Attendees will experience the second episode of Virtually There which takes viewers skateboarding with the pros to the air on a vintage plane with fearless wing walkers and to the edge of the galaxy to gaze at dark skies in the Arizona Desert, all-in stunning virtual reality. Another digital investment we made recently was the acquisition of ReachLocal which accelerates our digital growth strategy adding more than 320 million of annual digital revenue. Sharon Rowlands who is on the phone with us today from ReachLocal's headquarters in Los Angeles will give us a brief update. Sharon?

Thanks, Bob. As for the past 12 years ReachLocal has run millions of digital campaigns for tens and thousands of businesses around the world. Our Best-in-Class digital marketing solutions deliver local businesses true return on investment. A combination of our technology and service model differentiates us in the market and our sales force closes on average one out of every three prospects. The challenge we faced in recent years was scaling up the number of new local business leads we generated for ourselves. The cost of acquisition was simply too high as a standalone company. Now as a subsidiary of Gannett that will change. Gannett through its portfolio of news sites across the U.S. and the UK and the USA Today Network has trusted relationships with hundreds of thousands of local advertising customers. ReachLocal will be able to leverage that customer base to scale ReachLocal's digital marketing services portfolio and provide Gannett customers with a total advertising and marketing solution. In our first 60 days together with Gannett we have already experienced early examples of our improved ability for ReachLocal to win new business. As a specific example a leading provider of healthcare services invited ReachLocal into a competitive RFP process for large opportunity in 2017. We learned that the healthcare provider had a strong relationship with the local Gannett brand in the city where the healthcare company is headquartered. We were able to leverage that relationship and win this business and I firmly believe that the Gannett relationship and reputation benefited ReachLocal in closing this deal and I look forward to many more deals like this going forward as part of Gannett. Together with Gannett, ReachLocal is prepared to own local digital advertising services and we're excited for what is to come ahead. With that let me turn the call over to Ali who will discuss the financial results for the third quarter.

Thank you, Sharon, and good morning everyone. Consolidated operating revenues for the third quarter were $772.3 million compared to $71.2 million in the prior-year third quarter an increase of $71.1 million or 10.1% excluding $14.3 million of unfavorable foreign currency exchange rate changes and $7.4 million of selected exited operation revenues increased $57.1 million or 8.2% compared to the third quarter of 2015. The increase in revenues was primarily attributable to the acquisitions of the Journal Media Group or JMG, North Jersey Media Group and ReachLocal and continued improvements in national digital advertising revenues. Revenue increases were partially offset by declines in print advertiser demand and a negative impact on classified employment revenues from an unfavorable affiliate agreement change with CareerBuilder. On a same-store basis excluding the impact on revenues from acquisitions, foreign currency exchange rate changes and selected exited operations, operating revenues decreased 8.6%. On a consolidated basis total digital revenue was $205.3 million for the quarter which includes advertising and circulation from the Company's publishing segment as well as a partial quarter of revenues from the acquisition of ReachLocal. On a pro forma basis assuming we had owned ReachLocal for a full year the Company's consolidated digital revenue would approach $1 billion annually. Net loss for the third quarter was $24.2 million primarily due to $31.6 million of after-tax restructuring, acquisition costs, severance and other related items. Adjusted EBITDA for the quarter was $55.3 million compared to $97 million in the prior-year quarter a decrease of $41.7 million. The decrease in the third quarter adjusted EBITDA was due to $5.4 million of reduced EBITDA contribution from the change to the CareerBuilder affiliate agreement, a $3 million in unfavorable foreign currency exchange rate changes, and $2.8 million related to the cost of certain labor litigation and other matters. In addition, third quarter adjusted EBITDA was negatively impacted by $6.7 million due to the opening balance sheet revaluation of ReachLocal deferred revenues as required by U.S. GAAP. The remaining adjusted EBITDA declines are a result of declines in print advertising and circulation revenues primarily in the U.S. and UK local markets. These declines were partially offset by ongoing cost reductions and efficiency gains in operating expenses, increases in national digital advertising revenues and selective description price optimization. Operating revenues in the publishing segment were $736.6 million, an increase of $35.4 million or 5% compared to the prior-year third quarter. Excluding $14.3 million of unfavorable foreign currency exchange rate changes and $7.4 million of selected exited operations revenues increased $92.8 million or 13.4% compared to the third quarter of 2015. This increase was primarily attributable to the continued improvements in national digital advertising revenues as well as the addition of revenues from JMG and the North Jersey Media Group beginning April 8, 2016 and July 6, 2016 respectively. These increases were partially offset by a 14.8% reduction in print advertising revenues led by a 30.6% reduction in national print advertising and a 19.1% reduction in preprint. Digital advertising revenues of $98.8 million were up 6.2% compared to the year-ago quarter primarily due to the addition of JMG and the North Jersey Media Group excluding acquisitions and the impacts of a 46.2% reduction in the U.S. employment category primarily due to CareerBuilder, digital advertising revenues increased 4.4%. The increase was driven by a 53.1% increase in video and mobile display and a 26.4 increase in other sources of digital advertising revenues from affiliates. After adjusting for acquired revenues, foreign currency exchange rate changes and selected exited operations on a same-store basis, advertising revenues were down 11.7% and circulation revenues were down 6.4%. Publishing segment adjusted EBITDA for the quarter was $87.5 million compared to $124.8 million in the prior-year third quarter, a decrease of $37.3 million. The decrease in the third quarter adjusted EBITDA was due to $5.4 million of reduced EBITDA contribution from the changes to the CareerBuilder affiliate agreement, $3 million in unfavorable foreign currency exchange rate changes and approximately $2.8 million related to the cost of certain labor litigation and other matters. The remaining adjusted EBITDA declines are a result of declines in print advertising and circulation revenues primarily in U.S. and UK local markets. These declines were partially offset by ongoing cost reductions and efficiency gains in operating expenses, increases in national digital advertising revenues and selective subscriptions priced optimization strategies. As mentioned in our earning release to combat the continuing challenges in print advertising trends the Company is implementing cost savings initiatives which include reductions throughout our operations as well as incorporate support and related functions. We expect to recognize approximately $6 million of payroll-related savings and $4 million of non-payroll savings in the fourth quarter of 2016 as part of these actions. On an annual basis we expect the payroll-related savings to total $30 million and impact approximately 2% of our workforce. In the ReachLocal segment operating revenues for the quarter were $35 million and adjusted EBITDA was a loss of $6.7 million representing the partial period from the date of acquisition August 9th, 2016 through the end of the third quarter. Revenues and adjusted EBITDA were reduced by the $6 million estimated fair value adjustment to deferred revenue obligations required by U.S. GAAP as part of purchase accounting. Overall ReachLocal continued to track to its plan for sequential revenue growth and adjusted EBITDA margin expansion. Absent purchase accounting adjustments if measured on its historic calendar quarter reporting basis. Net cash flow from operating activities for the quarter was approximately $24.1 million. In addition the Company generated approximately $6.6 million in cash from the disposition of certain property resulting from its efficiency and consolidation efforts. Capital expenditures were approximately $18.9 million primarily for maintenance, digital investments and real estate projects. During the quarter the Company paid dividends of $18.7 million. At the end of the third quarter of 2016 the underfunded pension liability was $442.5 million compared to $612.4 million as of December 27th, 2015, a reduction of $169.9 million or 27.7%. Contributing to this reduction is the full year cash contributions of $82.5 million made to the US and UK retirement plans during 2016 and the effect of foreign currency exchange rate changes. Now let me provide a few thoughts on guidance for the remainder of 2016. For the fourth quarter the Company expects revenues to be up 14% to 16% compared to the fourth quarter of the prior year. This range includes the additional contributions from our recent acquisitions, the negative impact of ReachLocal deferred revenue of approximately $2 million as well as the further deterioration in the UK pound relative to the US dollar. Adjusted EBITDA margins are expected to meaningfully increase sequentially reflecting the fact that the fourth quarter is generally the strongest quarter for revenue and earnings during the year. However, we expect the fourth quarter margins will remain below prior year levels. During the quarter we expect to begin to realize the benefit of cost savings initiatives discussed above offset by approximately $4 million of foreign currency exchange rate changes, $4 million of incremental noncash pension expense, $2 million of ReachLocal deferred revenue and approximately $3 million of investments in projects supporting our digital transformation. Additionally, for the fourth quarter of 2016 the Company expects the following. Capital expenditures of $20 million to $25 million excluding real estate projects, depreciation and amortization of approximately $36 million and an effective tax rate of 26% to 28%. The lower than statutory effective tax rate is due to the higher proportion of lower tax rate jurisdiction earnings from the UK. I would now like to turn the call back to the Operator who will assist us in taking some questions.

[Operator Instructions]. And our first question comes from the line of Kyle Evans of Stephens. Your line is open. Please go ahead.

I would like it start with preprints. You reported that it was down 19.1. Could you give a same-store number on that and give us a range of contribution to total non-digital ads and I've got some follow-ups on preprint. Thanks.

Kyle, the same-store sales was down 19%.. On the contribution percentage I will have to get to that.

Kyle, can you clarify the contribution percentage are you talking from preprint?

No. I'm sorry. I want preprint contribution to non-digital advertising. Basically as a percent of all pre-ad. If you don’t have that that’s fine, we can double back. Okay. Still within preprints can you talk a little bit about the units volume unit price dynamics that you're seeing right now which of those was weaker in the third quarter and talk about your pacing so far in the fourth quarter.

So just as to your other question 19% is the contribution. Pacing in the fourth quarter is similar to what we're seeing in the third quarter. Would you repeat the first part of that question.

Volume versus rate.

The volume versus rate. The volumes are down in the 10% range and the remaining would be in our rate.

Okay. Next question is on CareerBuilder. You mentioned an affiliate change there. Is the revenue impact there solely the result of that affiliate change or is there some -- are you deemphasizing the sale of that product on within your sales force as well?

We're not deemphasizing the sale of the product. The primarily it is related to the affiliate agreement.

And that changes the one that we got at the time of the spend. It went into place of August of last year. We'll have a small tail of that that continues to cycle through the first quarter of 2017 and then it will be at least when we comp it on a comparable basis, but when we did the spin on new CareerBuilder arrangement is not as -- the terms are not as favorable.

Okay. Lastly, circulation down 6.4% on same-paper basis. Just a quick look at units volume and unit pricing there would be appreciated. Thank you.

Volumes are down in the 5.8% range and pricing is -- or I'm sorry, volumes are down in the 9.8% range and I will have to get you the pricing.

Our next question comes from the line of Michael Kupinski of Noble Financial. Your line is open. Please go ahead.

My questions relate to the layoff. I was wondering if you could give a little color about where they're coming from and what division of the company or specifically if there's any particular business that is more the layoffs are coming from for instance General Media versus Gannett legacy newspapers and given the fact that -- I know that the fourth quarter is having a lot of noncash charges and things like that but you indicated that the cost savings are $10 million and then of course you have about $12 million in expenses flowing through in the fourth quarter. I was just wondering if there were opportunities to cut expenses further, if there [indiscernible] start of an ongoing restructuring resizing the business, what opportunities you might have to further reduce labor expenses and I have a couple of follow-ups after that.

So, Michael, the cost reductions were broad-based. They touched across all areas. We did some additional streamlining at the management level as John and his team continued to expand the regional approach that we put in place in the past months. We've also looked at consolidating some sales territories where we saw they weren't as productive as we need them to be, but kept the proper sales pressure at the national level as well as with our key accounts in the local markets. There were some of the smaller territory accounts that weren't as productive as we would like. On the news side we continue to focus primarily on non-reporting resources to do the best we can at preserving our quality of our products. I would say that with the integration of New Jersey and General Media Group our plans in 2017 call for the opportunity further reduce our costs as those integrations continue to move forward and as a result of the efforts we're doing here in the fourth quarter we think at this time we're very comfortable our EBITDA should be in the $105 million to $110 million range for the fourth quarter and we'll build on that going into 2017.

And in terms of the just looking at the -- I guess using a baseball analogy where do you think you are in terms of your regionalization efforts. Do you think you're in the early innings or at the late innings? I'm just trying to score where further opportunities you might have related to cutting costs going forward.

Yes. I would say -- if you want to use baseball and it's a nine inning game we're probably just finished the third inning.

Okay. Great. And in terms of General Media does the Company still believe that it will be able to deliver $60 million in cash flow in 2015. I think that was the kind of a goal that the Company thought that after synergies that you would be able to deliver. I was just wondering if that's still on target.

We're in that range, Michael. We have some work to do at a couple of the locations that where we're retraining and upgrading the sales staffs, but overall we'll be in that range.

Our next question comes from the line of John Janedis of Jefferies. Your line is open. Please go ahead.

I was just hoping to ask a couple of questions. First on national print advertising, are you seeing a change in terms of branding or other types of campaigns shifting out of print in certain categories and is reduced reach a concern for some of those advertisers?

So for the national print business primarily from a preprint side of it the declines are related to the trends in the costs in that business. How those folks are starting to reposition some of the dollars. We are having very good conversations with some of the national retailers about moving those dollars into our digital assets primarily in branded content. So those are positive discussions.

Okay. And then just as a follow-up on the preprint side, John, you spoke last quarter that retail and gross you were the weaker categories, can you maybe give us a bit more color on the 19% meaning how large are those two within preprints and have other categories softened as well?

Department stores are actually a big-box or actually the largest component of the loss in the quarter represented about 30%, 40% department stores were behind that with 30% and then home improvement was the other large loss in that component of about 10%, so that’s the majority of those three segments.

And then one last on circulation. I know in the past we've talked a lot about using price as a lever there and I was just wondering going forward is that mid-single-digit decline a reasonable run-rate or can you just price again as a lever going into 2017?

We are going to do some selective pricing going into 2017. We'll start some of that in the fourth quarter. So we can lever that some going forward.

John, we would -- circulation revenues to be in that range. Our goal at this point as we go through the '17 budget we have some initiatives to improve that by probably a couple points, but those plans aren't totally finalized yet, we can give you more details down the road.

[Operator Instructions]. Our next question comes from the line of Doug Arthur of Hoover Research. Your line is open. Please go ahead.

Yes. A couple questions. Ali, I think in the second quarter the same-store advertising decline was about 10% if I recall. So are you saying that ex-currency acquisitions all-in the same-store ad revenue decline in Q3 was 11.7? Is that a fair comparison?

Hang on. Same-store ad decline in Q2 was 11.2 and it's 11.7 this quarter.

Okay and is it fair to say based on the 14% to 16% total -- I think total revenue expectation for the fourth quarter that you do see that changes or do you see that stabilizing our are deteriorating? How do you see that playing out in the fourth quarter, the 11.7?

Small improvement.

Okay. And in terms of the underlying cash costs in the quarter excluding D&A, ex-acquisitions in currency did they come in better, worse than expected and what was the year-over-year change?

Sorry. I'm sorry. Sorry. I've got it right here. It's about 4% year-over-year on a same-store basis. We had savings in printing and distribution as we continue to do and although we did have good savings across all departments there was quite a bit of it driven by our GPS division.

And in terms of -- you talked about Brexit which I assume mostly at this point is a currency issue in terms of Newsquest. What were the trends in revenues at Newsquest in local currency?

Hang on. [Indiscernible] is going to pull that out, but it's -- Brexit has two impacts. It had a definite impact on currency and we expect that to continue to work against us and have factored that into our fourth quarter projections as well as we are looking at what that will mean for 2017, but it has also had an impact just on advertising sales and demand in that it has put some uncertainty into their marketplace and given them a little bit of slowdown that they weren't anticipating worse than what we're experiencing here in the US. So in local currency Newsquest revenues -- total revenue and I don't have it broken out more than that was down 12.9% in Q3 versus 8.7% in Q2. Now, in October they have seen some improvement so we are optimistic about that, but we are keeping a very close eye on that on the political developments as they continue to deal with the Brexit implementation, potential Scottish independence and again watching the currency very carefully.

In the UK major impact was employment. During those months hiring was pretty much at a standstill. As you know, we operate S-1 which is a large digital employment service over there and so that's part of what we're starting to see as well as just advertising in general bouncing back from a very, very tough summer.

And then just finally on ReachLocal I mean I'm a little confused. If you takeout the fair value adjustment to deferred was ReachLocal essentially adjusted EBITDA breakeven and then, Sharon, I'm wondering if you can comment on sort of as you go into the fourth quarter I know you’ve exited some businesses so the year-over-year comp in terms of what you actually referred to a year-ago was a little skewed but kind of what is your underlying revenue trends going into the fourth quarter? Thanks.

The first question, Doug, would be correct and that was just for the very short period that we own them. We also are dealing with adjusting from their calendar quarter and fiscal end to our 5, 4, 4 which has been quite completion but yes, they have been flat. So, Sharon I will let you take the rest of that.

Okay. So first off if I could say that on the full quarter and on the ReachLocal basis of accounting we would have delivered in the third quarter slightly above guidance that we gave the last time that we provided guidance and that was sequential revenue growth and improved EBITDA margin. What we're seeing going into the fourth quarter is continued progress in our North American business which is now back to sequential growth scenario, some continued pressure in the international business but with an improving EBITDA trajectory on that. So we feel that we are holding to the numbers that we had originally anticipated and then obviously very excited about 2017 in being able to expand the topline to leveraging the Gannett footprint.

Our next question comes from the line of Barry Lucas of Gabelli & Company. Your line is open. Please go ahead.

Just following on what Doug asked, is it possible to breakout the trend within the quarter and any particularly weaker months, any changes in September and in the core U.S. business, what you’re seeing in October?

Yes, September was a little better Barry particularly towards the end of September so that’s encouraging, I will let John speak to what he has seen so far in October. We had a close up [ph] month yet.

So for the quarter in the U.S. business was slightly improved from Q2, September was our better period within the quarter and we’re seeing the September trend continue into October.

In the UK Barry, each month was a tougher month as they work through the summer but as we have noted earlier they have had a number of improving weeks here in October.

And just shifting gears, Ali, do you’ve some balance sheet data that you can give us for 930, cash debt?

So when you look at the balance sheet when we file the Q, all the balance sheet everything went up because of the acquisition so you will see that we ended the quarter with 170 million approximately in cash and cash equivalents. What other numbers you want? 385 million drawn on the revolver which is basically 200 million for JMG and a 185 million for Reach. I mentioned the pension, 442.5 million which is down significantly because of the contributions and the foreign exchange revaluation, of course we have increases in good will and intangibles from our acquisitions, what else would be helpful for you Barry?

So you’ve North Jersey in there as well so we are looking at 268 million in net debt?

Yes.

Okay. And taking that to a higher level Bob and given Mike's opening statement, you look at some of the trends which have deteriorated over the year and you look at the balance sheet, how would you characterize your appetite now on the M&A front?

I think we remain committed to the strategy of building out our local footprint as well as the impact that has on our goal of being the largest digital news network under the USA today network banner but it all comes down to making sure that these are accretive for our shareholders and add value and that the financing terms make sense for the company or we’re not just going to add properties for the sake of adding properties.

Thank you. And that does conclude our question and answer period. I would like to turn the conference back over for any closing remarks.

Well thank you very much everyone for joining us today. That concludes our call. If you should have any further questions you can reach me Mike Dickerson at 703-854-6185. Thanks again and have a great day.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect. Have a great rest of your day.