Good day, ladies and gentlemen and welcome to the Q2 2018 Gannett Company 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 conference may be recorded. I would now like to turn the conference over to your host, Vice President, Financial Planning and Investor Relations, Stacy Cunningham. Ma'am, you may begin.

Thank you. Good morning everyone, and welcome to Gannett's Second Quarter 2018 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 2017 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'd now like to turn the call over to Bob Dickey.

Thanks, Stacy. We are pleased with our second quarter results that are evidence of our digital transformation progress and solid execution from our marketing solutions and consumer organizations. I’m going to start by giving you some highlights from the quarter, then I'll turn it over to Sharon for an update on ReachLocal and Ali will conclude with our detailed financial results. As expected, our digital advertising and marketing services revenues are showing solid growth; led by the national digital media and digital marketing services categories. Digital advertising and marketing services revenues comprised 46% of total advertising and marketing services revenues in the quarter and we should cross the 50% threshold later this year. We had steady growth in our ReachLocal segment and delivered a 10% margin in the quarter, ahead of our expectations as the business continues to benefit from increased scale across our broader local client base. While our print advertising business remains challenged, our first half of 2018 performance was consistent with the second half of 2017. And within the consumer organization we continue to ramp audience traffic and growth engagement. Our most recent full access subscriber pricing initiative that began in September of last year continues to deliver results that are in line with expectations. On the M&A front, we were pleased to close the WordStream acquisition on July 2 and welcome the WordStream team to Gannett. The addition of WordStream’s do-it-yourself software-as-a-service solutions combined with our ReachLocal solutions will enable us to provide a comprehensive, full range of digital marketing and solutions to help businesses and agencies in our local markets, drive growth with intelligent, data-driven marketing solutions. We remain very excited about the large and growing opportunity in the local digital advertising and marketing services market. Given the strong start to the year and with…

Thank you, Bob. We delivered another strong quarter, marked by solid execution and impressive product pipeline and the acquisition of WordStream. This quarter we reached a significant milestone as the ReachLocal business is continuing to achieve double digit revenue growth and realized its strongest adjusted EBITDA quarter industry. This highlights the value and scale created by the ReachLocal combination with Gannett. In quarter two, we experienced strong growth across key areas of the business. Digital advertising solutions grew 20% year-on-year and subscription solutions grew 29% year-on-year. Within digital advertising we enhanced our display solution with the launch of video capabilities and display delivered 17% sequential growth and 9% year-on-year growth. While, our North American client base held steady, importantly revenue per client grew 14% year-on-year and product units per client grew 11% year-on-year. We’re pleased to see our clients increasing their marketing budget spend on our platform and in the second half of the year on renewing our focus on new client acquisition. SweetIQ locations grew 42% year-on-year to 70,000 and we added several new large clients such as Pizza Hut for Australia and City National Bank & Trust, a large Midwest financial institution. We’re making continued strides in enhancing our digital solutions on the reporting front and delivered improvements to client campaign performance through the use of data science and machine learning. We're leveraging emerging technology such as voice and predictive modeling behavior to enhance our optimization algorithms and increase marketing ROI for our clients. Quarter three will see a number of new development projects go live across the field that we expect to be impactful. From the SweetIQ team, we will launch a listing store location and reputational management bundle to the Gannet channel, which we expect to drive volume growth in the second half of the year.…

Thank you, Sharon and good morning everyone. We are pleased with our second quarter, which demonstrated continued digital advertising and marketing services revenue growth, as well as, year-over-year earnings growth, driven by strong cost management. Two quick housekeeping items to start. First, our second quarter of 2018 had 91 days as did the second quarter of 2017, so there are not any day adjustments this quarter. Second, we have renamed our advertising revenue category, advertising and marketing services to better reflect how we analyze our business-to-business revenues. As such, about $13 million in revenue, was recategorized from other revenue into advertising and marketing services revenue in the current period and about $9 million for the year ago. This revenue was primarily software subscription and services related revenue such a SweetIQs location based services, our SCO offerings and website development services. Now let's focus on our second quarter results. Consolidated revenues were $731 million compared to $775 million in the second quarter of 2017. The revenue decline reflects the challenge to print advertising and single copy circulation environment, partially offset by our digital advertising and marketing services revenue growth. Our full access subscriber pricing initiatives, the SweetIQ acquisition and a few publishing acquisition. On a same-store basis, total revenues declined 7.5% in the second quarter, consistent with the first quarter decline. Total digital revenues of $261 million, grew 8% in the quarter and represented 36% of total revenue, up from 31% a year ago. Adjusted EBITDA totaled $86 million for the quarter, up 2.3% from last year. We were able to offset the secular print revenue pressures with digital advertising and marketing services growth, in addition to cost reductions. Total same-store operating expenses fell approximately 8% year-over-year, reflecting production and distribution savings, due to facility consolidation and lower payroll and benefits…

[Operator Instructions] Our first question comes from a line of Michael Kupinski of NOBLE Capital Markets. Your line is open.

Thank you. And thanks for taking the questions. I was wondering if you can go back to ReachLocal and talk a little bit about the sequential decline in the rate of our revenue growth from the first quarter, as you sold Germany and so forth. But does that happen in that quarter and then please kind of give me a flavor of what's going on there again?

Yeah, essentially it really is to do with the cycling of the Gannett - migration of the Gannett clients on to the ReachLocal platform. We got pretty consistent organic growth with ReachLocal and then you have the cycling of the Gannett clients onto the ReachLocal and now the growth rate off of those clients.

Got you. And so it is that kind of like a good runway as we go into the second half of the year then?

It is. I think we're expecting consistent growth rate sort of 10% to 15% range. We still see a tremendous opportunity, I think we just scratched the surface of penetration of the Gannett client base and as we sort of bed the new sales organization down and get them focused on their segment. We really expect to be able to do a lot more acquisition onto the digital platform.

Got you. And can you remind me again how much revenue did Germany account for --?

On a full year basis approximately $15 million run rate.

Okay. Then --?

So, I think, sorry, Germany and Japan together on an annualized basis, it is about 31 million, but no EBITDA from that.

Got you. And those were sold in -- and that should begin cycling in the third quarter. Is that right?

Well, the German acquisition closed in quarter two and Japan will close at some point in quarter three likely towards the back end.

Got you. And then in terms of the WordStream acquisition, you indicated 27 million for the second half, is that tend to fall like 12 million and 15 million, Q3 to Q4, respectively?

That’s about right.

Okay. And then in terms of -- I haven't gone through this, but in terms of the California legislation regarding uses of personal data. Have you guys looked into that to see if there's any impact on you, one way or another. Maybe there could be even a benefit, but I was wondering if you have any comments on that?

So, this is Barbara Wall, the Chief Legal Officer company; we are familiar with the California legislation, it's not due to go into effect until 2020. And you may have seen the reports on the Wall Street Journal earlier this week that there are discussions here in Washington about the possibility of privacy legislation, which for a long time there has been no progress on. And the speculation is that if that happens one of the reasons will be to preempt state legislation, like the California statute. So, I think it's a very -- it's a shifting landscape, we’re following it very closely. We don't expect any impact in the short-term.

Great. Thank you. That’s all I have.

Our next question comes from Kyle Evans of Stephens Incorporated. Your line is open.

You know I have to ask my repetitive circulation unpacked unit volume and pricing please.

Maribel will be give you some color.

Sure, absolutely Kyle. So, and thanks for your consistency, by the way. So, we continue to see our results as expected from our pricing strategy to date. We're seeing yield in the high teens to 20% range, which again is very consistent with our expectations. Our volume declines have ticked up to the mid-teens, but that's also expected and we're estimating some 4% to 5% of the volume decline are tied specifically to pricing. We're seeing our daily volumes impacted a little bit more than Sunday volumes, as some of our subscribers are choosing to downgrade to lower frequency of delivery, that align perfectly with our pricing strategy, which is intended to put our emphasis on key [ph] days as a week where we have our high concentration of both advertising dollars and leadership.

Great. And do you help me think about, what you might be asked from your consumer base second half of this year and just kind of squinting and looking out for the future in terms of absolute price increases?

Sure. Absolutely. We're looking to see the second half or circulation overall a little bit better than the first half of the year, which is based on a few factors. First, of course, we have the continued benefit from the pricing you started in late September of last year. Second, we’ve seen really good success with the introduction of some special section for our subscribers and has been very positively received and so we're gaining some additional pricing in that and we're adding some in the back half of the year as well to take further advantage of that. We will also be doing some additional pricing on a smaller base of subscribers really focused on those subscribers who today are paying less.

Got you. Thank you for that. I may jump around here a little bit, I apologize. Where are we in terms of migrating the Gannett clients on to ReachLocal on a percent completion basis?

We are 100% complete.

There we go.

That was all completed last year.

Okay. Then no mention of newsprint in the release, you did mention it a little bit on the call in terms of the tariff and the pricing increases. Can you help us figure out when that hit the model, how it hit the model and how you think that will roll-through the model in the back half of the year please?

Well, I think the second half price we might now based on what we’ve purchased at the prices we pay to be up about 30%. But what we've given in our guidance shows that we've offset that obviously through other things. So, we're waiting very anxiously for the August 28th ruling ITC to see where the rest of the tariffs fall out and then we can understand how this will impact us really in 2019 and beyond. So, we're very positively looking forward to that. Newsprint as we’ve said it makes about 5% of our cost base and I think we've done a good job of managing through what's been a very difficult environment over the past seven months, eight months. We're very pleased with where we are right now and look forward to seeing what happens later this month.

There's cost that you’ve used to largely offset that 30% price increase. Which of those would be specific to newsprint itself in terms of lighting the way in our products, changing providers et cetera.

I would say we've not lightened the weight, we've done all of that previously Kyle, and I don't think we can go any lighter on what we're doing. I don't think we’ve really changed our product much because we've done so much pricing that we need to be very consistent with what we're providing to our consumers those cost actions that we've taken to offset, have been through other mechanisms, lower production and distribution costs, lower head count costs in other areas, lower professional services, just other things we've done to cut costs.

Got it. And lastly, instead of looking at the 19% on print with Easter affected, let's just look at the first half of down 2018. Could you unpack the pieces there and give me those segmented kind of growth rates?

Yeah, hang on Stacy is pulling that out for me. If you look at there should be a table on the press release, a table for, that gives you right now, gives you for the quarter. Don't have the same [ph] off the top of my head, but that will give you directionally, you can see national is the [indiscernible] category of the bunch as followed by local and then classifieds.

Okay, but the pieces of local like, well, okay maybe we can do that offline. Thanks.

[indiscernible] breakup preprints versus --?

Yes, yes, I am.

Yeah, if you, let’s do that, offline, Kyle, we’ll give you a little more breakdown on that.

Great. Appreciate it. Thank you.

Sure.

[Operator Instructions] Our next question comes from the line of Doug Arthur of Huber Research. Your line is open.

Yeah thanks. Bob when you look at this digital-only subscriber count, I think the press release said 413,000 strong growth. What levers do you need to pull to get that figure into the millions. I think your Sunday circulation on a print basis is over 10 million I think as I remember. So, the audience obviously is there.

Our Sunday circulation is more like 2.5 million, on the print side. 10 million readers that is [indiscernible]?

That was the figure I was looking at. You have a big audience digitally and obviously, tons and tons of newspapers, seems like that number should be higher, I realize on the local paper side it's a tougher sell than the national paper. But is it -- is it marketing or is it just time to get that figure higher?

Well, I mean, to your point, we're happy with the 46%, we have growth. We have very aggressive internal goals over the next 18 months, but the levers are some of the things that Ali just mentioned. To date, we have been testing and reluctant to close the side doors and change our meters, but with the great job to growing our audiences that Maribel’s team has demonstrated these last seven months, we became very confident that we could do that, so we close the side doors. We are now tightening our meters in about 60 markets to test, I mean, about 30 markets to test how that plays out. And some of our markets will go as low as three articles. [indiscernible] we’ve hired from the New York Times, she’s been with us about a year, built a good team, starting to get great momentum, using the variety of marketing channels that she fully understands. So, we're seeing a better cost per order. We are moving our pricing. We were very volume focused previously. We are seeing a slight lift in pricing, but volume is still more important to us. I would say somewhere in that two year range, 18 months to 2 years our goal is to exceed the 1 million in subscribers and keep building on that. It's a different play in the local markets to your point than at the national level. We also have been doing a lot of local marketing, really great job by our local newsrooms to really focus on the value of digital subscriptions and digital-only subscriptions and we've seen some really, really good tick up in the right direction. Shout out to our market in Milwaukee, who's really just taking a really lead for the company. But Phoenix is doing better, we're seeing across the board as we become just more sophisticated, our newsrooms around using all the analytics available to us and we're making some product changes. As I noted, with the rollout of the mobile web that mobile improvements, we’ve just started to see and I think we're getting benefit on the digital subside because our load times are better. And then the other thing we're going -- we are contemplating in testing a possible ad free environment in a couple of local markets to see if that might be something of interest to the consumers at the local level. So, I do think we've got another 18 months to 2 years ahead of us to keep pushing hard to get to the million and then go from there.

And that number 413,000 does that include paid USA TODAY subscribers?

No, that includes the ad free paid subscribers, ad free app that we have that is a paid subscription, but it's a very small number at this point as it's just been rolled out. But that is local, its predominately the driver.

And then just one follow-up the digital media revenues of $69 million, up 5%. Is that predominantly video, I mean what is in that category?

It's a combination of our owned and operated with display with audience extension capabilities. Definitely some video within the display.

And what's driving the growth?

Better sales execution, and we've got very, very CPMs, particularly as we sell more direct programmatic versus just on the open exchange with actually realizing a better CPM and that’s really on the back of all the great work that’s being done on building a really strong audience.

So, its predominately, display then, not videos is what you are referring.

Yes.

Okay. Thank you very much.

Thanks Doug.

Thank you. I show no further questions in queue at this time. Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day.