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…

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…

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.…

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.