Good day, ladies and gentlemen. And welcome to the First Quarter Gannett Earnings Conference Call. As a reminder, today's conference is being recorded. I would now like to introduce your host for today's conference call, Ms. Stacy Cunningham, Vice President of Financial Planning and Investor Relations. Ms. Cunningham, you may begin.

Thank you. Good morning, everyone. And welcome to Gannett's first quarter 2019 earnings conference call. As a reminder, this call is being recorded and webcast. Joining us today from Gannett are Bob Dickey, President and Chief Executive Officer; Ali Engel, Chief Financial Officer; and Barbara Wall, Interim Chief Operating Officer and Chief Legal Officer. 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 2018 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 been posted to our Investor Relations website. With these formalities out of the way, I'd now like to turn the call over to Bob.

Thanks, Stacy. Good morning and thank you for joining us today. Before we discuss the performance for the quarter, I would like to thank all of our shareholders and employees for your support during this proxy season. And if you still haven't voted, we encourage you to protect the value of your investment in Gannett and vote the WHITE proxy card for all of Gannett's 8 independent director nominees. Your vote is important. For further information on any proxy related topics, I would refer you to the public press releases and presentations that we’ve issued over recent weeks. That said, our focus today is on our first quarter 2019 financial results and we don't intend to comment further about the proxy contest on this call. With that, I’m going to move on to the first quarter highlights from our marketing solutions and consumer organizations. I will then turn it over to Ali, who will conclude with our detailed financial results. Overall, we're very pleased with our first quarter results and we’ve delivered better-than-expected performance in print advertising and circulation. And a 15% increase in adjusted EBITDA driven by our disciplined cost management. We also experienced robust new client acquisition in March and April that we believe will contribute to improved digital advertising and marketing services revenues in both our publishing and ReachLocal segments in future quarters. Importantly, we're making significant progress towards our transition to a digitally led product and revenue model, as evidenced by our strong digital-only subscriber growth, which we are confident will drive shareholder value. Looking at the Publishing segment, print advertising trends were better-than-expected and held steady year-over-year despite the later Easter. Specifically, our national retail business was stronger across most of our top account. On the circulation side, paid digital-only subscriber volumes grew 39% year-over-year…

Thank you, Bob, and good morning, everyone. One quick housekeeping item to start. In the first quarter of 2019 we had one more Sunday and one less Monday as compared to 2018. These day trades benefited our print advertising and circulation revenues in the quarter and therefore we have provided metrics adjusted for the day trades. As we mentioned last quarter, these day trades will have a negative impact in the third quarter. Consolidated revenues were $663 million compared to $723 million in the first quarter of 2018. The revenue decline reflects the challenging secular trends in both print advertising and circulation, partially offset by the WordStream acquisition and strong paid digital-only subscriber revenue growth. On a same-store basis, total revenues declined 9% in the first quarter. Further adjusting for the day trades, the decline was 9.9%. Total digital revenues of $246 million represented 37% of total revenue, up from 35% a year-ago. We were particularly pleased with our strong gains in adjusted EBITDA in the quarter, up 15% year-over-year driven by lower payroll and benefits cost, the addition of WordStream and continued savings across most expense categories, as we manage cost closely. Our adjusted EBITDA margins grew 190 basis points in the quarter to 9.5%. Specifically, total first quarter same-store operating expenses fell approximately 10% year-over-year, reflecting the last quarter of benefit from the B2B reorganization efforts that started last April as well as the early retirement program that started in January. Newsprint expenses fell slightly in the quarter as volume reductions were more than enough to offset higher prices. Turning to the Publishing segment, first quarter revenues were down 9.1% on a same-store basis. Further adjusting for the day trades, the decline was 10.1%. As Bob mentioned, print advertising trends were slightly ahead of expectations for the quarter,…

Thank you. [Operator Instructions] Our first question comes from Kyle Evans with Stephens. Your line is open.

Hi. Good morning.

Hey, Kyle.

I would like to start by congratulating Bob, happy retirement. And maybe on a related note, an update on the CEO search is my first question.

Sure, Kyle. First of all, thanks. And I have always enjoyed working with you and the team at Stephens, so much appreciate your support over the years. As it relates to the CEO search, we’ve been pretty consistent. The Board has selected a leading search firm. We’ve had a really good list of potential candidates and they’re continuing to go through the process. We’ve publicly stated that a selection will not happen prior to our annual meeting which is a couple weeks away, but hopefully a decision shortly thereafter. In the interim, a couple months ago, Barbara Wall took on the Interim Chief Operating Officer role and that’s been working out very, very well for us. You know Barbara, she's been with Gannett over 30 years, a key business partner of mine. And very, very comfortable that the transition with the new CEO will go very nicely. And I do plan to stay on as a consultant to the Board and future CEO for the next few months as well. If needed, I will be there for him.

Great. A few questions on circulation. I'm going to ask the obligatory pricing volume trends underlying circulation. We will get that out of the way, but as you give those, could you kind of talk about the outlook for 2019 and then maybe even a longer-term outlook there on kind of where you expect to give or take price?

Sure, Kyle. I think the one thing that we’ve noted was that our volumes were slightly better than we had projected as we cycled through price increases. So I think that right now we think that we can maintain that, but I'm going to -- because Maribel is always ready for your question, Kyle, I'm going to let Maribel give you a little more color.

Great.

Good morning, Kyle. And again thank you for always raising these questions. We have, as Bob said, seen some moderation in our volume declines in the quarter. We are cycling at more aggressive pricing that we had begun in 2017 and continued in 2018. End volumes were down in the high teen range, but our pricing yields remain strong in the low double-digit range. So that part is working well. I think you will remember we spoke to having adjusted our approach to pricing late in 2018 and into this year. We believe it's a more strategic approach where we are excluding those customers who are on the higher end of our rate range who are paying a premium for our content already and instead targeting those subscribers who are on the lower end of that rate spectrum. And so far this pricing strategy is performing in line with our expectation, but it will have a negative year-over-year impact as the overall targeted increase is less than last year.

Got it. While I’ve got you, it sounds like you guys are making good progress to your 1 million digital-only subs goal. In your best estimation, how much of that is incremental and how much of that is cannibalization and then kind of is there a longer-term goal that we should circle?

It's a good question. There's no question there's a mix in our digital-only circulation volume. We are pleased that we are growing net new digital-only. There is some percentage of that that are folks who are adopting digital from our previous full access subscriber base. But it's -- overall very strong, we are very pleased with the growth, nearly 40% year-over-year increase in volumes. Especially pleased in our ability to continue to grow the revenue side through improvement on the rate side. That’s very strong retention on the one hand and on the other hand, stepping folks up to higher rate more aggressively and so you see there a 70% year-over-year growth on the revenue side in the quarter. So that’s been very important. We are -- you heard both Ali and Bob speak to this, we are being much more aggressive. We are tightening up meters across a variety of our markets. We have to help us Kris Barton and his team in product, work to implement dynamic meters that allow for more personalized messaging to our users that we believe drive stronger conversions. So, that's certainly important. And we are also focused on new product development to diversify that portfolio and hopefully expand the number of offerings we have. Just in April as a matter of fact we launched the USA TODAY crossword puzzle application. We are very happy with the very strong out of the gate downloads for that application and we are recognized as one of Apple's new games they loved, which helped really drive those downloads. Obviously, conversion to paid will be key and we will be watching that very closely, but that’s definitely a focus for us.

And is there a long-term goal? I mean what’s the three to five year outlook on that 1 million digital-only?

We’ve stated and it's in a lot of materials we’ve put out recently, but about 1.5 million -- growing to 1.5 million plus.

Okay. Can we dive down on the ReachLocal down …

Hey Kyle, that 1.5 million won't take five years, by the way, on the shorter end of …

Yes, I figured that out. Thanks. In other words, you are not going to get -- you're not going to get three to five?

No.

Okay. That’s fair. Can we dig down into the ReachLocal down 6% same-store? You alluded to some larger client churn. Do you have any idea what's driving that churn? And then how should we think about the margins for that given it sounds as like you were a little under invested in the first two quarters and maybe now you've got your sales people back in place? Just kind of how should we think about margins sequentially across the year?

Yes, I think the margin is going to be fine because we expect to take advantage of the great job Kevin and the team have been doing with acquisition growth in March and April. They’ve put some plans. In late last year, early this year, as they started to see an expected sort of a slower start to the year and you've seen that across the industry. For us, we are very excited how quickly they’re -- the team was able to energize the sales effort and those acquisitions will certainly start to pay off. We’ve also seen some improvement in churn. So, we will continue to build the margin and keep it in that. It always starts out at the lower end of January and then as revenues grow during the course of the year we will -- that will benefit the margin as well. Kevin can speak. We lost a couple of large clients. It's not uncommon in the business too. As they get larger, many of them attempt to bring it in-house, I’ve made reference to that in the past and we had a couple of those go that direction. We also saved a couple with WordStream, which we said was part of the appeal of WordStream was we now have a service to be able to sell to those who want to go to a do it yourself approach. Kevin, any other color you want to add.

Yes, just to reiterate to all that said, March was a very strong month for us in new client acquisitions and April is looking good as well. So we are expecting improved trends in Q2 and more robust growth in the second half of the year. We've also been making investments in lead gen in Q2, which should help in the second half as well.

Great. Thank you.

Thanks, Kyle. Appreciate it.

Thank you. And our next question comes from Michael Kupinski with Noble Capital Markets. Your line is open.

Thank you. And Bob, I want to offer my congratulations. It's been nice working with you over the years, I appreciate it.

I always enjoyed those rest breaks, Michael.

A couple of quick questions here. You -- the Company obviously nicely beat my cash flow estimate for the quarter. The cost came in lower than expected and I believe that you had some facilities consolidation last year. When did those kick in and when will you start cycling against those cost reductions?

I will let Ali touch on that since she is responsible for that great performance there.

Yes. I don't have the exact dates of all the ones we did last year, Michael, but we just did four more. So we are just continuing to work through rationalizing everything that is going on within that organization. So we have very significant cost savings built into the GPS organization for 2019 and continue to work through that. So, it's -- they are happening throughout the year, last year and they are happening throughout the year this year as well. So …

Usually, Michael, the timing for us [multiple speakers] …

… as well, yes.

Usually the timing for us just the way it takes to plan and execute these as we start the cycle consolidations from the year before, we are usually in the process, like Ali just pointed out of bringing in three or four more on. So, we tend to cover that fairly nicely in terms of once we roll against those year-over-year comps.

Got you. Okay. And then just going back to the ReachLocal. The -- and correct me if I'm wrong, but at one point the strategy of ReachLocal was to concentrate on higher margin account -- accounts and you were focused on margins and now it seems like you are pressing the accelerator on the revenue. In my -- did I get that wrong or -- because I'm just curious?

So Mike, you got it right in that. We wanted to diversify the products that we were selling because when we first acquired ReachLocal, we were in that -- going back a few years now, but I think it was in the 1.2 to 1.5 products per client, we are now over two. And as we’ve been able to upgrade -- not upgrade, but train and lift the sales staff outside of the -- in the local markets, they are starting to emulate what we saw ReachLocal, which is selling more products and we are also very proud of the fact that as we are acquiring these new clients because of that, we are holding our average revenue per client as well pretty steady right now at over a couple thousand dollars -- about $2,000 a client. So we are not all of a sudden seeing in our ARPUs split because we are bringing a bunch of clients who are at the lower end of the spend. And so right now, we feel once we achieve that annual margin in that 10% to 12% range for ReachLocal that we’ve really supported Kevin's plan to add additional sales resources. I made reference to the specialist that we hired. That’s already paying off because we are able to go in the market and double team the clients with that local knowledge and local relationship and then bring somebody in who can really speak to the needs of that client and help them. As you know, local businesses are going through multiple exchanges and sales calls with different clients or different vendors. It's very complicated and even more they just don't have of the time. So we are really starting to show that LOCALiQ is resonating. Kevin and his team are also doing seminars in local markets that are being very well received by those businesses who are coming to these and learning how we can handle kind of a full A to Z suite of products for them. I'm going to let Kris Barton, our Chief Product Officer, just take a minute or two and kind of speak to some of the things they’re doing on the product side that’s helping Kevin's team sell this full suite. Kris?

Yes, so as we diversified our portfolio, a couple of things that we are focused on are on the products themselves continuing to leverage the large datasets that we have combined with Gannett and [indiscernible] to really get more prescriptive recommendations on how we should be selling to our clients. And so hopefully what that translates to is we can -- in a matter of minutes we can grade a client, give them a score, and then recommend a set of offerings and respective budgets to them to really sort of simplify that entire process. And again that’s sort of leveraging all the data and the work we’ve done to expand our portfolio to make it simpler in that go-to-market. And so that’s -- we are continuing to optimize that toolset and really focusing on the operational side of getting that honed in with the sales leadership teams.

And then I think, Kevin, if you could just real quick. One of the keys we started these inside call centers to bring those lower spend clients. There was a lot of churn last year, we knew we would experience that. Now we are seeing that they're really starting to get traction. So why don't you just briefly speak to what you are seeing in terms of churn improvement there, sales performance etcetera?

Yes. The vision behind standing out the inside sales call centers and we located them in three geographic regions has been to move a significant segment of our lower spending clients so that they could be treated in a bespoke manner by call centers who are able to build best practices, able to help these types of local clients propel into a digital future as it's been a print heavy category for us and ultimately to start to grow the number of clients for the breadth of our business. And as we’ve gone through this transition, Q1 was actually the first quarter that it was fully and completely in ready form to go-to-market and so we've seen dramatic improvement there and we have continued expectations of improvement as we get into Q2 and certainly the second half.

And then, Michael, the last thing I would say is we are very happy with WordStream. Kris Barton is managing, helping work with Howard to manage that operation and that is a higher margin business. So the combination of all that, we are very confident we can keep the pressure on growing the top line and maintaining the margin.

Lot of thanks for the added color. And in terms of WordStream, what type of growth rate would we expect with WordStream in terms of the revenues? And then maybe on the overall picture, just to kind of frame your thoughts given that you expect that the ReachLocal segment is expected to show better growth in subsequent quarters especially in the second half, if you can kind of maybe give us a frame of reference of what type of growth are we talking about; mid single-digits, high single-digits, double-digits? I mean can you give us an idea of what you are expecting?

Yes. Mike, this is Stacy. I think just a bit on WordStream, I'd say we are still cycling that in. That’s not in our same-store numbers at this point. But on a pro forma basis, that business is growing strong double-digit and I think we expect that to continue. So that will roll into our second half same-store numbers at ReachLocal, which will obviously help those growth rates as we go into the second half of the year. So, I think we should see more robust growth as we head into the second half of the year.

Got you. And just one final question. I know that you didn't buy stock in the quarter, but can you remind me what you have left on the share repurchase authorization?

It's like north of $100 million.

Okay. All right.

Thanks, Mike.

Okay that’s -- all right. Thank you so much. Appreciate it.

Thank you.

Thank you. And our next question comes from Alexia Quadrani with JPMorgan. Your line is open.

Hi. This is Anna Lizzul on for Alexia Quadrani. Thank you for the question. I think you touched on this earlier in the call, but looking at operating expenses in Q1, the cost of sales decreased about 10% year-over-year. We were wondering if you could talk more about how you see cost reduction continuing for the remainder of the year.

Yes, sure. Great. So, look, we are cycling some of the things that started in April of last year in the first quarter so we don't think in the second quarter we will see cost declines as large as the first quarter. We do think in the second quarter also if, as we expect, we will be hiring our new CEO. So the CEO transition cost will hit in the second quarter and a couple of other timing issues come through. And we expect some higher costs associated with our technology outsourcing project. So in the second quarter, we expect the same-store cost expenses to be down more in mid single digit as opposed to what we saw in the first quarter. But we do expect as always to see costs being down. We are very cognizant of the need to continue to be very cost conscious and we are always looking at different ways to manage our expenses and have -- are very focused on that as you can see and appreciate.

Great. Thanks so much. If I could ask the follow-up question, how much of the decline in the print advertising do you attribute to …

Hello. Lost you.

I'm sorry we lost you. Do we attribute to …?

How much of the decline in the print advertising do you attribute to the later Easter this year and also how much of a benefit are you expecting with the later Easter for print advertising in Q2?

Anymore Easter is sort of a wash, it's not …

It's not too much, yes.

… it's not a big lift like we used to see.

It's a little bit of an impact. It's nothing material.

All right. Great. Thank you so much and best of luck to you, Rob.

Thank you very much.

Thank you.

That’s all the questions we have. This concludes today’s program. Ladies and gentlemen, thank you for participating in today's conference. You may all disconnect. Everyone, have a great day.

Thank you, operator.