Gannett Co Inc (GCI) 2015 Q2 法說會逐字稿

Good morning. My name is Stephanie and I will be your conference operator today. At this time I would like to welcome everyone to the New Media second-quarter earnings conference call. (Operator Instructions). I would now like to turn the call over to Ms. [Sara Yakin], Investor Relations. You may begin.

Thank you, Stephanie, and good morning everyone. I would like to welcome you to New Media second-quarter 2015 earnings call. Joining us today are Mike Reed, New Media CEO and President; Greg Freiberg, our CFO; and Kirk Davis, COO of New Media.

I would like to call your attention to the earnings supplement that was posted to New Media's website this morning. If you have not already done so, I would suggest that you download it now.

Briefly before we begin, please let me remind you that statements made today are not historical facts and may be forward-looking statements. These statements by their nature are uncertain and may differ materially from actual results. We encourage you to read the forward-looking statements disclaimer in the presentation as well as the risk factors described in New Media's filings made with the SEC.

Lastly, I would like to remind you that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase any interest in New Media. The webcast and audio cast is copyrighted material of New Media and may not be duplicated, reproduced or rebroadcast without our consent.

With that I would like to turn the call over to Mike.

Thank you, Sara. Good morning everyone and thanks for listening in to New Media's second-quarter earnings call.

Q2 was another strong quarter for the Company with robust financial results, continued execution on our acquisition strategy and strong cash flow generation. As Sara mentioned, we did post a supplement to our website this morning and we will reference that throughout the call today.

Turning to page 2 of the presentation, I would like to start with a quick overview of New Media, who we are, our scale and our strategy.

New Media is a leader in the large and fragmented local newspaper industry and in fact the largest owner of daily newspapers in the country. Each of our print publications is also accompanied by a strong digital presence. We own, operate and acquire local media properties that are the dominant source of comprehensive, high-quality local news in the small to midsize towns we serve.

New Media has over 575 community publications including 125 daily newspapers that are located in over 490 markets across the 32 states in the country. Of our daily newspapers, nearly 50% are located in small communities with populations of 35,000 or less and most all of these publications have been published for more than 100 years. Our core newspaper business generates significant recurring cash flow and as we grow our business and as we distribute a significant portion of the free cash flow to our shareholders with a dividend, we believe we will continue to create a very compelling overall return for our shareholders.

In addition to our traditional print and digital assets, we also have an exciting and fast-growing digital marketing services business called Propel that helps small and medium-sized businesses build a presence, get found and engage with customers online.

We believe New Media is uniquely positioned to partner with local businesses given our strong local media brands, our physical local presence, Propel's full product suite, dedicated client services and experienced digital staff and we believe Propel's performance thus far really supports this thesis. Propel is the fastest-growing segment of our Company and importantly as Propel continues to scale, we believe the business is positioned to become a major part of New Media's future organic growth.

Finally, our acquisition strategy which I will talk about in more detail later is driving tremendous growth for the Company with over $585 million of deals announced and closed since inception and a robust pipeline of future tuck-in acquisitions we believe New Media is well-positioned to continue to consolidate the fragmented newspapers sector given our operating strategy, size, scale and our unique centralized services platform.

Since becoming a public Company in February 2014, New Media's business model for creating shareholder value has been simple and consistent and we have executed on all facets of that strategy. We intend to generate substantial value for our shareholders by completing accretive acquisitions, by investing in print and digital initiatives that will drive long-term organic growth and by returning a healthy portion of our strong cash flows to shareholders with a dividend.

Our newspaper businesses produce strong cash flows and healthy profit margins. While accretive tuck-in acquisitions have been driving near-term growth for the Company, we see these acquisitions as a bridge to true organic growth in our Company within the next two years driven by our strong and comprehensive digital products and initiatives which we will talk about in more detail on the call today.

Now let's turn to page 3 for an overview of what we have accomplished during the second quarter. New Media generated total revenues of $299.5 million, up 89% versus prior year and on a same-store basis down 3.5%. Digital revenue continues to be our strongest growth driver totaling $27 million in the quarter, up 10.7% on a same-store basis. And Propel, our fastest-growing business segment within the digital category, was up an impressive 75.8% versus last year and more than 36% sequentially from Q1.

We believe our strong financial results reflect the investments we are making in accretive acquisitions as well as our print and digital initiatives. It also supports our view that smaller local market newspapers remain very relevant to consumers as they provide comprehensive and unique local content to each of their respective communities.

Despite pressure on our local print advertising and preprint revenue categories, we did a great job managing costs and realizing synergies from our acquisitions which led to as adjusted EBITDA of $42.4 million, up 74.5% versus the prior year and importantly, free cash flow of $33.2 million or $0.74 per basic share. That $0.74 was up 14.3% to prior year despite approximately 50% more shares outstanding in Q2 this year than Q2 last year. This is a real demonstration of the growth we are generating for shareholders with our accretive acquisitions.

I am also pleased to announce that New Media's Board of Directors has authorized a second-quarter dividend of $0.33 per share or when annualized, $1.32 per share. This is 22% higher than Q2 last year. Given the accretive nature of our acquisitions and the large amount of synergies we are extracting from those acquisitions, we remain confident in our ability to continue to grow free cash flow and our dividend despite low single-digit revenue declines.

In addition to our strong Q2 financial results, we were also very excited to close on the Columbus Dispatch which we closed in June with a purchase price of $47 million or 4.2 times LTM EBITDA adjusted for corporate and family expenses that we did not assume with the transaction.

A family owned daily newspaper first published in 1871, is the long-standing flagship daily newspaper serving the Columbus, Ohio area. Including real estate acquired with the deal and our estimated net synergies, the purchase price multiple drops to a whopping 1.3 times LTM EBITDA, an incredible investment for the Company.

To fund the Columbus Dispatch acquisition, we used cash from the balance sheet and increase our term loan by $25 million. This highlights our ability to continue to execute on our acquisition strategy using cash generated by the Company and our target leverage.

Looking ahead to the second half of the year, New Media is on track to generate free cash flow of $55 million to $60 million after dividends. Assuming we also use 2 times leverage, New Media could do approximately $120 million in acquisitions and could potentially increase pro forma free cash flow per share by approximately another $0.50 or 15% from our current June 28 pro forma run rate of $3.24 per share.

Right now the Company has approximately $397 million of term and revolver debt outstanding and based on our pro forma EBITDA, our gross leverage stands at just 2.1 times, in line with our target for leverage.

Now let's take a moment to review the Columbus Dispatch acquisition in a little more detail and for that I'm going to turn to page 4 of the supplement.

The Columbus Dispatch, a family-owned daily newspaper first published in 1871 is the long-standing flagship daily newspaper serving the Columbus, Ohio area. In addition to the daily newspaper, New Media also acquired 25 weekly newspapers and seven magazines. This acquisition was attractive to us for a number of reasons. First, it is the long-standing sole daily newspaper in the market with a solid readership base and strong penetration rates.

Second, the demographics of Columbus, Ohio were attractive given it is the state capital, a large university town and home to several Fortune 500 companies. Third, its revenue mix was appealing given 40% of total revenues now come from subscription income. Finally, the paper can benefit from New Media's digital platforms, especially Propel, as well as it centralized service functions and our buying power.

The deal was announced in early June and closed shortly thereafter on June 15th, highlighting our ability to both quickly execute on our strategy and fund attractive opportunities when they present themselves. Pro forma for this acquisition, New Media now reaches over 22 million people on a weekly basis across the country and we serve over 215,000 small- and medium-size businesses. This growth we believe will positively impact our entire business.

Given the tremendous growth we have generated through our acquisition strategy, we thought it would be useful to walk through what the company looks like today pro forma for our acquisitions to date. And for that I am going to turn to page 5 of the supplement.

Before getting into the numbers just to refresh, our business opportunity which we believe will create tremendous value for our shareholders over time can be summarized in three parts. One, we aim to grow our revenue and cash flows organically through our digital initiatives and consumer subscription products. Two, we are value-oriented buyers and will make accretive and strategic acquisitions to create inorganic growth. And three, we will return cash to shareholders in the form of a dividend supported by our strong cash flows, healthy margins and a very reasonable payout ratio.

As shown on this slide, New Media's pro forma revenue as adjusted EBITDA and free cash flow have benefited from our strategy growing to over $1.3 billion, $185 million and $144 million respectively.

And to note since tuck-in acquisitions are not added in the LTM periods during the months the Company did not own them, these numbers do not reflect the full benefit of owning the tuck-ins for the full LTM period. So in other words, the numbers are all slightly higher when considering tuck-in acquisitions.

The blue shaded area of each column represents New Media's actual results for the last 12 months, these tie to our reported financial statements.

The green shaded area of each column adjusts for material acquisitions in this case the Providence Journal, Halifax Media, Stephens Media and the Columbus dispatch specifically. The totals reflect annualized numbers as if we had owned these assets during the entire LTM period.

While New Media is focused on paying shareholders a healthy portion of our free cash flow with a dividend, the chart on the bottom right-hand side of this slide clearly illustrates that the dividend is more than covered even with mid single-digit topline declines especially when considering all the synergies that will enhance our cash flows. We have very, very adequate coverage. We remain committed to increasing our dividend as the Company continues to grow organically or inorganically through acquisitions and we intend to keep the payout ratios at levels where the dividend is not at risk of being cut or lowered.

Now let's review our trends on a same-store basis and those trends excluding tuck-in acquisitions and for that I'm going to turn to page 6 of the supplement.

For the last 12 months excluding tuck-in acquisitions, total revenues for the Company decreased 4.1%. However, revenue for publications we have owned for over one year performed better, decreasing 3.2%. We believe highlighting the improvement that is due to the Company having time to execute on its operational strategy with those particular businesses. We are pleased that most of our businesses we have owned for more than one year have better revenue trends than the papers we recently acquired and better revenue trends than most of the industry at large.

Further, we expect our revenue trends to improve gradually moving towards flat within the next two years. In the meantime, we believe we can shield our cash flows from topline declines through measured expense reductions in our acquired properties and we remain very confident in our ability to grow free cash flow in our dividend.

Near-term in order to maintain flat same-store revenue trends, we believe New Media needs to complete approximately $20 million to $40 million of tuck-in acquisitions per year which can very easily be funded with internally generated cash. Now this assumes a 3% to 5% decline in revenues which is in line with the revenue declines we have seen over the past 12 months.

We believe this level of acquisition activity is highly achievable given the Company generated approximately $85 million of pro forma free cash flow after dividends during the Q2 2015 LTM period and given our proven track record of successfully identifying and acquiring local media assets. Of course as the rate of revenue decline improves, the volume of tuck-in acquisitions needed to remain flat will decline.

While accretive acquisitions are driving the Company's growth near-term, we believe New Media's maturing digital initiatives will lead to long-term organic growth.

Now what I would like to do is take a few minutes to review some key valuation metrics for the Company and to do that I'm going to reference page 7 of the supplement.

When considering our strong cash flows, improving margins and our accretive acquisition strategy in combination with our modest leverage and growing dividend, we believe there is substantial upside to our equity.

New Media's current dividend yield is well above our publishing peers whose average dividend yield is 4.7% despite New Media posting better revenue trends than many of our peers and having demonstrated a proven path to overall growth through accretive acquisitions. We believe the free cash flow growth we have generated with acquisitions, the stability we have demonstrated we can achieve with our as adjusted EBITDA and free cash flow through synergies and measured cost reductions, and the prospects of a growing dividend evidenced by our 22% increase to the dividend this year will lead our equity to trade at a dividend yield more in line with our peers which we believe could lead to a very healthy increase in our share price.

You can see some illustrative examples in the chart on the right-hand side of page 7 of where share price could go based on certain dividend yields.

Now I would like to turn to page 8 of the supplement and discuss our evolving digital strategy and Propel in a little more detail. We see three primary drivers of future digital revenue growth. First, we intend to grow our more traditional online business through our audience extension, behavioral targeted products and transaction type products such as listings and obituaries.

Second, we believe Propel's offering of services to small- and medium-size businesses will be a major digital growth driver for our Company. Finally, we continue to target acquisitions that have under-managed the online opportunity and present nice upside for digital.

Propel, our full suite digital marketing services business, is the most exciting growth opportunity we have today. First launched in 2012, Propel helps small and medium-sized businesses navigate the complex digital sector and better positions them for success. While getting online is a key to a thriving business, small business owners don't have the time, the resource or the expertise to figure out a complex digital marketing strategy and importantly they want to turn to someone local to help them, someone they know and someone they trust.

Propel, combined with our local media properties, is the ideal solution for providing a variety of products and services from a trusted local source to help these businesses build a presence online, get found online, grow their customer base and engage with both current and potential future customers.

Q2 was another solid quarter for Propel with revenue of $7.8 million, an increase of 75.8% versus the prior year and sequentially from Q1, Propel increased revenue by 36.9% helped by a pickup in a few key products, specifically direct email, SEM, on target display and add enhance.

Total contract sales in the quarter were $9.8 million, an increase of 56% versus last year. Contract sales are a great leading indicator for future revenue performance as they represent services that were actually sold in the quarter but have not yet been fulfilled and subsequently not booked yet as revenue.

Additionally, our quarterly active customers continue to grow and in Q2 we ended with 6400 customers, an 18.4% increase versus the prior year. Importantly too, 50% of those customers were buying very annuity like products.

As mentioned on previous earnings calls, we believe New Media's ability to leverage its powerful local brands and large end market local salesforce are critical strategic advantages for Propel. Though Propel currently makes up only 3% of total revenues today, don't forget that was zero just a couple of years ago, we believe this business has the potential to become a significant revenue stream for New Media as we expand our product offerings, further utilize our sales force to penetrate our current markets and enter new markets through acquisitions and through partnerships.

In addition to the growth we have seen in our digital revenue category, we have also generated very compelling growth and we have seen great value creation from our acquisition strategy. For an overview of the acquisitions we have closed to date, I am going to turn to page 9 of the supplement.

As we have mentioned on previous calls, we believe the addressable market for newspaper acquisitions in the US is quite large and very fragmented. In fact, we estimate the entire market is worth approximately $26 billion and is made up of approximately 1380 daily newspapers and 350 different owners.

When analyzing potential acquisition targets, we look at a variety of factors. However, all of our acquisitions must meet certain criteria, some of that includes: must be the dominant provider of local news in the community the business serves; must have a meaningful upside opportunity for digital revenue growth through Propel and are other digital products; and the acquisition must be able to deliver unlevered yields of more than 20% and levered cash yields of at least 20% to 30%.

Since inception, we have closed nine transactions valued at over $585 million bringing us closer to achieving our initial goal of acquiring $1 billion of local media assets by the end of 2016.

It is important to note that to fund these acquisitions we have predominantly used cash on our balance sheet and incremental debt on our term loan. Only for our two biggest deals, Halifax and Stephens, both of which closed in Q1 of this year, did we have to raise additional equity to fund those transactions.

We believe the demonstrated growth we have seen from the execution of our acquisition strategy is unique to New Media's business model and differentiates us from most of our peers. We believe this part of our strategy continues to drive tremendous value for our shareholders, both in the near- and long-term.

Now what I thought would be nice to do is to look at the return on investment for our acquisitions to date because it is very compelling and worth sharing. To do that I'm going to turn to page 10 of the supplement.

To date, the nine completed transactions have been done at an average of 4.1 times the sellers' LTM as adjusted EBITDA, or at unlevered and levered yields of 23% and 31%, respectively and importantly above our targeted return thresholds. Our track record highlights our ability to execute on our acquisition strategy well within our targeted range of 3.5 times to 4.5 times LTM EBITDA and that is before factoring in the value of the acquired real estate with each transaction and the estimated cost synergies with each acquisition.

After approximately $40 million of estimated net cost synergies from our acquisitions, our average multiple drops to 3.2 times as you can see on the chart on page 10. And very importantly, our unlevered and levered yields increase to approximately 29% and 41% respectively. Extremely compelling.

Despite the topline declines newspapers experience right now, these assets continue to provide an incredible return on investment. Even assuming a 30% decline in topline revenue, levered returns for these acquisitions we have done -- that we have completed thus far would still be above 20%.

As the newspaper industry continues to evolve, we believe providing newspapers with high-quality centralized services and products that they could not afford on their own as a standalone business and executing on a robust digital strategy will help drive long-term organic growth. With the changing environment this sector faces, we believe scale really matters in order to achieve above industry average results.

Now let's take a look at EBITDA performance for the very first acquisition we did nearly two years ago, Local Media Group. I'm going to turn to page 11 of the supplement.

Local Media Group was the first deal we did back in September of 2013 and we acquired that asset for 3.4 times LTM EBITDA. It was the first deal we did and we now have nearly two years of history. The acquisition consisted of 33 high-quality local publications that have been the dominant and trusted providers of local news in their respective communities for over 75 years. Because these assets were a non-core business for the seller, we saw tremendous opportunity for improvement. Digital revenues were more than 50% below industry norms and expenses had only been reduced by 6% from 2010 to 2013 leading to a 40% EBITDA decline in this group of papers over that same period of time.

Since acquiring the group, we have executed on cost synergies, we have centralized core functions, we have leveraged New Media scale to reduce cost for materials, we have introduced Propel, and we have strategically raised subscription prices based on data driven methodologies. The actions we have taken did not only mitigate the declines the business had been seeing in EBITDA but they also reversed that trend and helped drive growth. EBITDA is up more than 39% since we made that acquisition and is higher today than it was all the way back to 2012.

With New Media on track to generate approximately $60 million of free cash flow after dividends during the second half of the year and using some leverage with that, we can make acquisitions like this one that we think can generate approximately another $0.50 of free cash flow per share which we believe will be an incredible investment for our shareholders.

Looking ahead, our pipeline for future tuck-in acquisitions remains robust and we continue to believe New Media is best positioned to continue to consolidate the fragmented newspaper sector given our size, scale and unique centralized services platform.

We continued to see opportunities for further investment and will remain disciplined when analyzing future acquisition targets.

Now what I would like to do is turn the call over to Greg, our CFO, for a detailed look at our financial results for the second quarter. Greg?

Thank you, Mike, and good morning, everyone. I am on page 13 of the supplement.

Total revenue for the quarter was $299.5 million, an increase of 89% to prior year on a reported basis and a decrease of 3.5% on a same-store basis. Clearly acquisitions have driven the 89% as reported growth but we also have some good underlying trends in certain areas and categories. Excluding the benefit of tuck-ins, revenue was down 5.3% to prior year. However, revenue for publications we have owned for over one year performed much better, decreasing 3.9%, highlighting the improvement we see once the company has time to implement its strategy.

Digital revenue was a very strong category growing 10.7% on a same-store basis to $27 million with Propel contributing $7.8 million which was up $3.4 million or 75.8% to the prior year.

Traditional print revenue declined 7.1% on a same-store basis to $155.8 million impacted by continued pressure on local display which declined 7.9% and preprint, which declined 11.2%. Preprints were weaker in the quarter versus past quarters driven by several major retailers decreasing their volume and multiple retail store closures in our markets, a trend that has been seen across the industry this year.

Classified print decreased 2% on a same-store basis. However, obituaries revenue, a subcategory of classified print, continues to be a strong category for the Company increasing over 8% in the quarter.

Subscription revenue, our largest revenue category at approximately 31% of total revenues, continues to be a stable category for the Company and was up 0.4% on a same-store basis. Commercial printing declined by 6.9% to the prior year. However, nearly half of the decline in this category was self-inflicted. The biggest driver for this came from our acquisitions of newspapers that were formally commercial printing customers and so what used to be considered third-party revenue is now intercompany and therefore eliminated in consolidation.

Operating income was $19.5 million and that was up 164.4% to prior year. Net income was $11.2 million in the quarter, a tremendous improvement versus a net loss of $3.3 million in Q2 last year.

As adjusted EBITDA was $42.4 million in the quarter, an increase of 74.5% to prior year on a reported basis. Free cash flow was $33.2 million, an increase of 69.4% versus prior year representing an impressive 78% cash conversion rate of EBITDA to free cash flow. Free cash flow per basic share was $0.74, a $0.09 increase despite an additional 14.7 million shares in the quarter.

As a result of these strong cash flows and as Mike noted earlier, we were pleased our Board authorized a dividend of $0.33 per share which is 22% higher than Q2 last year.

During the quarter, we raised $25 million of new debt by upsizing our term loan to fund the acquisition of the Columbus Dispatch. Current term loan debt now stands at $350.1 million, $29 million is currently drawn from our revolver, and we have an additional $18 million of assumed debt from the Halifax acquisition.

We ended the quarter with $12.7 million of cash on the balance sheet and $11 million of availability under our revolver.

Gross and net leverage against our pro forma as adjusted EBITDA is 2.1 times, right at our long-term target leverage level.

Turning to page 14, I would like to review our tax assets which shield New Media from becoming a significant income tax payer for the foreseeable future due to our tax assets.

As of June 28, our total tax basis is $1.09 billion and we expect total tax depreciation and amortization of $130 million in 2015. Between 2016 to 2019, we expect depreciation and amortization of approximately $485 million, decelerating annually. These amounts do not reflect additional tax basis we would get from future acquisitions as well as future capital expenditures.

In addition, New Media has approximately $203 million in net operating losses available. $149 million is subject to IRC 382 limitations which limits us to using a maximum of $17 million annually. $54 million is unrestricted and available for immediate use if necessary.

And the chart on the bottom right of this slide illustrates the way we think about utilizing the tax assets. The first $130 million of taxable income is shielded by tax basis depreciation. Then we would utilize the restricted NOLs and then finally, the unrestricted NOLs. And we think there is a pretty compelling value for shareholders here in our tax assets and that is not reflected in the share price.

I am now turning to page 15. This is also a slide to help investors understand the sizable and valuable real estate portfolio that we have within New Media. There are nearly 160 individual properties located across the US valued at $175 million to $200 million. The top properties represent of about 80% of our total real estate value and they are listed on the right side of this slide. These properties are currently being used for our operations, there is a mix of office space and production buildings and most are centrally located in downtown areas of their respective communities.

We are studying our options to potentially better monetize or create value from the assets and we will report back to shareholders when we have that update.

I want to reiterate that New Media remains focused on maintaining gross leverage at about 2.0 times.

In summary, this was a strong quarter. Free cash flow per basic share growing from $0.65 to $0.74 per share is a powerful achievement and that is against 14.7 million higher share count this year. It speaks to the highly accretive nature of our acquisitions. We continue to make investments leading toward stabilizing topline performance and we continue to have strong cash flow performance while maintaining a modest amount of leverage.

Stephanie, we would now like to open the call up for questions.

(Operator Instructions). Jason Bazinet, Citi.

Thanks so much. I though the most interesting thing -- and there were a lot of interesting things you said today -- but the most interesting thing in the release was moving your revenues towards a flattish number gradually over the next two years. And I just had two questions as it relates to that.

Is that number, that sort of flattish number akin to the down 3.5 that you reported in the quarter, sort of the same-store number? Second, as I look at the construct that you guys laid out a year ago or more regarding the buckets that are called stable or growing revenues versus declining revenues, it seemed like in the last year or so you haven't made as much progress moving that mix.

So is there a way you can help us sort of bridge the gap if you will between the aspiration to get to flat versus the near-term revenue mix trends given --in those categories? Thanks.

Yes, thank you, Jason. First part of your question, the answer is no, it is not akin to the same-store growth that would be down 3.5% in the second quarter as that does include tuck-in acquisitions. We noted in my part of the remarks that if we do $20 million to $40 million of tuck-in acquisitions over the next several years or next couple of years that would allow us to maintain flat same-store revenues. The revenue growth that we have laid out here that we can achieve in the next couple of years is the most apples to apples. The businesses that we own, we see toplines growing and it is based on what we are seeing inside the Company in terms of where the revenues are coming from, what the makeup looks like and where our growth opportunities lie.

So the answer to your question is it is the most apples to apples you can get, we see us crossing that threshold in 2017 and having organic revenue growth in our Company.

Second part of your question, Jason, the reason it looks that way with the diversification of where the revenues come from is because we have done such a large number of acquisitions this year and in particular in Q1, the large number of acquisitions we did, they are not quite to the same place that New Media is today and so as we operate those papers over the next year, you will see them get there and then you will see our picture improve for the papers we have owned for more than a year.

Got it. Very helpful. Thank you.

Jim Goss, Barrington Research.

Thanks. I have several. One is that to the extent that 60% of your revenue base is advertising which remains under pressure, I wondered how you combat that? Is there any topline solution or is it entirely within cost controls? Or to the extent that I think you mentioned pre-print pressures were some of what was driving the decline that there might be a lessening of that pressure as that runs its course?

Actually only 52% of our revenue is advertising, not 60%. Nearly 40% is digital circulation and commercial services and within digital, that number is rapidly becoming services, not advertising. So it is actually about 52% that is traditional print advertising and that includes pre-print. So nearly half of the business, 48% is stable or growing versus the 52% that is declining a bit.

So as we continue to grow the 48%, that growth is what will lead to our organic revenue growth within the next two years. We are also seeing some stability in some of the print advertising categories particularly in some of the classified categories which helps us feel better about our target timeframe for when we will create real organic growth.

Now the preprints, there is a little bit of softness in Q2 in preprints. In fact on the most apples-to-apples basis you can get, we were about 110 basis points weaker total revenues in Q2 from a trend perspective than we were in Q1 in fact what we were for the LTM period. And that 110 basis point swing is entirely due to preprints.

However, we didn't lose any pre-print customers. There was some dark time taken, some frequency reductions in an effort to save some money by some of our retailers. And then there were also some store closings. I'm sure many of you have read about over 3500 retail stores have been closed across the country this year. Of course RadioShack filed for bankruptcy. So a few store closures impacted us.

But I think what is really important to note about the preprint story is while we saw some weakness in Q2 of our preprint customers, we didn't lose them, they are still with us and we expect good schedules, strong schedules from August through December.

And with regard to the Columbus acquisition, clearly that is a home run on various measures. But what I was wondering is does that take you out of your theme of small markets and does it get you into a more competitive area where just sort of maintaining that growth within that market gets to be more of a challenge?

And sort of as a corollary, Gannett that indicated that their sweet spot tends to be markets of 0.5 million to 3 million people. So it would sort of draw a line between where New Media has been focusing its attention and Gannett seems to be wanting to focus its attention. And I wonder if that sort of crosses over into an area that isn't what your primary acquisition target market looks like?

Thanks, Jim. A lot of questions in there but I guess I would start with Columbus doesn't cross us over. What I talked about in my remarks and what we've said on many previous earnings calls is that we look for dominant local newspapers with high penetration rates that are providers of local news to a community. And Columbus happened to fit that bill exactly. So there may be another market in the country the same size as Columbus that we wouldn't buy but Columbus fit really well.

In addition to that, we loved the history of the paper, the family ownership of the paper and quite frankly, we actually just loved the market, the state capital, large university, home to a lot of Fortune 500 companies and it is a very growth-y market and one where we have lots of upside we can create with our own business strategies but then there's lots of upside just from the market itself.

So it didn't cross us over into any new territory. I also mentioned in my remarks that 50% of our daily newspapers are located in markets with population of less than 35,000. So we are still predominantly a small to midsized market, daily newspaper company. Columbus fits into the larger end of our midsized market profile and actually it is not that much different than Las Vegas Daily circulation. As a matter of fact, it is about the same in Las Vegas as it is in Columbus although Columbus has a higher Sunday circulation.

As far as Gannett's acquisition strategy, I don't know -- obviously I don't know exactly what their strategy is. I did see them state 500,000 to 3 million. Our primary focus is actually below that. So we don't view the fact that we acquired Columbus as an indicator that we will be bumping up or trying to acquire the same properties as Gannett. Our focus is primarily on smaller markets so if Gannett's focus is on larger markets, that is great for us because we are focused on smaller markets.

That was my point with Gannett. It seemed like it was drawing a little bit more of a bright line between where you were headed and where they were headed but I did wonder about Columbus from that aspect.

My last question for now would be in terms of Propel to the extent that it is still mostly on the come and it is in development, could you look say a market like Columbus versus the smaller markets in terms of the ability of the clients to pay the willingness and the competitive environments with other such businesses as you might draw distinction in the various types of markets or submarkets you are operating within?

There is not much of a difference in terms of competition. Our real differentiator is our local presence and that allows us to be the primary seller of Propel Digital Marketing Services in each of the markets we serve irrespective of the size of the market.

What markets like Columbus actually do though is give us more near-term upside for Propel because the propensity to spend and the number of businesses in the market that might spend a little more are greater than a market like Columbus than in a very small market.

So our near-term upside for Propel over the next one, two, three years is greater when we are in markets like Columbus and then as the very small markets as digital starts to penetrate those at a higher level and services become more relevant in small markets, we will see bigger opportunities there. Columbus is actually great for Propel and as I said, our real differentiator in terms of being able to sell these products is the local presence we have.

All right. Thanks, Mike.

I would now like to turn the call back over to Mike Reed, the CEO of New Media for closing remarks.

Thank you. Before we hang up, I would like to just close the call with a few thoughts.

New Media remains committed to creating substantial value for our shareholders. Our message and our strategy remains consistent. We will use our free cash flow to complete accretive acquisitions, to invest in print and digital initiatives that drive long-term growth, and to return a healthy portion of our free cash flow to shareholders through a quarterly dividend.

As the Company has grown through acquisitions, New Media has raised its dividend twice or 22% while also lowering its payout ratio. And looking ahead, we continue to believe our position as a leading source of local news in the markets we serve combined with our strategic investments and acquisitions will lead to substantial value creation for our shareholders.

Our portfolio of local media businesses is one of the best in the country. Our revenue and cash flow trends consistently outpace those of most in our industry. We have a path to organic growth over the next two years. In the near-term, we can bridge to that organic growth with accretive acquisitions funded with our own cash flows. We can also preserve cash flow with cost reductions from synergies from all the acquisitions we have done. While our dividend is strong, it is not at risk given our lower payout ratio combined with our free cash flow growth opportunities.

We thank you for your interest in New Media. Thank you for your time on the call this morning and we look forward to updating you again on our progress at the end of the third quarter. Thank you. Operator, you can now disconnect.

Thank you. This concludes today's conference call. You may now disconnect.