Michael Dickerson - VP of IR Robert Dickey - President & CEO Alison Engel - CFO John Zidich - President of Domestic Publishing Barbara Wall - General Counsel

John Janedis - Jefferies Craig Huber - Huber Research Barry Lucas - Gabelli & Company Doug Arthur - Huber Research

Good morning. My name is Michele and I will be your conference facilitator. I would like to welcome everyone to Gannett's Third Quarter 2015 Earnings Conference Call. This conference call is being recorded at the request of Gannett. Should you have any objections, you may disconnect at this time. [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, Michele. Good morning, everyone and welcome to Gannett's third quarter 2015 earnings conference call. I'm Mike Dickerson, Vice President of Investor Relations at Gannett. Joining me this morning are Bob Dickey, our President and Chief Executive Officer; Ally Engel, our Chief Financial Officer; John Zidich, President of Domestic Publishing; and Barbara Wall, our General Counsel. Many of you have already seen the copy of our press release from this morning. For those of you who have not, it is available on our Web site at gannett.com. I want to call your attention to our Safe Harbor provision for forward-looking statements that can 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 current Form 10 report and other periodic filings on file with the SEC provide further detail about the risk factors related to our business. During this call, we may refer to adjusted EBITDA and free cash flow. We define adjusted EBITDA as earnings before income taxes, equity income, other non-operating items which includes interest income, interest expense among other items, severance related, including early retirement programs, asset impairment charges, depreciation and amortization. We define adjusted earnings per share as EPS before tax-effected severance related charges including early retirement programs, asset impairment charges, acquisition related expenses and transformation items. The tax impact on these non-GAAP tax deductible adjustments is based on the estimate statutory tax rates 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 expenditure. 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. A reconciliation of adjusted EBITDA to GAAP net income, adjusted EPS to GAAP EPS and free cash flow to cash flow from operating activities are included in our press release. For any periods prior to the third quarter 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 as Clipper Magazine and Gannett Government Media, and adjustments for corporate allocations related to equity based compensation, pensions and other various items. The format for today's call will be as follows. First, Bob Dickey will lead us off with an overview of Gannett's performance and an update on our key strategies. Next, Ally will take us through the detailed financial performance for the third quarter. And lastly, Bob will provide some closing remarks followed by question-and-answer period. With that, I will now like to turn the call over to Bob Dickey.

Thanks, Mike and good morning everyone. I am very pleased to report a very solid third quarter, a first since becoming a standalone public company in terms of both operating performance and cash flows as well as the accomplishments we have made towards the strategy we outlined for you just a few months ago at our investor day. Revenues adjusted for certain third party digital advertising products, foreign exchange and businesses we exited last year were down 4.5% year-over-year. This is an improvement from the 6% reduction recorded in the second quarter of this year, aided of course by the full quarter's results of the properties we acquired in Texas, New Mexico, Pennsylvania and the U.K. in the second quarter of this year. Adjusted EBITDA margin also improved slightly from both the prior year and from the second quarter of 2015 and free cash flow generated was close to $1 a share in the third quarter. Ally will provide more details about the financials in just a minute. One of the more exciting and important accomplishments for Gannett this quarter was in the digital space and the achievement of over $100 million average monthly unique domestic visitors in September and reaching 39% of the total domestic digital population as measured by comScore Media Metrix. The breakthrough in September was driven by gains at usatoday.com, sports and further wins, which were up 38% and 27% respectively compared to the year ago period of September 2014. We are very proud that this places Gannett in the number four spot in the news and information category, ahead of Huffington Post, NBC News Digital, CBS News and Vox Media. This is important because it demonstrates the scale and reach that Gannett brings to the table for our local and national advertisers. It also demonstrates the success our investments in digital technology, new skill sets and processes are having. Another of success for Gannett recently was the announcement that Gannett and Journal Media Group have entered into a definitive merger agreement under with Gannett will acquire all of the outstanding common stock of Journal Media Group for approximately $280 million, net of acquired cash. Under the terms of the transaction, which was unanimously approved by the boards of directors of both company and is subject to Journal Media Group's shareholder approval, Journal Media Group shareholders will receive $12 per share in cash. Gannett expects to finance the transaction through a combination of cash on hand and borrowings under our $500 million revolving credit facility. I said it a few weeks ago and I want to say it again, these are really two great companies that share a commitment to journalism and a dedication to informing and being active members in the communities we serve. Our merger will combine the best of each of our organizations to create a journalism lead, investor-focused company that will provide substantial value to the shareholders of both companies. In its first year, the transaction is expected to add approximately $450 million to Gannett's annual revenues and approximately $60 million in adjusted EBITDA through a combination of Journal Media Group's solid base business and certain quickly attainable synergies. We expect an additional $25 million of synergy opportunity in the second year. While integrating new businesses require a focused effort, we have been demonstrating success with the properties we acquired in Texas, New Mexico, Pennsylvania and the U.K. It's a Gannett tradition that execution at the local level is something we take tremendous amount of pride in. Since the TNP deal was completed in June, the company has been actively integrating the operation of TNP into the infrastructure of Gannett. As of today, the company has completed the consolidation of cash management, credit and collections, procurement and payment systems, along with payroll and have developed a management structure. Over the next few weeks, the circulation system, customer service, design operation and the consolidation of these properties on to the Gannett digital platform is expected. Truly, a lot of great work in a short period of time. A few months ago, I announced a $67 million cost improvement program expected to be carried out through the first half of 2016. In that regard, the company recently launched an early retirement program for employees that met certain eligibility criteria. The results of this early retirement program, which is in addition to the more than 7% reduction in payroll we have put in place already this year, will begin to have a positive impact on financial results late in the fourth quarter and into 2016. We strive to treat our affected associates with respect and dignity but understand these can be difficult decisions. We are slightly ahead of schedule to achieve the targeted results of the cost improvement program, another good sign that Gannett delivers as promised. Before I turn this over to Ally to take you through the financials, let me say that I am quite proud of the team that’s been assembled and has worked tirelessly to get our company set up to run independently. There relentless drive and common focus around our key initiatives that will drive growth for the future is second to none. I thank each and every one of them for their part in getting us set up for success. With that, I pass it on to Ally.

Thank you, Bob and good morning everyone. Let me begin by discussing an accounting item. Beginning with the period post-spin from the company’s former parent and in conjunction with the execution of new affiliate agreements, we began reporting wholesale fees associated with the sales of certain third party digital advertising products and services on a net basis, as a reduction of the associated digital advertising revenues, rather than in operating expenses in our consolidated statements of operations. This change has no impact on reported operating income, operating cash flows, net income or earnings per share. Operating revenues for the third quarter were $701.2 million compared to $767.3 million in the third quarter of 2014, a decrease of $66.1 million or 8.6%. This decline is partially due to approximately $16.2 million related to the reporting of sales of certain third-party digital advertising products on a net-net basis as I just described. The decline is also a result of $7.6 million of prior year revenues related to exited businesses as well as $8.4 million of unfavorable foreign currency exchange rates. Excluding the impact of these items, revenues declined $33.9 million, or 4.5%, primarily attributable to ongoing advertiser demand shifts and the impact of the unfavorable affiliate agreement change with CareerBuilder and its impact on classified employment revenues in the quarter. These declines were partially offset by positive revenue trends in Gannett’s digital products as well as revenues from businesses acquired late in the second quarter. Overall, digital revenues were $159.9 million in the third quarter of 2015 compared to $173.6 million in the third quarter of 2014, a reduction of $13.7 million or 7.9%. Weighing on the underlying digital growth rate is the unfavorable post-spin changes related to the CareerBuilder affiliate agreement and the change in reporting for third party digital revenues. Excluding CareerBuilder revenues from all periods and the effect of the change in reporting for third party digital revenues, total digital revenues increased $6.2 million or 3.9% in the third quarter. This increase is across the board, with the most meaningful increases coming from desktop display, video and sponsored links. Adjusted EBITDA for the third quarter was $97 million compared to $102.9 million, in the third quarter of 2014, a decrease of $5.9 million or 5.7%. The decline in third quarter adjusted EBITDA was due to a $7.6 million reduced EBITDA contribution primarily resulting from the new Cars.com and CareerBuilder affiliate agreement, $2.2 million in unfavorable foreign exchange rate changes and declines in print advertising revenues, partially offset by cost reductions and efficiency gains in operating expenses as well as increases in digital revenues and a full quarter of operating results from businesses acquired during the second quarter of 2015. Earnings per share for the third quarter, on a fully diluted basis, were $0.33 per share and includes $17.5 million of pre-tax severance, acquisition-related and other charges. Before the impact of these charges and adjusted for taxes, adjusted earnings per share on a fully diluted basis would be $0.43 per share. Fully diluted earnings per share reflect a diluted share count of 118.2 million shares, approximately 3.2 million shares higher than the end of the second quarter due to the addition of the dilutive effect of stock based compensation, principally converted from the former parent at the time of the spin. Additionally, during the quarter the company purchased no shares under its $150 million share buyback authorization. This is due to restrictions on trading while in possession of material non-public information regarding the potential merger transaction with Journal Media Group. Net cash flow from operating activities was $126.1 million in the quarter. Capital expenditures in the third quarter were $10.3 million, primarily for technology investments and real estate efficiency projects. The resulting cash balance at the end of the third quarter was $148.2 million, an increase of $70.8 million compared to the cash balance at December 28, 2014. At the end of the third quarter of 2015, the underfunded pension liability was $527 million, compared to $770 million as of December 28, 2014, a reduction of $243 million or 31.6%. The significant reduction in this liability is a result of year to date contributions of $120.1 million, mostly made during the period pre-spin. The remaining changes were primarily associated with actuarial changes, resulting from a revaluation of the pension plan as of the date of the spin of GCI from its former parent. Before handing the call to Bob, let me provide a few thoughts on guidance for the balance of the year. At the end of the second quarter we said that we expected revenue trends to modestly improve in the second half of 2015, compared to the first half of 2015 aided by the acquisitions of the Texas-New Mexico Newspapers Partnership and Romanes in the U.K. This continues to be our belief. Further we expect normal seasonal patterns to prevail which we expect will lead to the fourth quarter being the higher revenue and EBITDA quarter of the year. Keep in mind, however, that for modeling purposes, revenues and expenses should be reduced by about $20 million due to the reporting for sales of certain third party digital products and services on a net basis as I described earlier. Depreciation and amortization should remain relatively constant at around $28 million for the fourth quarter of 2015. We do not expect to make any additional pension contributions to the U.S. pension plans in the fourth quarter of 2015. Our effective tax rate for the fourth quarter is expected to be in the range of 28% to 30%. And finally, I expect capital expenditures for the fourth quarter to be between $32 million and $35 million. Let me hand the call back to Bob for some final remarks.

Thanks, Ally. We set out several months ago some ambitious goals backed by our solid business plan. I am pleased that I am able to stand here today and report we are hitting on all of those goals. While we continue to deal with some unfavorable underlying trends in the advertising space, we are offsetting those effects with continued efficiency gains, smart investments from digital technology, targeted price increases and most importantly, demonstrating success in our local market acquisition strategy. I would like to now turn the call back over to the operator who will assist us in taking some questions. Operator?

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

Bob, there are a lot of moving pieces but I was hoping you could tell a little more about the digital trends. First digital-only subs. Has there been any change in the way that you -- what you have historically called Gannett's content subscription model in terms of the way it's being sold. And is it more of a standalone now and how many digital-only subs do you have?

Digital-only subs are now just over 100,000. Of course we have converted a few 10, 15, 20,000, in that range to a print digital program as well. That’s up about 37% year-over-year. I would say, John, the thing we are learning around digital-only and part of the increases, we are finding a good marketing approach in terms of hitting the right targets with our sales channel and we are also, via a wider range of [AB] [ph] testing around pricing and offers, finding a spot where we feel that we can continue to grow. And I think the team is starting to gain some real traction around digital subscription.

Okay. Maybe just another question on digital is, what kind of growth are you seeing in maybe just on the mobile page view front and also on mobile advertising.

Mobile advertising as you know is still not keeping up with the great growth we are seeing on the audience side. We have some beta testing going on right now around ad product. But right now our mobile revenues are up 22% but we feel there is certainly more room to grow there.

That’s helpful. Thanks. And just separately on the revenue front, Ally, can you give us maybe some sort of pro forma advertising and circulation number without the contribution from the acquisitions. I am just trying to get a better understanding of a clean core growth number.

Yes. Hang on, we are pulling it out.

It was around 8%.

Down.

Down, yes.

Down around 8%.

And that’s all in, meaning advertising and circ combined?

No. Circ, if you adjust for a little bit of FX, would have down sort of three maybe twoish.

Okay. All right. Thank you, very much.

No problem. If you have any more detailed questions on the numbers, call Mike later who can brief.

Our next question comes from [James Copeman] [ph] of JPMorgan. Your line is open.

This is James in for Alexia. Just wanted to ask Bob a question about your publishing partnerships. How satisfied are you with the engagement you are seeing on platforms like Apple News? How do you strike the right balance between driving engagement without sort of letting too much content exist outside of your own app? And then I have a couple of follow-ups.

James I would say you are asking the right questions, what we have a lot of discussions around here. We are very early in that so I really can't give you any insights beyond that. I mean we just signed that agreement a few weeks ago. But we will gladly keep you updated as we learn more because we are obviously tracking it very closely. As you know we were not one of the first to get on because we had some questions about the best way to approach it.

Right. And actually, just how much content -- is most of your content available on Apple News or is it, I mean to what level it's sort of restricted daily or weekly, or how much are you sort of freeing up there?

We are monitoring, but right now a considerable amount of our content is a available but we are monitoring that and watching it closely.

Can I just ask a higher level question? Your ad blocking has been a theme in the industry. How you guys are sort of approaching that theme in general? Is that something that you are discussing and, I guess, are you seeing any impact at all in terms of how the industry can deliver better ads on small screens and sort of how you approach that. Thanks.

We have a very bright group of folks gathering, have been working on this over the last few weeks. We have been tracking the impact of the ad blocking, like everyone. We have seen it increase to the position where we know we have to make some adjustments. We are beta testing some ad products right now that we believe address some of the concerns around ad blocking and we are reaching out and working with others in the industry to be an active partner in trying to come up with the right solution.

Great. Thanks, Bob. I just had one final one for Ally. You guys did a lot better on costs in the quarter. I am just trying to understand that. Was there an impact from the underfunded pension adjustment at all and then any color on sort of how you did so well on cost would be helpful.

No. The pension change really was a balance sheet change, it didn’t really impact the P&L piece it. I mean the cost cutting -- the cost savings are really coming from headcount reductions, efficiencies, different things that we have implemented all across the company through putting in distribution, corporate, things in the field. So it's really a large variety of different options. But primarily driven by headcount. We did a reduction right before the spin so we are seeing the full impact of that beginning the USA Today had an [indiscernible] in May. That impacts rolling through and then we just started these other actions this fall and this will take place or start hitting the financial statements in the fourth quarter.

So, James, this is Bob. Just to reiterate Ally's point. She is correct across the board. This really goes back to what we stated at our investor day. We have a strong belief that as an integrated company there are efficiencies, and we are proving that, that we are going to be able to open that weren't available to us before in the old structure. And it's no surprise to me that the team continues to find these efficiencies and we remain very committed to our shareholders in providing value to them as our revenues adjust. We have proven once again that we know how to align our costs with those revenue trends.

Our next question comes from Craig Huber of Huber Research. Your line is open.

Yes. I got a few questions. I will start here. Your core ad revenue declined, I think you said it was down 8% in the third quarter. Can you just be a little more specific what you are expecting that number to be on a preliminary basis here for the fourth quarter, please?

Yes, Craig...

Similar or maybe for worse, or better, just curious.

We are staying consistent with what we have said all along. We believe the second half would show slight improvement from the first half. We have no reason to believe that would be different in the fourth quarter. And as you know the fourth quarter with the holiday is a busy time for us and it's a little early to be able to really give you any more insight around holiday spending and such.

We are very encouraged though by the first few months of working with our new Chief Revenue Officer and the work that he has been doing and do have good expectations for those results too.

That we have seen some improving trends on the national side as a result of Kevin's work even though it's still very early, I think he just celebrated his 100th day yesterday.

But that was -- you have not seen that positive impact here in the third quarter. I guess you are talking about the fourth quarter?

Fourth quarter.

On national front. Okay. And then also, let me ask this, on the cost side, did your company recognize a cost benefit from your pension reevaluation during the quarter?

No.

Did not, okay. And then is there any change to the discount rate? Did you increase here or anything?

Yes. The discount rate went up from -- hang on, I am just getting it -- 4.05% to 4.4%. So a constant theme that I have said here and the other places I have worked is that these discount rates are overly punitive to our pension plans and that as we hopefully begin to return to a more normalized rate environment, we will see significant impacts on this underfunded position in a positive way.

You obviously feel comfortable with that even though bond yields have come down here recently?

Yes. I mean I am not saying for next quarter, for the end of the year, but I am saying over the long-term, over the mid-term, that it will impact us.

Okay. And then also, if I could ask, on the Daily and Sunday print circulation volume side, I guess excluding USA Today in the U.S., what was the percent change year-over-year for print circulation?

I am going to pass that to John Zidich. He is pretty good at [indiscernible]?

On a like for like basis, please. Thank you.

In the quarter, actually for the last six periods, our Daily and Sunday home delivered volumes have improved every period. In the quarter the Daily was an improvement of about 1%. And Sunday improved just over a percent.

I am sorry, the print was up -- you are saying up 1% year-over-year?

Trend improvements. So every period in the quarter home delivered improved throughout the quarter and over the quarter we are up 1% to trend, both Daily and Sunday.

What were that versus a year ago, please. I am just curious about the overall print, I guess, including newsstand. How much is that up or down versus a year ago on a like for like basis, please.

Hang on, he is looking.

On the home delivered basis, Daily was down 8.2% and Sunday 6.7%.

Okay. And then also my last question. On newsprint, on a like for like basis, what was the consumption percent change that year-over-year I assume was down and also average price, how much was that likely down, I assume.

Yes. We don’t give the detail on our newsprint pricing was down year-over-year. We have -- I think that will continue into the fourth quarter but probably we will see some pressure on that in 2016. We have seen some capacity takeout that could put some pressure on pricing.

Consumption...

And consumption is down, yes.

Consumption is down 68%.

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

Just a couple for me please. The projections for CapEx of around $30 million in 4Q, maybe you could identify some target projects and more importantly what would you think is a maintenance level of CapEx going forward.

Yes. I think that’s a great question, Barry. So we have some specific things on the fourth quarter that are driving that up. One is we are doing a restack at our headquarters in Mclean and we are doing a significant project around that. So there is quite a bit, probably, I think in the plan about $7 million associated with that. There is also a couple of big systems integration projects going on that are one time projects where we are aligning systems and upgrading things. That’s taken up a piece of that. I think on a run rate basis, on a normal year, we are looking at 50, maybe $60 million. That does not include though, what I would call, ROI real estate projects where we are investing in selling real estate and doing upgrade on moving into leased space with some capital associated with that. But overall we have a profitable return and we will be kind of talking about those projects separately going forward. So I think 50 to 60 is a good run rate for '16.

Great. Thanks. And it may be premature, Bob, but if you have some color you can provide on what the early retirement benefits and cost maybe on a going forward basis and kind of rough justice in terms of how many [EFTs] [ph] would you anticipate might take advantage of the program.

Yes. Barry, I wish I could. We are just in the final days of wrapping all that up. Mike can talk with you later. I think what you will see is that today our payroll is down 7% and we are very very aware of the need to make sure that our staffing levels tie with our business needs. We are doing a great job of protecting our reporting resources but there are some efficiencies that have provided us an opportunity to do the [ERP] [ph]. But I just don’t have all the details today.

Last item from me. I am looking at the Journal Media Group trading at $12.21. I just wonder if you had some thoughts on it.

Barry, as you know there is really nothing I can say at this point. I can tell you, as it relates to the Journal Media Group, we think they are a great company and we filed our HSR and we really don’t anticipate any significant issues with this deal. But we are now in the waiting period and we just have to let the process run its course. And as we know more, we will be sure to be in tough with you.

Our next question comes from Doug Arthur of Huber Research. Your line is open.

Just wanted to follow up on John's question. Your constant currency total average [indiscernible] was down 13.7%. Bob, I think you said the underlying rate, if I heard you correctly, was 8%?

Yes. A couple of things here, Doug. You have got $16.2 million that is being accounted for differently now. And you have several million dollars related to FX. If we equalize for those things, you get down to about 8.5%.

So if you look at the domestic publishing column, I mean retail down 8.7% is actually a improvement but not effected that much by these other items. But National down 19.3% and classified down 19.6%. On national, are you still being impacted somewhat by the shutdown of USA Today weekend? So that’s question one. And then underlying rate in classified given everything you just said, is sort of high single digits or low double-digits. Is that likely possible?

Yes, USA Weekend is impacting us. And then second, you are in the right range as it relates to classifieds.

So sort of 11% to 13%, somewhere in there?

Yes.

Okay. Great. Thank you.

Doug, just to be clear. We had said $7.6 million for the prior year revenues related to exited businesses. so about $8 million, 7.5-8 million on USA Weekend.

I am showing no further questions. At this time, I would like to turn the call back over to Michael Dickerson for any closing remarks.

Well, thank you everybody for joining us today and that concludes today's call. If you have any further questions you can reach me at 703-854-6185. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect.