USA TODAY Co., Inc. (TDAY) Q4 2017 Earnings Report, Transcript and Summary

Good day ladies and gentlemen and welcome to Fourth Quarter and Full Year Gannett Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to our host for today, Stacy Cunningham, Vice President of Financial Planning and Investor Relations. You may begin.

Thank you. Good morning, everyone, and welcome to Gannett's fourth quarter and full year 2017 earnings conference call. As a reminder, this call is being recorded. Joining us today from Gannett are Bob Dickey, President and Chief Executive Officer; Ali Engel, Chief Financial Officer; and Sharon Rowlands, President of USA TODAY NETWORK Marketing Solutions and Chief Executive Officer of ReachLocal. Before we begin, I would like to call your attention to our Safe Harbor provision for forward-looking statements in our financial results press release. The Safe Harbor provision identifies risk factors that may cause actual results to differ materially from the contents of our forward-looking statements. For a more detailed description of the risk factors that may affect our results, please refer to our financial results press release and our SEC filings, including our 2016 Form 10-K. Also, during this call, management's commentary will include non-GAAP financial measures. Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in the tables of our financial results press release, which we have posted to our Investor Relations website at investors.gannett.com. This conference call is being webcast and is also available through the Investor Relations website. With these formalities out of the way, I now like to turn the call over to Bob Dickey.

Thanks, Stacy. Overall, we are pleased with our 2017 full-year financial performance that resulted in solid year-over-year revenue growth and stable earnings, despite the continued secular pressures on our traditional print revenue strength. Beyond our solid financial results, we are proud of the progress we have made on our journey to become a next-generation media company that is the daily destination for consumers and a top performer for our marketers. Our audiences reached all-time high in 2018, including in September reaching the Number 2 position in the comScore news and information category. On average for 2017, comScore unique visitors were up 6% year-over-year. Our strong network-wide investigated reporting efforts contributed to this growth, as did our focus on search engine optimization and advanced analytics tools that help our newsrooms to prioritize the most impactful and engaging content. Signature investigative efforts included the Milwaukee Journal Sentinel stellar reporting on the deadly trend of tainted alcohol served at Mexican vacation resorts and the USA TODAY NETWORK wide piece called Rigged, which was a year-long investigation looking at the port trucking industry and the mistreatment of truckers in California, which prompted Federal law makers to propose significant reforms. In addition, network journalists across our border states partnered to deliver ground breaking multi-platform explanatory journalism and the implications of building a border wall. At the Cincinnati Inquirer, more than 60 journalists deployed to document in sweeping and wrenching detail, seven days in the life of the opioid crisis creeping the nation. And most recently, the Indianapolis Stars 2016 investigation of USA Gymnastics resulted in the conviction last month of Larry Nassar. With the Michigan Assistant Attorney General signing our reporting for exposing and helping bring to an end Nassar’s decades long cycle of abuse. This enormous impact is exactly why we remain substantially committed to our generalistic mission. Adding to our accomplishments this year, we completed the integrations of two important acquisitions, ReachLocal and SweetIQ. We migrated 3,500 Gannett local market client campaigns on to ReachLocal’s digital marketing services platform, and our metrics and analytics showed that a vast majority of campaigns or achieving better results for advertisers. Looking ahead to 2018, we believe that ReachLocal and SweetIQ businesses together form a strong foundation to continue to lead the growth in our digital marketing business. We continued to drive efficiencies across our entire organization and have fully completed the integration of our 2016 local market acquisitions of Journal Media Group and North Jersey Media Group. We have consolidated printing facilities and business operations and as previously disclosed continue to over deliver on our synergy expectations. Over the summer, we kicked off a rebranding effort across our domestic operations designed to unify our digital network, modernize our visual story-telling, and create a more contemporary look while attracting new audiences. So far, 60 local markets plus USA TODAY have completed the rebranding with the remaining properties scheduled for 2018. And finally, we grew our digital revenues to $1 billion or 32% of total revenues, up from 26% only a year ago. Looking at just our advertising revenues, digital revenues now represent 40% of the total. We are well on our way to achieving our target of having more than 50% of our advertising revenues from digital in the next 12 to 18 months. Now turning to our fourth quarter results. We achieved our best year-over-year, same-store revenue performance of the year and showed modest year-over-year EBITDA growth. ReachLocal delivered another quarter of sequential revenue growth despite the fourth quarter being seasonally softer for them, and its EBITDA margin improved significantly, excluding a couple of one-time items in its international operations, evidence the business is on track to scale and deliver on our long-term margin expectations of low-double digits. In the quarter, digital revenue growth increased slightly year-over-year. We are pleased with strong performance in digital marketing services revenue and digital display, especially on mobile, and through our national sales channel, which was up 7% in the quarter. The strength in quality of the USA TODAY NETWORK audience enables us to optimize not only programmatic revenue, but also made us an ideal advertising partner for brands such as Google and Target for their holiday campaign. Print advertising revenues in the quarter slightly underperformed our expectations. While we saw strength out of our national business at USA TODAY, our local markets continue to see pressure from our larger accounts, particularly our national preprint account, which is offsetting some of the [indiscernible] we’re making with our frequency pricing program with small and midsized accounts. On the subscriber side, we continued to roll out our more aggressive pricing program during the quarter and preliminary results are in-line with our expectation. We are pleased with the positive impact this had on our revenue trends in the quarter. As we move into 2018, we remain focused on executing against our strategic vision of becoming a daily destination for consumers and marketers seeking meaningful community connections across print, digital, and other channels. To further capitalize on this vision, we announced an organizational realignment at the end of 2017 that will more clearly align our company with our two core customers: marketing clients and consumers. Sharon Rowlands who has had success in driving digital transformations will be leading the efforts of the marketing solution side. Sharon and her team recently announced the transformation of our sales team that will be implemented over the course of the first half of 2018. The goal of this transformation is to; One, win new clients more often by leveraging best practices from across the network, and using a data driven recommendation engine to offer proven solutions. Two, retain clients for longer with the service model that is consistent and geared towards client needs and solutions that perform. And three, increase average revenue per client, while driving digital sales by embedding digital marketing solutions further into the client workflow. We are aligning our sales organization and go-to-market approach by three main client segments. First is our previous structure, which was more focused on geography. In order to drive improved retention, we will offer a right size client experience for each segment that focuses on the value we deliver every day. Our clients’ first segment covers the most strategic large accounts, many of which expand regions and multiple locations across the country and represent a large piece of our local market revenue today. We believe this is a large market opportunity that we can more aggressively approach with comprehensive cross-platform solutions that leverage SweetIQ and ReachLocal. These clients behave more like national advertisers and have sophisticated needs, often using an agency to buy their media. So, they will be offered a more tailored white glove service. On the opposite end of the spectrum, for our smallest clients, we will be establishing a call center model. These SMB clients are perfect fit to ReachLocal’s digital marketing solutions that require a more scalable sales model given the high volume and lower average revenue per client. Our third and final client segment is what remains, our mid-size local market accounts that are seeking credible marketing partners with proven solutions. We will focus on the solutions sales approach with a goal of growing our wallet share with existing clients and winning new business. The new sales leadership team is a mix of ReachLocal talent, Gannett talent, and new talent, an important combination that should maximize the revenue opportunity. I’m pleased to say that we are well underway with the sales transformation, but it will take time to fully implement this meaningful change to our sales approach. We expect the strategic and midmarket teams to be aligned by early Q2 while the call center will be completed sometime during the second half. I want to thank the team for all their hard work so far and for the work still to come on this very exciting realignment and transformation. Shifting to the consumer side of the business, Maribel Perez Wadsworth will be leading the strategy, news and consumer revenue operations for the company's portfolio of media brands including USA TODAY, more than 100 local news organization and niche content brands such as For The Win, Grateful and Humankind. She will focus on driving audience growth and engagement across these brands, including leveraging the network to expand our content offerings beyond news and to new passionate verticals. Additionally, she plans to diversify beyond the traditional advertising and subscription revenue streams into new growing areas such as syndication and e-commerce. Just as we have enjoyed success building audience and revenue around passion areas and sports, we're excited about building our reach in lifestyle categories, evidenced by our investment in grateful ventures. By leveraging the network, we were quickly able to expand the reach of the relaunch Thanksgiving.com to generate over 2.6 million social views, and over 1 million-page views within just a couple of weeks. The Grateful team is busy working on this month's launch of grateful.co and a lifestyle site home to an impressive line of food personalities and social media influencers. They will then set their sites on an aggressive 2018 expansion plan that includes the introduction of four new women's lifestyle verticals. Health and fitness, beauty and fashion, home and living, and parenting. We also just announced a content partnership with Mars Reel [ph], a start-up video network for high school sports, which fits very nicely with our strong high school sports coverage and events. We also continue to invest in podcast, including the successful second season of The Accused, series out of Cincinnati, and continued development of The City, an investigative podcast starting in Chicago. The Accused team just wrapped up its second season with 3 million downloads and several new pay sponsorships. Our reviews.com business that brings consumers comprehensive scientific and trustworthy reviews on thousands of products is a great example of early success in diversifying our revenue strength. Over the past year, we had pivoted the business away from traditional display advertising to regeneration via affiliated partnerships. Review.com had a very strong fourth quarter during the holiday season with traction continuing into Q1 so we had a strong presence at consumer Electronics show reviewing the latest consumer gadgets. In addition to driving these new opportunities, Maribel is also leading efforts to maximize the value of our existing audience by enhancing the value of membership and driving improvements in audience engagement and loyalty through focused content and programming efforts. The team has developed a number of analytics tools to provide key insights, helping to reshape and optimize our content efforts. 2018, every newsroom is focused on five key digital metrics underscoring the importance of driving increased scale, quality content, engagement, and loyalty. As always, we have a strong pipeline of network wide initiatives planned to help us drive our goal of being number one in the comScore news and information category. Branding out the organizational changes, I wanted to highlight our new Chief Product Officer, Kris Barton, formerly head of product at ReachLocal. Kris will be busy this year supporting both our B2B and B2C organizations. He is bringing the ReachLocal and Gannett product teams together under his leadership, which will be important in leveraging our data assets across both organizations. And finally, Ali Engel, Chief Financial Officer will be overseeing our production and distribution division, GPS, which continues to not only find efficiencies via consolidations or outsourcings, but is also driving revenue via new partnerships to deliver magazines. I'm confident this new structure will open up opportunities, enable us to innovate more quickly, and support long-term growth. I look forward to reporting on our progress throughout 2018. With that, let me turn it over to Sharon for some ReachLocal highlights for the quarter.

Thank you, Bob. Let me start off by saying how incredibly excited I am believing the broader Gannett marketing solutions business. As Bob mentioned, there is tremendous opportunity to help our extremely large client base grow their business driving better retention and greater market share. We are confident the newly aligned organization and go to market strategy will allow us to better capitalize on the opportunities. Turning specifically to the ReachLocal business, ReachLocal performed well this quarter, despite the typical fourth quarter seasonality with revenues exceeding $100 million. Fourth quarter revenues are up sequentially from the third quarter, excluding the benefit from the extra week. Our North American business about 80% of the total revenues remain strong with solid growth in key metrics such as average revenue per client, up 8% year-over-year and average product per client, up 12% both excluding the benefit from the transition of Gannett's accounts. As we look at our product mix, our subscription product revenue grew 63% year-over-year and our social solution continues to grow with product units tripling over the prior year period. Our strategy of cross-selling to Gannett local markets working as quarter four revenues converted Gannett clients, increased 11% on a day adjusted basis sequentially, in part reflecting a promotion to drive new business. SweetIQ continue to ramp as the total number of locations managed grew 77% to over 63,000. Synergies with ReachLocal and Gannett clients are evident here as well, with major brands signing on to the SweetIQ platform. Recent wins include, Church's Chicken and Weight Watchers and we also recently closed our first big deal of cross-selling ReachLocal into SweetIQ at client In-N-Out Burger. This quarter our international business which includes countries in Europe, Asia-Pacific, and Latin America delivered mixed results as each region is at a different point in their respected business cycles. Total revenues were down slightly year-over-year, excluding the extra week. Growth in our Asia-Pacific region was offset by softness in other regions. Reflecting on the overall year, in addition to the migration of the Gannett DMS client base that Bob already mentioned, we migrated all of ReachLocal search clients to support significant platform changes from search publishers enhancing functionality and further optimizing results for our clients. We also acquired and completed the integration of SweetIQ and are now running all ReachLocal listings clients on our own platform. On the product front, our portfolio saw significant enhancements in 2017 with highlights across our display, social and search advertising offerings. In our social offering, we launched the poll for video and Instagram. We launched YouTube video advertising on our national channel and are in the process of expanding that offering to the rest of the sales channels. Our listing solution rolled out support for 28 new directories and we're now a data provider to Apple Maps. We made enhancements in our software solution with a redesigned interface for our marketing automation platform, as well as integration to QuickBooks to help clients connect the dots between marketing efforts and return on investments. Client reporting also had a major upgrade with both a new app and client center portal that offers deeper reporting insights. This work lays a very solid foundation for 2018. As Gannett local market and ReachLocal collaborate more closely we expect to drive faster growth in digital and deliver organizational effectiveness and efficiency. In 2008, we will be further scaling our digital marketing services in North America driving continued growth and margin enhancements. With that, let me turn the call over to Ali.

Thank you, Sharon and good morning everyone. Our financial results for the fourth quarter demonstrated improved same store revenue trends and our second consecutive quarter of improved profitability year-over-year. As a reminder, our fourth quarter 2017 results included an extra week. All of our same store comparisons exclude this extra week. We estimate that the extra week contributed approximately $49 million in revenue and $3.6 million to adjusted EBITDA. Consolidated revenues were $854 million, compared to $867 million in the 2016 fourth quarter. The year-over-year performance reflects the challenged print advertising and circulation environment, partially offset by an extra week, digital advertising revenue growth, and some smaller acquisitions. On a same-store basis, total revenues declined 8.8% in the fourth quarter, an improvement, compared to the 9.4% decline in the 2017 third quarter, due to our strategic subscriber pricing initiative and the inclusion of a full quarter of ReachLocal revenue in our same store calculation. Total digital revenues of $272 million represented 32% of total revenue in the quarter, up from 29% a year ago. Adjusted EBITDA totaled $133 million for the quarter, up slightly compared to $130 million from the prior year period. The modest year-over-year improvement was driven by profit growth at ReachLocal and strong cost performance at our publishing operations. Total same-store adjusted operating expenses were down approximately 10% year-over-year, reflecting synergies related to our 2016 local market acquisition lower newsprint expense and production and distribution savings, due to facility consolidations, offset in-part by higher expenses at our ReachLocal segment, largely reflecting cost of goods associated with those higher revenues. In the publishing segment, we saw improved trends in overall circulation revenues, especially in our U.S. local market. Same store circulation revenues declined 6.7% in the quarter, an improvement from the 7.6% decline in the 2017 third quarter. Our U.S. local market circulation revenues were only down 4% over last year's fourth quarter, driven by our full access pricing actions and an increase in our Thanksgiving surcharge. Local markets full access subscriber volumes were down in the 12% range year-over-year in line with our expectations. We are continuing to monitor the results from our full access pricing actions that so far these results have been consistent with our expectations. Digital only circulation volume growth was robust in the quarter, up 53% year-over-year as we continue to aggressively target new digital subscribers, revenue growth was more muted at 15%, reflecting some discounting activity. Finally, we are continuing to see softer circulation revenue trends at USA TODAY. Our same-store publishing digital advertising revenues grew about 1% in the quarter. We saw accelerating growth in our digital marketing service business as discussed by Sharon and continued strong growth in digital display, including audience extension. Additionally, our national business, including programmatic was strong again in the quarter. Offsetting that positive momentum, included weaker results from our affiliated business, largely reflecting our decision to exit some low margin partnerships, as well as weakness in classifieds. Same store print advertising revenues were slightly behind our expectations, but held steady from the third quarter trend, down 18.5% year-over-year. Our national print business at USA TODAY was very strong in the quarter, posting a slight gain year-over-year, while our local market print revenue continues to be negatively impacted by cutbacks from department stores and other large retailers. We continue to push our print frequency pricing program and is showing success with our small and medium-sized accounts. In our ReachLocal segment, fourth quarter revenue came in at $101 million or up 35% year-over-year. Excluding the extra week, migrated Gannett clients and the SweetIQ acquisition growth was approximately 6%. On that same basis, North America ReachLocal revenues grew 9%, while international revenues fell 2%. Fourth quarter adjusted EBITDA at ReachLocal was $7 million or 6.9% margin, continued improvement from the 5.6% margin in the third quarter of 2017. Results in the fourth quarter were negatively impacted by several one-time items at our international operations. Excluding that impact, adjusted EBITDA margins would have been closer to 10%. As Bob mentioned, we are pleased with the underlying strength and scale of the ReachLocal business and remain confident in our goal of low double digit margins for this business. Our GAAP net loss for the quarter was $14 million, including $43 million of incremental tax expense associated with the reduction in deferred tax assets that resulted from the decrease in the federal statutory tax rate from 35% to 21%. Our normalized effective tax rate for the fourth quarter was out charges related to our deferred tax assets and other adjustments with 25.7%. Capital expenditures totaled $25 million for the fourth quarter, reflecting investments related to digital product development, as well as projects supporting our ongoing facility consolidations. Our ending cash balance was $121 million and our outstanding debt on our revolver was $355 million or net debt of $234 million. Importantly, our pension liability saw a significant decrease in the fourth quarter led by a strong return on our pension plan assets. At year-end, our underfunded pension liabilities totaled $422 million, down $256 million from the end of the third quarter. There were no shares repurchased this quarter and we paid $18 million in dividends. This month we closed on one of two parcels of property in downtown Nashville, generating proceeds of approximately $38 million. The second parcel is planned to close in the second quarter for an additional $6 million of net proceeds. We have entered into a leaseback on our building for the next 15 months. As a result of the sale, plus additional cash generated during the first quarter of 2018 we have paid down an additional $50 million on our revolver and our current revolver balance is $305 million. Looking ahead to 2018, we are providing the following guidance. Consolidated revenues of $2.93 to $3.03 billion. Consolidated adjusted EBITDA of $330 million to $340 million, which represents modest margin compression from 2017, largely reflecting higher newsprint pricing, our continued transformation to digital, and a $3 million contribution to our charitable foundation, which we’re making for the first time since our spinoff. Capital expenditures of $65 million to $75 million, excluding real estate projects. Depreciation and amortization of $140 million to $150 million, excluding accelerated depreciation related to facility consolidations. The non-operating costs associated with our pension plan, which is recorded in other non-operating items is currently estimated to be a credit of $5 million to $10 million as compared to an expense of $21 million in 2017, and an effective tax rate of 25% to 27%. Our tax rate is estimated to be higher than the statutory tax rate of 21%, due to the loss of some key deductions such as executive compensation and travel and entertainment expenses, as well as state taxes. As a reminder from our call last quarter, we were able to take a tax write-off of worthless stock and debt for certain ReachLocal foreign entities that resulted in a material tax net operating loss that should minimize federal cash payments for Gannett in 2018. Additionally, we are moving to our reporting calendar - we are moving out of reporting calendar to the Gregorian calendar in 2018, as compared to our 544-reporting calendar in 2017. From a quarterly perspective, this change will impact our traditional print operations as we will lose one Sunday in the first quarter of 2018, and gain one Sunday in the third quarter. We estimate a roughly $8 million revenue impact from this Sunday switch and given that this is a very high margin revenue it will cost nearly 100 basis points in margin compression in the first quarter. Combined with increasing newsprint prices, the quarterly contribution to our charitable foundation the sales transition that has been implemented and the cycling of some other one-time favorable adjustments a year ago. We could see as much as a few hundred basis points of margin compression in the first quarter. We do however anticipate trend improvement in total advertising revenues and adjusted EBITDA margins as we progress throughout the year. With that, I will turn it over to the operator for questions.

Thank you. [Operator Instructions] Our first question comes from John Janedis of Jefferies. Your line is now open.

Hi, thank you good morning. Two questions for me, one is, I was wondering if you could give a little bit more color on ReachLocal and the context of your outlook for the year and from the sales force realignment perspective, how long will it take for you to be able to speak to the benefits, is that a mid-to-late 2018 event and will you be managing the call center model or will that be outsourced?

Okay John, this is Sharon talking. So first of all, from a ReachLocal perspective, we are expecting projecting mid-single-digit growth in ReachLocal's core business. Today, we are really still managing ReachLocal selling as standalone and reporting on that for you, and at the same time clearly putting a lot of emphasis on selling ReachLocal's capabilities into the Gannett market, and we expect to see strong growth there as well. As we think about the sales transformation, as Bob explained, it is very much re-orientating the sales force on to different segments that just require a different type of go-to market approach, so large strategic clients are spending a lot of money with us today, they operate across many regions, their very sophisticated buyers behave more like national advertisers, and then the smaller accounts spending less than $12,000 a year at the other end of the spectrum. In terms of the management of that call center approach, it will be an in-house operation. We do operate call centers today for much of our classified business across recruitment, and so have capabilities there and so really will be building on and expanding beyond that.

Okay, thank you Sharon. And then maybe separately for Ali, like you have been aggressive on the cost front since the spend and frankly before the spend, so with the weak print trends understanding the digital investments and the years of cost controls, what are the levers going forward? I know you mentioned a few in the fourth quarter, but do those continue in 2018?

Yes, a lot of those continue in 2018, particularly across our GPS environment, we are benefiting from a lot of our facility consolidation projects that are ongoing. Some of the end-to-end work is still being run through looking at a lot of outsourcing and potentially other opportunities with respect to how we can continue to run our back office and other areas of our business more efficiently as we continue to centralize and reorient various things across Gannett. So, John we’ve got a lot of different work streams here around cost and be more efficient as an operator. It is just that we don't have that easy take out low hanging fruit, it is a lot of projects and work to get there. So, there is a lot of ongoing work streams and that is the biggest levers to pull right now are in those areas.

Okay. Maybe one last quick one, sorry for hogging the call, but just on the 2018 outlook, can you just speak to the expectations on the circulation revenue side, does that actually improve from here or I guess what is the expectation?

There is a lot of components to it, so they will have different pieces of it. We’ve got the favorable pricing initiatives in our domestic local markets. We think we can get consolidated circulation revenue decline down into the both mid-single-digit range, if you exclude the extra week of 2017, we think that we believe our domestic local market full access revenue will be very low single digits, even close to flat. And so, really, we’ve got good story in local being slightly offset by what we see at USA TODAY where we continue to have declines where a lot of that situation is coming from both the top programs and Newsquest circulation is declining, but at a lower rate, it is a lot less consequential.

Thank you very much.

Thank you. And our next question comes from Kyle Evans of Stephens. Your line is now open.

Hi, thanks. John covered circulation and ReachLocal kind of as a function of 2018 guidance, can you give us your print outlook and then I have got some follow-on questions.

Okay. So, to talk about the advertising side of the business, as Ali pointed out, you saw trends in quarter four that were pretty consistent with quarter three. As we think about 2018, we're projecting mid-teens declines in print advertising, a bit worse in the beginning of the year and then some improvement as we progress through the year. As we move through the year, we will clearly have the benefits of our new sales organization as well as we continue to press hard on the print impact pricing, but we will have to be aware, you know we do have these very large retailers that are under significant pressure and that is a headwind to the business.

You mentioned that national preprint was a drag in the quarter, how far down was that in 4Q and how much as a percent to total revenue is it today?

So, in total that business is approximately 30% of total print revenue. In Q4, we saw it decline really approximately 20% to a higher decline in our general print decline, and you will have heard the vows of many of these retailers themselves. And so, this continues to be a challenging area for us, but we're working very hard to offset it with the rest of our capabilities whether that’s print impact pricing or all of our digital initiatives.

Great. Could you give a little bit more detail on the strategic pricing initiative in circulation? How much of the base have you worked through so far? What’s the timeline for the remaining base? What’s the average rate increase that you’re asking for? And then are you seeing a knock-on effect in churn where you have raised rates?

Yes. This is Maribel, Kyle. So, we have clients approximately 30% of our accounts, and we're seeing as Ali and Bob both mentioned, our results of that are well in-line with our expectations. There is no question we see a little bit of an uptick in our circulation volume declines due to the aggressive pricing.

Can you talk about what that rate increase looks like, where it’s being accepted?

So, we are seeing pricing yield in approximately 20% range. Again, well in-line with our expectations and we feel really good about that. In terms of a decline, again a price uptick from the 12% range we experienced in Q4.

Got you. And lastly Bob, just maybe some high-level comments on M&A, what should we expect going into 2018 in terms of more digital acquisitions versus newspapers or maybe something even crazier like more magazines? Thanks.

Well, I would tell you that magazines aren’t on our list at this point-in-time, but we’ve been very consistent in our approach. We continue to look at local market opportunities where the geographic synergies make sense. We’ll continue to do that, but we are spending the majority of our time looking in the digital ad tech side, starting to look at some digital content opportunities like the investment we just recently made with Grateful. We really think that to support Sharon and Maribel’s new organizations it’s really on the digital side to build out the products for both our marketers, as well as look at how we can create even more engagement. We have, we are building good scale on our audiences. There are some opportunities we believe as we outlined in the passion topics to build more engagement and with that get to our goal of being number one.

Thank you.

Thank you. Our next question comes from Barry Lucas of Gabelli & Company. Your line is now open.

Thank you and good morning. I was hoping for a little bit more color on what’s going on in the digital advertising market where your net is up less than 1%, so if you - and I don't know if this is underlying, but since you called out desktop, and softer digital classified, what’s the rest of the business doing and why can't that grow a little bit better given your unique visitors and traffic and your sported number one and number two in those news and info category?

Hi there, this is Sharon, Barry. So, there is a number of components to that and when I first of all say, we believe we can actually do a lot better than that too, and that is the whole point of the investments we are making and the transformation we have and why Gannett acquired ReachLocal and SweetIQ so we can really build digital momentum. But when you look at the actual performance in Q4 and for the year, you have got a number of factors playing in there. We did have digital revenue that was very, very low margin for us that we actually exited. Secondly, we definitely have some pressure in a few categories. Recruitment, I would highlight as one of those that we had significant pressure on. And then we have obviously the continued focus we have on tooling up our local sales organization to be more digitally savvy, and get better penetration. When you heard me talk about SMB to these accounts under $12,000 a year, these mark predominantly print accounts and in setting up the new organization go forward we’re going to be in a much stronger position to drive digital penetration of the right packages into these segments.

Barry, I’d add one thing. This is Ali. We’re seeing a slowdown in desktop where we've traditionally seen growth, a lot of growth in mobile, but offers smaller base. So, I think there is some inversion of dollars there that over time will get us back to grow, but right now it is of the basis or much smaller, so that’s also a shift as well.

Okay. Thanks for that. Just, two more, sort of housekeeping. You called out the current revolver at about 305 million, what will be the comparable cash number to that?

It hasn’t changed. It was 121 at the end of the year. Now things have changed to materially from that Barry because most of what we paid down in the first quarter was from the real estate proceeds that we got.

Okay. And that brings me to the last one and what else might be in the pipeline or may be what are the magnitude in the way of real estate transactions?

Sure. It’s a great question, and I think within the last year we had said that they were somewhere between 75 million and 100 million in the pipeline. Nashville was a big part of that pipeline. So, we’ve got about a little around, I would say around $45 million worth of transactions in the pipeline to close in the next say 12 months. That’s excluding Nashville, not the 6 million I mentioned on the call, but excludes $37 million big number we talked about. So, we’ve got a lot of transactions we're working through. We’ve had a really good success with working with a couple of different developers. It has come in about one property and then come back in and has to see our whole portfolio and then came in and bought multiple properties from us and this has happened with multiple developers that were very excited about the work that we're doing there not just generating cash for the company, and getting out of high cost low utilized space, but providing really great better working environments for our employees at a much more flexible and variable cost base for Gannett. So, I think that’s really bright spot for our team and the work that they are doing is really yielding some great benefit.

Thanks for that Ali.

Sure.

Thank you. Our next question comes from Doug Arthur of Huber. Your line is now open.

Hi, thanks. Couple of questions. Ali, if you add up the digital advertising broken out, I think it was 119 million plus ReachLocal, you get to something like 220, you’re talking about total digital in the quarter of I think 273 or 272, what are the main components of the difference there and what’s …?

It circulates in digital revenues Doug. It is the difference.

From 341,000 subs?

It is that and a portion of the print for last subscription that we allocate to digital as our print subscribers all have full access to our paid wall digital products. So, we allocate a portion of that to digital. So, that’s the difference, yes.

Okay. And then the pension liability, I mean there's got to be another drop in the quarter, actually, you had some fantastic return.

We lost between 12/31/2016 and 12/31/2017, we lost 50 bips on the discount rate, so it went from about, it’s a blended discount rate between all of our plans, 4.1% to 3.65 Laurie, I believe? But completely offset by asset returns and other changes. There were some other mortality table changes and other assumptions in the plant. But the biggest driver was the asset returns, and so we're really excited to see that trajectory turnaround on the underfunded status for us and getting the balance sheet a little bit better right size with respect to those plans.

Okay. And then final question, I mean on USA TODAY you talk about the circulation weakness for hotels, obviously that has been going on really for about a decade now. If you look at the entire USA TODAY platform, is the majority of the revenues no digital?

That’s correct and increasing in 2018 plan to be even higher in digital approximating about 75%, advertising revenue.

You guys don't break that out, is there any way to size it?

No, we don't break that out. We run our United States US network, USA TODAY NETWORK has won a portfolio and there is not a need to break that out run together.

Okay. Thank you.

You're welcome.

Thank you. [Operator Instructions] Our next question comes from Michael Kupinski of NOBLE Capital. Your line is now open.

Thank you. Thanks for taking my question. Good morning. I was just wondering that I just want to make sure I got this correct. In terms of ReachLocal the plan is to deliver mid-single digit core revenue growth in 2018 and not 10%, did I get that right?

Yes, that’s right. The 10% relates to the target margin profile we have of low double digit margin.

Okay. I just thought that maybe previously you are looking for a double-digit growth in ReachLocal. Is the largest variance may be or what you are seeing in terms of the more conservative number, the fact that there is weakness in recruitment or what is the biggest variance in the outlook for ReachLocal?

I would say the recruitment has nothing to do with the ReachLocal business. That’s a separate business line in the Gannett market. What you are seeing is a stronger North American growth rate offset by weaker international growth rate. That is a conscious strategy as we really are driving the international businesses for profitability. Quite a few years ago these international businesses lost $30 million. So, we have been downsizing them. We’ve been rationalizing them. We’ve actually exited a number of markets. So, the mid-single digits is the sort of next number there. Also remember there is a lot of ReachLocal focus going into driving growth from the Gannett client base and we do not report that within the ReachLocal number.

This is Stacy, Mike. Mike just a note on that, on a reported basis though, you will see ReachLocal benefit from the SweetIQ as we cycle that acquisition, as well as there is, we didn’t start putting to get that client on the ReachLocal platform until about the second quarter. So, reported growth is definitely going to be very robust next year, it is just, when you look at the core organic growth of ReachLocal it is in that kind of mid-single-digit range.

Got you. And then in terms of higher newsprint prices in 2018, does that include the tariffs that might be implemented on Canadian newsprint suppliers or what kind of pricing are you looking in terms of newsprint for 2018?

Pricing is driven somewhat by the tariffs Michael, but it’s really driven by, we have had capacity come out of the market and the supply is tight as we’ve had it in a while, and that’s really what’s driving the pricing. The tariff is an issue, it is a separate issue, we're working very assiduously with all the right parties to continue to correct that issue, which we don’t believe is being treated fairly, but the pricing is really being driven by supply and the shutdown of mills and the takeout of machines across the U.S.

So, if the tariffs do go through, and hopefully, it’s unlikely, but if they go through, would you anticipate that newsprint prices would be higher than what you are expecting for now or are you expecting the worst-case scenario in your guidance?

We’ve tried to factor that into our guidance and into our plan for 2018.

Got you. Okay. And then can you just talk a little bit about headcount? What it was at the end of the quarter and a year earlier, and if you can talk, I know obviously you are adding sales people and I was just wondering if you can give us some thoughts on the headcount like maybe by the end of 2018?

Yes. We ended the year with about 19,000 and headcount. I don't have the number last year last year, but I think if you look at, I mean interest continues to go down as we continue to work through our cost initiatives and other items. So, I don't have a projected headcount of the top of my head here Michael, but it would be lower.

Okay. All right, perfect. Thank you.

Thank you. And ladies and gentlemen, this does conclude our question-and-answer session. Ladies and gentlemen thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.