I would like to welcome everyone to Gannett's First Quarter 2016 Earnings Call. This conference call is being recorded at the request of Gannett. [Operator Instructions]. 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, Operator. Good afternoon, everyone. Welcome to Gannett's first-quarter 2016 earnings conference call. I'm Mike Dickerson, Vice President of Investor Relations at Gannett . Joining me this afternoon are Bob Dickey, our President and Chief Executive Officer; Ali Engel, our Chief Financial Officer; John Zidich, President of Domestic Publishing; and Barbara Wall, our Chief Legal Officer. Many of you have already seen a copy of our press release from this morning. For those of you who have not, it is available our website at Gannett.com. I want to call your attention to our Safe Harbor provisions 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 annual report Form 10-K and other periodic filings on file with the SEC provide further detail about the risk factors related to our business. During this conference call we may refer to adjusted EBITDA, adjusted earnings per share, and free cash flow. We define adjusted EBITDA as earnings before income taxes, equity income, other non-operating items, which includes interest income and interest expense among other items, severance related charges including early retirement programs, asset impairment charges, depreciation, and amortization. We define adjusted earnings per share as EPS before tax affected severance related charges including early retirement programs, asset impairment charges, acquisition-related expenses, and transformational items. The tax impact on these non-GAAP tax-deductible adjustments is based on the estimated statutory tax rate 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 expenditures. These non-GAAP Company-defined measures are being provided because Management believes they are useful in analyzing the Company's operating…

Thanks, Mike. Good afternoon, everyone. Before we get into the details of our first-quarter results, I would like to touch on the announcement we made on Monday. As I'm sure you have seen Gannett made public its compelling proposal to acquire all of the outstanding shares of Tribune Pushing for $12.25 per share in cash. We believe the acquisition of Tribune would deliver significant strategic and financial benefits to the buying company, which include providing Tribune shareholders with immediate liquidity at a significant premium to Tribune's closing share price on April 22, and it provides certain value by eliminating the risk associated with Tribune continuing to operate on a standalone basis as the industry continues to face its challenges. We also plan to deliver synergies that are expected to drive near and long-term growth and value creation at the combined company. And we believe we will quickly complete the transaction without any financing conditions. Equally important, Gannett believes in the continued importance of journalistic excellence, local independence, high standards and integrity. To achieve this, Gannett must remain strong and have the financial flexibility to support investment in critical resources. Our proposal would result in a company that not only enhances our current leading national and local media company, but also strengthens flagship brands in regional and local markets. A combination with Tribune Publishing would advance Gannett's strategy to grow the USA TODAY Network, the largest local to national network of journalists in the country. This would include more local markets and new platforms which we believe will ultimately benefit readers and business partners and result in significant and sustained value creation for Gannett stockholders. As we've indicated, we are eager to negotiate a transaction with Tribune, and believe we can come to an agreement in good faith. With that, today's…

Thank you, Bob. Good afternoon, everyone. Let me begin by reminding you of an accounting item that came up in the period post spin. Beginning with the period post spin from the Company's former parent and in conjunction with the execution of new agreements, we began reporting wholesale fees associated with 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 statement of operations. This change has no impact on reported operating income, operating cash flows, net income, or earnings per share. Operating revenues for the quarter were $659.4 million compared to $717.4 million in the prior year, a decrease of $58 million or 8.1%. This decline is partially due to approximately $14.6 million related to the reporting of sales of certain third-party, principally Cars.com and CareerBuilder, digital advertising products on a net basis, as I just discussed above, $5.4 million of unfavorable foreign currency exchange rate changes, and $5.4 million of selected exited operations and other items. Excluding these items, revenues declined $32.7 million, or 4.6%, compared to the first quarter of 2015, representing a sequential improvement from the 4.9% decline on the same basis in the fourth quarter of 2015 compared to the fourth quarter of 2014. This decline was primarily attributable to ongoing advertiser demand shifts and the impact of unfavorable affiliate agreement changes with CareerBuilder and its negative impact on classified employment revenues. These declines were partially offset by positive revenue trends in Gannett's digital products, particularly national digital advertising which increased 17.5%, as well as approximately $23.8 million of revenues from acquired businesses. Adjusted EBITDA for the quarter was $77.6 million compared to $71.1 million in the prior year, an increase of $6.5 million or…

[Operator Instructions]. Our first question comes from Michael Kupinski with Noble Financial.

Thank you and good afternoon. I was a little surprised about how much cost was taken out of the business, and I know there was a little shift in some of the cost there, but it seems like you have taken out some production facilities. I was wondering if you can give us year over year how many facilities you have now versus last year? Maybe give us some color on what your thoughts are on your production and distribution facilities going forward, and are there further opportunities to consolidate there?

Michael, this is Bob. I will turn it over to John and let him give you some -- we don't have the actual number of distribution centers. We could certainly track that down. But this is a project that has been in the works for a number of months, and the team is just done a terrific job of hitting the ground much faster than we had anticipated. But I will let John give you some more color on it.

Some of the production cost reductions come from closing some of our offset presses. And we have had a major effort looking at all of the production and distribution costs throughout our Company to find greater efficiencies in each of those areas, and been very successful at implementing those to a degree that was greater than we thought initially. We've got a lot to look at in that area, and as we bring JMG into the process, we're certainly going to look at what other synergies we have from a production standpoint as well.

But this project is ongoing and it is part of our 2016 outlook. We just happened to capture about $3.5 million worth of expenses earlier in the cycle that we had projected.

I see. And then we saw obviously some improvement in the revenue trends in the first quarter. But there are other publishers that have indicated a little caution still about retail ad trends going forward. Can you talk about the prospects for further moderating revenue trends, particularly as it relates to the retail category?

I don't think we see any changes in what the retail trends have been. That segment of business has been under pressure in for some time. It continues to be. We don't see that is going to change in any short term. So the way we view that segment is much as we have over the last few quarters, that it's going to be a declining trend.

And in terms of your guidance then looking at ad revenues being down in the 5% to 7% range, what are the categories that you are looking for to moderate more fully than -- to offset what declines you might get in the retail segment?

I think most of the -- pardon me?

I'm sorry, go ahead.

Our focus really is on building through our digital network. We see that we have a lot of opportunity through segments of business that are driving our national revenue increases, which was about 17.5% this quarter. We look at segments of the business like automotive that we have put a lot of effort into improving the way we go to market. And in the first quarter, from an automotive standpoint, we saw the trends improved about 4 to 5 percentage points. Being a major segment of our revenue, we are really pleased to see that. In the event business we've put a lot of effort at looking at event growth that we can leverage this year. We've got a large Q2 effort around sporting events in about 30 of our markets. That opened up a new revenue stream, and we see a much different client that gets engaged in that business as well.

Michael, we continue to see growth in the digital marketing services at the local level. Healthcare is another good segment for us as well.

Perfect. Thank you so much, I appreciate it.

Barry Lucas with Gabelli & Company.

Thank you and good afternoon. I would like to stick with the cost theme, Bob, if we could and if possible identifying expense line items that are coming down. How much was resulted from newsprint, and how sustainable are these reductions and what do the opportunities look like going forward?

Well Barry, I will let Ali add some color to it. But I think we were up front with the fact that we were putting together a $67 million cost reduction program, and then we announced that we actually felt that we would come in at a higher level. We have proven that to be true. So we are looking at -- as a new integrated company, we found that we've been able to eliminate some duplication of efforts. John Zidich and his team have done a wonderful job of integrating USA TODAY with our local sites, is one example. Newsprint continues to be an area that we are managing very, very efficiently, and we did have -- we still are benefiting from an ERAP that took place the end of last year. At this point we are very comfortable that we'll continue to manage our expenses along the line of what you see today. But Ali, is there anything more you want to add?

I would just say that really when you look at the P&L, we see declines in almost every line item except payroll, newsprint was down about 30% and that was about half price half volume. We are seeing increases in certain things related to corporate expenses as we continue to absorb the lease cost here, build up our corporate infrastructure for things like SEC reporting, taxes, and the like. And we do see a little bit of increase in technology. We're moving things into the cloud which we can no longer capitalize under the accounting standards. That's got to go through the P&L. We are making some investments there in some systems and things like that. But in general we see very good cost-cutting across the board. And in my opinion it's all sustainable and manageable as we are doing it right now.

Thanks. And if I could sneak in one or two others. Since closing JMG maybe you could talk a little bit about surprises, pluses, minuses that you found. I know we're certainly glad to see that you affirmed the numbers that you put out previously. But what have you found as you really got into the weeds?

I will let Ali give some more color, but I think the thing that we found not surprising because we had done site visits, but the enthusiasm of the employees to join the Gannett Company, their eagerness to learn at a very fast pace how to utilize the tools that are available to them has been really, really nice to see. We have a lot of respect for those employees and that enthusiasm will pay off. Operationally there haven't been any real surprises. I don't think anybody expected any. The team at Journal Media Group ran a very good company. But I will let Ali add if she has anything more.

I think it's a really good question, and unfortunately because of the timing we've had 19 days since we've owned it. We have gotten their reforecasts and a lot of the data is coming in, we just haven't had the time with Q1 and some other projects we've been working on to final run that through our numbers and really look at it. I would say that there really haven't been any surprises, that their trends are fairly consistent with ours. The opportunities that we think are there in digital and some other areas will be there. The cost opportunities that we think will be there are going to be there. I think it hasn't been a surprise. I think it's been a very positive experience. We really enjoy working with the teams and we've got detailed integration plans that we are beginning to execute on. And we look forward to giving you the new guidance in a couple of months.

Barry, I think the one thing that I just want to shout out and give kudos to my USA TODAY Network team. On day one we had reporters from the Milwaukee Journal Sentinel appearing on the front page of USA TODAY. And so that just shows that everybody was eager to get started, and that makes us -- that is going to improve our products across the network. That was great to see.

Great. Thanks, Bob. I'm going to push one in on the big picture, and not necessarily Tribune. When you look across the landscape, and you've been very forward in articulating a consolidation strategy, how big is big? Is there a right size for Gannett , and how you think of the future, not just for Gannett but the industry?

That is a good question. We've been really upfront about we're focused on creating a USA TODAY Network with the goal being the number one digital news network in the country based on comm score. As we look at that strategy, Barry, we think consolidation now is really centered around a number of key markets. And we are not looking at this as, we're going to be 200 markets. I think somewhere in the 125 to 140 is probably the number if everything was to play out according to plan. We have an idea of the type of -- where we want to be in terms of our digital audience, and we believe the number of markets, because the network -- it's a national to local network and we need to have both. We need to have enough of the geography with our local operations and then supported by the USA TODAY brand.

Great. Thanks very much for that, Bob. Appreciate it.

I would just add, Barry, this is Ali, I do think we can accomplish that while keeping our balance sheet at a very reasonable leverage ratio, and that we are very comfortable that we have the capacity to do that while continuing to organically invest in growing through digital products and services as well as potentially do some other small investments on that side.

Thank you.

[Operator Instructions]. Doug Arthur with Hoover Research.

Yes, couple of questions. Unless I missed it, you typically give out a digital only revenue number. I think in the fourth quarter it was $165 million. Any update on that?

Hang on we will find it for you, Doug. Why don't you move on to your next question.

The 4.6% pro forma just to understand, that includes $24 million from acquisitions. So the number would be a little lower without that. Is that fair?

Yes.

Total digital revenues, which include advertising, circulation, and other, were $152.6 million in the quarter.

Any sense of a comp year over year?

Hang on. It was $174 million in the same period last year. And the decline is the $14.6 million I previously mentioned around the reporting going from gross to net. And about $7.3 million related to the unfavorable CareerBuilder contract.

Okay, great. And then you did call out the growth in digital subs of 37%. Bob, can you size that for us where you are now on total digital subs in terms of a hard number?

We are right around 135,000.

Okay. And then I know there were a bunch of -- obviously the cost performance in the quarter was terrific. Any granularity in terms of year-over-year change in FTE count?

I don't have the headcount in front of me. Doug, we can definitely get back to you on that.

Doug, I will follow up with you on headcount.

Okay, super. Thank you very much.

And I'm currently showing no further questions. I will now turn the call back over to Michael Dickerson for closing remarks.

Thank you all for joining us today. That concludes today's call. If you have any further questions you can reach me at 703-854-6185. Everyone have a nice day.

Thank you.