Stacy Cunningham - VP, Financial Planning and Analysis Robert Dickey - President and CEO Alison Engel - CFO John Zidich - President of Domestic Publishing Sharon Rowlands - CEO, ReachLocal

Tommy Moll - Stephens, Inc. Barry Lucas - Gabelli & Company Michael Kupinski - Noble Capital Markets

Good day ladies and gentlemen and welcome to Gannett's 2017 Second Quarter Financial Results 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 is being recorded. I would now like to introduce your host for today, Stacy Cunningham, Vice President Financial Planning and Analysis with Gannett.

Thank you, Andrew. Good morning, everyone and welcome to Gannett's second quarter 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; John Zidich, President of Domestic Publishing; and Sharon Rowlands, Chief Executive Officer of ReachLocal. Before we begin I would like to call your attention to our Safe Harbor Provision for forward-looking statements and our financial results press release. This 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 also 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. So with these formalities out of the way I’d now like to turn the call over to Bob Dickey.

Thanks Stacy. We’re pleased to report second quarter results that keep us on track to realize our expectations for the full year. Results for the periods showed modest sequential improvement in year-over-year trends for both same store revenues and adjusted EBITDA from 2017 first quarter results. Given our progress through the first half of the year we have reiterated our revenue outlook and narrowed our EBITDA guidance range for the year, raising the lower end of our prior guidance. Ali will discuss this in more detail later. As we recently passed the two year mark since the spinoff of Gannett, let me take this opportunity to provide an update of the evolution of our strategy from the spinoff to where Gannett is today and where we're heading. It's well understood that the migration of advertising dollars from print to digital platforms continues. We’ve taken many steps over the past two years to expand our digital presence while also maximizing the economic value of our print offerings and driving operating efficiencies. We've built from the ground up our in-house branded content studio GET Creative, purchased the small and medium sized business marketing services leader ReachLocal, launched new digital products for our consumers such as our weekly virtual reality show Virtually There, and signed a new agreement for our digital employment products with RealMatch. We accomplished all of this by integrating two local market acquisitions that are helping to drive significant operating efficiencies and adding economic value and scale to our USA TODAY NETWORK. Our long term vision reaches well beyond the behavioral and revenue shifts under way between print. At Gannet we are focused on becoming the daily destination for consumers and marketers seeking meaningful connections with their communities across print, digital, and other channels. Daily interaction is the level of required audience, consumer engagement necessary to drive meaningful expansion and diversify Gannett's revenues. To execute on this vision of being the daily destination for consumers and marketers, we are building on our audience first approach to our consumer business. We will continue to lead with content and we're creating new opportunities to engage with our customers more frequently and for longer periods of time. We're developing products, content, and marketing programs designed to keep -- to reach key audience segments critical to developing new revenue opportunities. This will be beyond our core news offerings. These new consumer experiences will be created under our signature brand, the USA TODAY NETWORK to leverage the scale of our nationwide reach. In the second quarter we completed work for branding refreshed with the USA TODAY NETWORK in both our print and digital products across the country that launched in early July. The rebranding is designed to modernize our visual storytelling unify our digital network, create a more contemporary look for our advertisers and partnerships, and attract new audiences. From a product perspective we're investing in new storytelling mediums to connect to new audiences and move beyond our core news offering. In the second quarter we launched the second season of Virtually There, our highly recognized virtual reality series which generated over 10 million views in its first season. Given its success we have already secured two sponsors for season two. We announced plans to launch a new investigative podcast series called The City produced by Pulitzer Prize nominee Robin Amer. This will be debut in spring of 2018. The City will join our robust lineup of 50 plus podcasts that generate an average of 4.5 million listeners each month. We held our second season of our high school sports event series, holding 23 events across our local markets with over 19,000 participants and secured our first national sponsorship for this event. We also recently announced a multiyear partnership between Gannett and Sequential to license Martha Stewart brands at are 10 USA TODAY NETWORK Food & Wine events kicking off this September. And we invested in marketing strategies that drove over 50% year-over-year growth in digital only subscriptions. We're also evolving our approach to our advertising and marketing partners to execute on our vision. We are focused on better self execution against our core revenue streams, digital sales enablement through new advertising products, and continuing to build out a nationwide marketing services business with the ReachLocal as the foundation. This evolution will happen both organically through new product development as well through acquisitions like SweetIQ. To support growth and innovation in digital advertising we've launched a new ad platform and product suite called Paramount and a dating engine called Grandstand [ph] that uses machine learning to measure elements of ad design and how they drive digital advertising campaign performance. Overtime Grandstand will allow us to gain insights from the thousands of digital display campaigns we create and create and manage every month five specific verticals. These insights will then form future design for optimization and performance. In the second quarter we ran Paramount campaigns for 12 different national advertisers that provided our partners with a bold, beautiful ad campaigns that loads extremely fast, driving improved user experience, viewability, and performance. We will be rolling out Paramount to our local markets in early September. On the marketing services front, we've integrated the recently acquired SweetIQ operations into the product suite at ReachLocal and completed an accelerated rollout of the ReachLocal platform to our legacy Gannett markets. Sharon will speak to both in a moment. In addition to enhancing customer engagement and expanding our product suite for our business partners, we will continue to maximize the economic value of our print business to enable reinvestment in our digital future. As we invest in our digital future, the brand equity and trust we have established with our print products from USA TODAY to our 109 local brands serves as the foundation as we expand our audience base into new content and distribution channels. We continue to identify opportunities around print subscriber and print advertising pricing to drive performance and enhance profitability. To this end, late in the second quarter and continuing into the third quarter we are rolling out a new print pricing programs that encourages preconceived advertising in the papers to deliver results for advertisers and at reducing churn through a better return on their investment. On the circulation side, we spent the first part of 2017 studying and testing our print subscriber pricing strategy. In addition to modest increased home delivery pricing introduced in the middle of the second quarter, we will be implementing additional home delivery pricing late in the third quarter, and throughout the remainder of the year. Our pricing test indicates we still have great pricing elasticity throughout the subscriber base but especially with our core, most loyal audience that values our content and is willing to pay a premium for it. These increases might cause a slightly larger decline in our year-over-year circulation volume trends. However, we are focused on maximizing the bottom line economic opportunity. The print product and its audience continued to drive results and remain an effective tool for advertisers. Ultimately the pricing work done with the advertiser and subscriber result in a superior bottom line return for Gannett. Our centralized production and distribution business known as Gannett Production Services continues to deliver on cost savings from facility consolidations, four of which occurred in the second quarter, optimize distribution routes, and renegotiated third party print contracts. Finally where we see opportunities to enhance our digital capabilities from either a content or marketing service perspective, we are actively looking for acquisitions that make good financial sense and are the right strategic fit. In the coming quarters we will align our investments and work streams tightly with our focused consumer, business-to-business, and acquisition strategies and we look forward to providing updates as we progress. With that let me turn it over to Sharon for an exciting update on ReachLocal.

Thank you very much Bob. The second quarter was certainly an exciting one for ReachLocal as we transition the majority of Gannett online advertising classes to our solutions from their prior provider. We migrated over 2000 campaigns across search engine marketing, social ads, SEO [ph] websites under an accelerated timeline of just three months. This effort was a very significant achievement that required investment in new teams and training and a lot of cross unfilled collaboration between ReachLocal and the Gannett local market. Importantly we achieved these results while growing our full business in North America including continued multi product penetration and also integrating the SweetIQ acquisition acquired during the quarter. What really excites us is the improved performance ReachLocal achieved for these clients who migrated from Gannett's prior provider. Approximately 96% of migrated clients with search engine marketing campaigns now have a lower cost for print. We're also hearing from clients they are very happy seeing better cost -- performance and believe they are also benefiting from an improvement in their quality score. These results validate the differentiated outcome to ReachLocals combination of technology and service drive for clients. As a result we expect to see improved retention from the migrated Gannett clients and new business opportunities as the sales teams now see how the ReachLocal platform can deliver leads and ROIs to advertisers. We plan to replicate this success in the third quarter as we migrate the former Journal Media Group brands and focus on more intense training of the Gannett local sales teams to drive growth. Even with their migration activity we generated continued growth in North America during the prior years. Excluding the contribution from the newly added Gannett and SweetIQ clients, second quarter revenue from our base business grew 4% sequentially from the 2017 first quarter. Within that our U.S. national business continues to have great momentum with 17% revenue growth from 2017 first quarter. The investments we've made to build out a full set of capabilities are also paying off in growing product penetration among our client base. Today 36% of our clients are running two or more solutions, a significant increase from a few years ago. And a trend we will continue to drive. We’re seeing continued traction with Reach Social ads, our Facebook solution which grew 45% quarter-over-quarter. We're very excited about the acquisition of SweetIQ that occurred during the quarter. SweetIQ's very talented team has been a great cultural fit within ReachLocal and good collaboration is well underway. SweetIQ's monthly recurring revenue at the end of quarter two grew 25% at the end of quarter one in line with our expectations. And it's solid growth is before we have realized any significant revenue synergies as SweetIQ begins to leverage Gannett's and ReachLocal's client relationships to improve a direct sales. We are now focused on completing the migration of ReachLocal's listings management product from our current vendor to SweetIQ. We’re also beginning to cross sell SweetIQ, ReachLocal, and Gannett Solutions to each of our clients. Looking ahead to the second half of the year, our brand [indiscernible] new client center that provides consolidated reporting and delivered an enhanced client experience. Completing the Gannett client migration and focusing on the exciting cross selling opportunities among our clients. With that let me turn the call to Ali Engel.

Thank you Sharon and good morning everyone. We're pleased with our financial results for the second quarter which showed a modest improvement in same store revenue trends and strong cost performance. Consolidated revenues of $775 million were up 3.4% year-over-year in the second quarter reflecting the contribution from operations acquired in 2016. On a same store basis, total revenues declined 10.6% in the second quarter, a slight improvement compared to the 10.8% decline in 2017 first quarter. Total digital revenues of $243 million represented 31% of revenue in the period and included the contribution from the acquired ReachLocal property. Adjusted EBITDA totaled $83.7 million for the quarter. We had a very strong cost performance in the quarter with same store adjusted operating expenses down approximately 11% year-over-year. These results were due to synergies from our 2016 acquisition of Journal Media Group, lower news print expense, and production and distribution savings due to facility consolidations. As a result we realized a modest improvement in year-over-year trends in adjusted EBITDA would compare to the 2017 first quarter. In the publishing segment we saw improved trends on the print side of the business in the quarter as we have cycled some of our large retail account losses from a year ago and had good execution of campaigns around the spring holidays such as the Mother's Day. Same store print advertising revenues were down 16.8% year-over-year in the quarter as compared to a 17.8% decline in the 2017 first quarter. Circulation revenue trends also improved sequentially as we've been implementing pricing actions in the middle of the second quarter on a portion of our full access subscriptions. We also saw strong digital only circulation revenue growth up 22.4% year-over-year in the quarter and up 7% from the 2017 first quarter. On a same store basis, circulation revenues fell 7.4% year-over-year in the second quarter as compared to an 8% decline in the 2017 first quarter. Our home delivery volumes held relatively steady in the quarter, down in the 10% to 11% range. Same store publishing digital advertising revenues were up 0.3% in the quarter. Growth was limited by approximately two percentage points due to the transition activities with ReachLocal in the quarter. Issues such as paused social campaigns as Facebook admin rights were transferred and the timing of shifting campaigns between platforms cost some disruption. We continue to see strong advertising demand in areas such as mobile, video, programmatic, and branded content. In our ReachLocal segment, second quarter revenue came in at $85.9 million or an 11% increase over the 2017 first quarter. Migrating Gannett clients and SweetIQ clients contributed about 8% of that growth. North American ReachLocal revenues grew 15% while international revenues declined 1.5% quarter-over-quarter. Second quarter adjusted EBITDA at ReachLocal was $1.2 million which was negatively affected by hiring expenses related to the Gannett migration and the expected dilution from the SweetIQ acquisition. Our effective tax rate in the quarter was a 127.8%, reflecting low taxable net income and our mix of foreign and domestic income and losses. We expect this tax rate to normalize for the full year at approximately 30% to 32% based on typical seasonality of earnings in the fourth quarter. Capital expenditures for the quarter totaled $15 million reflecting investments related to digital product development at ReachLocal and Gannett as well as project supporting our facility consolidations. Our ending cash balance was $127 million and our outstanding debt on our revolver was $385 million or net debt of $258 million. We paid $18 million in dividends during the quarter. Early in the third quarter we made our 2017 required $25 million payment to our U.S. pension plan which is not reflected in the second quarter financial statement. As we look ahead to the second half of the year we should continue to see some improvement in advertising revenues and more meaningful improvement in circulation revenues especially in the fourth quarter due to our planned circulation pricing actions. As Bob noted, we do expect a slight uptick in circulation volume declines as we implement our new subscription pricing strategy. Given our solid first cap performance we are raising the low end of our adjusted EBITDA guidance range to $360 million to $365 million from $355 million to $365 million. We are maintaining our revenue guidance range of $3.15 billion to $3.22 billion. As a reminder, consistent with others in the publishing industry to report on a 544 calendar, we do have an extra reporting week this fiscal year which has been included in our full year revenue and adjusted EBITDA guidance ranges. Also note that due to typical seasonality we expect third quarter revenues and adjusted EBITDA to be lower than the second quarter results followed by an increase in the fourth quarter. One final housekeeping item before I turn the call back to the operator, there is a new eliminations line item in our segment schedules included in the tables attached to the press release. This new line item reflects the digital marketing services revenues as a result of the migration of Gannett's clients to the ReachLocal platform. Both the publishing and ReachLocal segments now include the digital marketing services revenue sold in our local markets. We are then eliminating that duplicative revenue in this line item so that consolidated revenues are accurately reflected. We’ll now turn the call back to the operator who will assist us in taking some questions. Thank you.

Thank you. [Operator Instructions]. And our first question comes from the line of Tommy Moll with Stephens, Inc. Your line is now open.

Good morning and thanks for taking our question. It's good to hear you expect the print ad comps to improve in the back half of the year and I was hoping that you could give us some context on what the underlying drivers are there?

Go ahead John.

Yes, as Ali said in her presentation we’re seeing improved comps to our national business both on the pre-print and on the ROP side. We cycled some major losses from some of the larger department store and big box companies. We also, as Bob mentioned are launching a new print frequency pricing program that we think will be very effective in the local markets against the local businesses creating higher ROI and competitive CPMs as we go against traditional media in those marketplaces.

Great.

This is Bob, the early tests on the frequency program have been very, very positive.

Thanks for the color there and if I could ask one follow-up. I wonder what we should expect from you in terms of M&A going forward and to the extent you expect to be active whether you think it will be on the traditional print side or digital? Thanks.

Good question. I think we were equally interested on both sides of the equation. We have made it clear that we're still very interested in expanding local footprint where it can add to our clusters and is a good fit, proving we can very quickly find the centers to use those brands. On the digital side, we continue to research and explore opportunities that would add to the digital marketing services product portfolio, that's why SweeetIQ was so attractive to us. ReachLocal is the foundation as I mentioned of building out that part of our business. And so something in that -- something that would complement ReachLocal and SweetIQ would be of interest to us.

Thank you. I'll turn it back.

[Operator Instructions]. Our next question comes from the line of Barry Lucas with Gabelli and Company. Your line is now open.

Thank you and good morning. Bob I was hoping you could provide or maybe a little bit more color on regional differences or if you could compare kind of the USA NETWORK versus what used to be community newspapers versus the UK?

Yes, sure. Interestingly enough Barry, unlike and we have seen this for a number of years now. We just don't have the big swings regionally that I used to report on five, six, seven years ago. We have seen some of our tourist oriented markets this year perform very well. I think that's a reflection that the economy is -- people who are traveling or Snowbird markets and such but so that was refreshing. They performed more like we had historically seen in terms of visitors moving back. The UK and domestic excluding USA TODAY, very similar patterns in terms of print declines. The numbers are within a percentage point or two any given quarter. We are showing a slightly stronger digital growth at Newsquest. Last quarter, this transition that we're going through with ReachLocal as Ali referenced are points that we will make up very quickly. And Newsquest is in the markets, [Technical Difficulty] have effectively sold that at a very, very successful pace. USA TODAY had a very good second quarter for us. It came back both in print and digital after we experienced or a lot of people experienced in the first quarter a surprisingly softer digital start to the year than we had hoped for. But we're happy with the way it bounced back in Q2.

Thanks Bob.

[Operator Instructions]. Our next question comes from the line of Michael Kupinski with Noble Capital Markets. Your line is now open.

Thank you. A couple of questions, now that you largely are through the transition in ReachLocal, what kind of growth rate should we expect from ReachLocal and I believe that there's been -- there's some seasonality with ReachLocal, would you expect sequential growth in the third quarter from the second quarter given the transition that you now completed or are we likely to see that type of seasonality that it's traditionally had?

I'll answer first with yes, we definitely will see an improvement in the third quarter and John and Sharon, all expect that. But I will let Sharon speak to the specifics.

Okay, thanks for your question Michael. So we are expecting to see a particularly good growth in North America in quarter three. National business is really accelerating. We will have completed the migration of the Journal Media Group by the end of Q3. So all the migrations will be complete and that will give us some bandwidth to really focus on how we accelerate into new client through the Gannett markets. A large percentage of Gannett's advertisers are still print only and that really presents us with a significant opportunity. Since all those things coming into play, it does give us a tremendous opportunity. That will be offset a little bit by the fact that our international markets continue to be weaker. In terms of seasonality, Q3 is normally pretty strong. Q4 at the backend we tend to see some seasonality for the advertisers either pull back some budgets over the holiday period. Thank you.

Okay, fine, thank you. And then also going back to your M&A question earlier, is the plan that in terms of the types of acquisition let’s say on the traditional side would they still be more supportive of your USA NETWORK strategy looking at the types of larger markets that support USA TODAY or do you find that there might be opportunities looking at traditional media outside of the larger markets that might play better for USA TODAY?

Michael good question, first and foremost we're interested in expanding the USA TODAY NETWORK so I think the market side that we've focused on over the last year and half continues to be the primary focus. But John and I have also been very open to markets that might be a little smaller but bring great benefit to us because we already have clusters. So we're kind of approaching things both ways at this point since that up with 109 markets today and the way USA TODAY NETWORK is growing. We're very happy there but, we certainly are going to stay open to those opportunities. But, we also are back looking at things where they may be smaller in nature but, can add some really immediate synergies. John and his team at Gannett Production Services have just demonstrated over the last couple of years that they can bring those into our fold very, very quickly. So we're going to stay open to that as well.

Okay, thanks, that's all I have.

Thanks Michael.

And that concludes the Q&A portion of the call. Thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a wonderful day.