Gannett Co Inc (GCI) 2017 Q4 法說會逐字稿

Good morning. My name is Jeffrey, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the New Media fourth quarter earnings call. (Operator Instructions)

Ashley Higgins, Investor Relations for New Media Investment Group, you may begin your conference.

Great. Thank you. Good morning, everyone. I'd like to welcome you today to New Media's Fourth Quarter and Full Year 2017 Earnings Call. Joining us today are Mike Reed, New Media's CEO and President; Greg Freiberg, our CFO; Kirk Davis, COO of New Media; and Peter Newton, Chief Revenue Officer of GateHouse Media. I'd 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.

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. In addition, we will be discussing some non-GAAP financial measures during the call today, and the reconciliations of those measures to the most directly comparable GAAP measures can be found in the earnings supplement. Lastly, I would like to remind you that nothing on this call constitutes an offer to sell or 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 rebroadcasted without our consent.

With that, I'd like to turn the call over to Mike.

Thanks, Ashley, and good morning, everyone. Thanks for taking the time to listen to our report this morning.

I'd like to start with a few highlights this morning to kick things off. We are very pleased with the progress we have made, since we last spoke to you about 4 months ago. We've been doing well on all facets of our business strategy. Our fourth quarter revenues came in better than forecasted, and importantly, our same-store revenue trend improved from the third quarter. Additionally, through the first 2 months of the first quarter of this year, we have seen further improvement to that trend.

The revenue strength is being driven by all of the business segments we have been investing in over the past few years. And we'll spend some time reviewing those in more detail this morning.

We also had very good cost controls in place in the fourth quarter, which resulted in better-than-forecasted EBITDA and free cash flow. We expect those strong cost measures to carry into 2018, and of course, we continue to look for more efficiencies.

As you know, we closed a significant acquisition in the fourth quarter, our acquisition of the Morris Newspapers. We are pleased with how that integration is going, and so far that is exceeding our expectations as well. And we expect that deal will have a strong positive impact on our overall results in 2018.

Our acquisition pipeline is as strong right now as it ever has been. We announced a couple of deals this morning, which we are very excited about and we will discuss those in more detail in a few minutes. Additionally though, we expect to announce several more transactions in the next 60 to 90 days.

Our UpCurve business performed well again in the fourth quarter, growing by nearly 32% over the prior year and over 16% sequentially from the third quarter of this year -- of 2017. We'll spend some more time on UpCurve this morning as well.

We closed on an additional $50 million in term debt a couple of weeks ago. That was part of the accordion feature of our existing credit facility. Combining that with -- combining that capital raise with liquidity on hand at the end of 2017, gives us approximately $130 million that can be deployed towards accretive acquisitions.

So we're very pleased with fourth quarter results and how 2018 has started and equally pleased with the prospects for all of 2018, as we look at current performance combined with our deal pipeline.

We also announced this morning that our board approved a Q4 dividend of $0.37 per share for the quarter, which annualizes to $1.48 per year.

Now for those on the call this morning, who may be new to our story, I'd like to take the next few slides and few minutes of the call to review who we are, what our business philosophy is, the investment thesis we see for our shareholders and importantly, how we have executed against this strategy.

So I'm going to turn to Page 3 of the supplement. New Media operates in a very large number of small to midsize communities across the country. In fact, we are the largest owner of small-market media businesses in the U.S. as measured by the number of daily newspapers. We focus on small to midsize communities in order to have a more robust business opportunity in a less competitive environment. Most of our media properties are long-standing and dominant sources for local news and information. Our local brands are strong, and in many cases the most recognized local brand in the community it serves. We operate both a B2C business and a B2B business in each of our markets under each of these brands.

Our B2C business involves providing unique hyperlocal news and information to each of our respective communities. This content is valued and desired by the consumers living in those markets. And importantly, it is not commoditized content. Consumers are willing to pay for this comprehensive local news report. With that, we believe, gives our content business long-term viability and sustainability.

At the end of 2017, we had 1.9 million paid subscribers to our daily newspapers. Further, we had over 78,000 paying digital-only subscribers. Our reach is even greater than that as we reached 22 million per week through all of our print publications. And we currently have about 41 million monthly unique visitors through all of our digital platforms. So very expansive reach in terms of consumers.

Our content has won numerous awards at the local, state and national level, including a recent Pulitzer Prize.

Our B2C subscription revenues make up our single largest revenue category and, in 2017, represented 35.3% of our total revenue.

Our B2B business provides small to medium-sized businesses, or SMBs, as we call them, with a variety of advertising and service-oriented products, designed to help businesses grow their businesses as well as leverage technology and automation to operate in today's complicated and changing environment. We do business with over 215,000 SMBs in our markets today, and they have repeatedly told us of their preference to do business with local trusted partners that they can see, feel, touch and meet with, if needed.

Our long-standing and trusted local brands make us the ideal partner for these local businesses. This uniquely positions us to bring many products and services to these local businesses that help them grow, solve problems, become more efficient.

These products and services, we can bring them, stretch well beyond just advertising products. This was in fact the basis for New Media starting UpCurve back in 2012. Our UpCurve business has now grown to more than $70 million per year in sales and represents more than 5% of our total revenue. Importantly, this business continues to grow at a fast pace. And we believe, we have barely scratched the surface in terms of how big this business can be. We'll talk more about UpCurve in a few minutes.

Overall though, we have approximately 5 million SMBs in our markets today. And as mentioned, we are uniquely positioned to bring them a multitude of products and services that will help them operate, grow and become more efficient, leveraging the latest in technology and automation available.

Moving to Slide 4. Let's spend a minute on the investment thesis that we believe allows for significant shareholder value-creation opportunity. There are 3 primary drivers to our investment thesis. One, our business and assets generate significant and consistent cash flows. Two, we are committed to investing in both organic and inorganic growth opportunities. And three, we have a demonstrated and consistent commitment to returning capital to shareholders.

We are able to generate strong and consistent cash flows due to our long-standing local media portfolio, where most of our brands have been published for over 100 years, many for 200 years. In 2017, we generated $166.1 million in As Adjusted EBITDA and that's net of our investments into organic growth. And we were able to convert nearly 76% of this As Adjusted EBITDA into free cash flow, very high conversion rate. It's also worth noting that our As Adjusted EBITDA performance of $166 million does not include 6 months of Calkins and 9 months of Morris, since both of those deals were acquired during the year of 2017. Our internal estimates indicate that we would've added approximately $20 million in additional As Adjusted EBITDA had we owned them for the full period of 2017.

We have minimal CapEx requirements, generally only approximately 1% of revenues, and we are not a significant cash taxpayer, having over $220 million in NOLs to shield future taxable income. And Greg will spend some time this morning updating you on our NOLs.

We are committed to growing organically and inorganically, as can be seen from our track record of developing new revenue streams and new businesses, such as UpCurve and GateHouse Live, our events business as well as through our nearly $900 million in highly accretive acquisitions. We also continue to invest in partnerships that will drive future revenue and cash flows, such as the recently announced deals with TapOnIt, ZipRecruiter and Houzz.

Finally, we continue to leverage our local and regional printing and distribution capabilities to grow our commercial contracts from third parties in need of those very unique and specific services. As mentioned, New Media generates significant and growing cash flow today, and with all of the initiatives I just mentioned, we expect to see continued growth.

As part of our business strategy, we are focused on delivering a meaningful portion of that free cash flow back to shareholders through our dividend, but also recognize the value in a balanced capital allocation strategy, having utilized our share repurchase program when appropriate in 2017 as well as investing back into our business. Executing on these 3 guiding principles has led to the shareholder returns we have been able to create since our inception in February of 2014. Total returns for shareholders since inception have been 63.5%. Further, total returns for shareholders in 2017 were 13.8%.

I'd like to move to Slide 5 now to talk more about the specific execution of this business strategy. Since our spin, we have successfully executed on each of our 3 strategic principles. Our revenue base has diversified substantially with 44% of our 2017 revenues coming from traditional print as compared to 56% at the end of 2013. We've been able to achieve this through the growth of our new businesses, like UpCurve, which grew from $6.4 million in 2013 to $71.3 million this past year. And GateHouse Live, which grew from 0 to $15.7 million in revenue this past year. GateHouse Live having just been started in 2015. The growth from these areas has been combined with the continued declines we experienced in Print Advertising. We expect those print declines to continue. However, the point here is, we continue to be less exposed to the print category and more exposed to the relevant and stable and growing revenue categories that we've created. That gets us highly encouraged about our opportunities to grow revenues organically for many years to come.

We continue to complete strategic and highly accretive acquisitions, including the 2 anticipated deals we announced this morning. We will have done 24 local media acquisitions to date, with a total purchase price of over $890 million at an average multiple of 4x the sellers' LTM as Adjusted EBITDA. We are purchasing these assets at an average unlevered yield of 23% and an average levered yield of 28%. It's important to note that that's before the synergies that we are able to realize.

With our acquisitions, we get the benefit of both strong cash yields and further market expansion, which increases the growth opportunities we have for UpCurve and GateHouse Live. Lastly with regard to return of capital to shareholders, we declared our fourth quarter dividend this morning of $0.37 per share, which is in line with our track record of returning a meaningful portion of our cash flow back to investors, which we have demonstrated and executed on over the past 4 years. We continue to focus on all 3 facets of our strategy with the goal of creating very attractive returns for our shareholders in the near term and long term.

Further evidence of our strong and consistent cash flowing assets is shown on Slide 6, and let's turn there for a minute to take a look at the historical performance of revenue and EBITDA for the scorecard.

New Media revenue has grown, since our inception, at a 27% compounded annual growth rate, and As Adjusted EBITDA has grown at a 20% compounded annual growth rate. We do believe we can continue to grow at a rate similar to this slide going forward.

Turning to Slide 7. Let's talk more specifically about where our 2018 growth will come from. We will continue to invest in and focus on the areas of our business that are leading us on the path to achieve our goal of returning to organic top line revenue growth. The decline in traditional print revenue is not one that we will reverse, so our focus and investment continues to be in our new revenue streams that are intended to diversify us away from Print Advertising and help to set the stage for future steady organic growth.

GateHouse Live is our community-focused events business, which more than doubled its revenue to the prior year, achieving $15.7 million in 2017. We look forward to continuing to see strong growth from this business in 2018 and beyond. We are targeting 375 events in 2018, up from 235 held this past year. What is very encouraging to us is how strong the demand has been from our markets to host these events within their communities and importantly, how strong the communities' response has been to these events. We have developed several signature event concepts that we look forward to rolling out to more of our markets in addition to testing newly-created events, both the in-person and virtual formats. The concepts we create are ones that our communities are interested in bringing back year-after-year, such as Best of Preps, which celebrates high school athletes, and Best of the Best, which celebrates the best businesses and community partners in a market as voted on by its residents.

In 2018, we expect to see 35% to 45% revenue growth from our events business. We're very -- it's very encouraging to us that we see sponsors for our events renew at a rate of more than 90%. The testament to how valuable and successful these local events are being viewed.

Our UpCurve business continues to be our largest new revenue contributor, up 34.5% in 2017 to the prior year. I spoke before about the successes we are seeing in both our ThriveHive and UpCurve cloud business lines on previous calls. And we continue to strategically grow our talent footprint for these businesses and expanding around the country.

In 2017, we opened new offices in Denver and Austin. This gives us the opportunity to capitalize on the strong technology-focused talent in both markets with anchor specialists for our products throughout the country to help service our markets, and it establishes focused regional sales hubs. We have over 5 million SMBs in our markets, making this a tremendous business opportunity for New Media and one worth investing in.

Our scale allows us to offer an end-market sales and marketing presence, combined with a national top-quality product and support offering. In 2018, we expect this business to grow another 30% to 40% over its 2017 revenue performance.

Another business line, we have increased focus on and investment in is promotions, which brought in $13.2 million in 2017 and was up 42% to the prior year. Promotions are contents, contests and quizzes promoted in print, online and via social media that can be sponsored by several advertisers or customized for an individual advertiser. Promotions generate brand recognition for sponsors and also provide access to consumer data that can serve as a lead for further business engagement.

Though promotions were a staple in many of our markets previously, there was not consistent implementation across our national footprint and there remains a large opportunity for us to further expand our successful formats.

Our most successful is the balloting promotion that runs in conjunction with our Best of the Best GateHouse Live events. And this will double in terms of the number of markets it will run in this year.

In 2018 overall, we are anticipating another 20% to 30% in promotions revenue growth. In 2017, we closed nearly $15 million in new annualized commercial printing contracts. We have put the company on track to achieve 3% to 5% in organic same-store revenue growth over the next 12 months, which is a significant change to what has been a declining trend in this revenue category for us.

The decline in page count volumes from our commercial print customers has been what drives the average declining revenue trend because our customers are experiencing the same industry pressures to their print circulation. We have put a heightened and increased focus on our sales efforts to pursue third-party printing and distribution contracts in all of our sites, where we have facility capacity. And as a result to that effort, we secured the $15 million in contracts I just mentioned and we have a pipeline of $10 million in new annualized opportunities that we hope to close on in the next couple of months.

While there are limitations to the growth we can realize from this revenue category due to capacity, winning new customer contracts secures this revenue stream for the future and will keep it stable and allow for some small growth over the next several years, aiding our overall organic revenue growth story.

Consumer revenue is our largest single revenue category, which makes it crucial to our overall organic top line revenue growth prospects. We are committed to maintaining the stability we've been able to achieve over the last several years. We've been at the forefront in our industry with regard to this category.

We are excited about our recent hire to lead this effort for us, Denise Robbins, who came over from the New York Times in 2017. As you know, they had a very successful subscription growth strategy over the last several years. So we're pleased to have Denise leading this effort for us.

Over the past few years, we have been using strategic and targeted price increases, along with special additions to drive our performance. More recently, we have also invested in a new centralized call center, which will focus on customer service and retention. And we are committed to creating more relevant and impactful local journalism, especially on the investigative reporting side. In fact, we were just named a finalist for multimedia journalism in the Scripps Howard's awards. The investigative project, which examined challenges facing rural residents who oppose wind farms incorporated new mobile storytelling and engagement techniques.

The combination of impactful journalism with new engaging digital formats is a great example of the increased value we are looking to bring to our readers. We remain committed to expanding our digital subscriber base, which grew 51.6% in 2017 to over 78,000 subscribers. We expect that these efforts, among many others, will allow us to maintain a flat to slightly positive organic same-store revenue trend in our largest revenue category, subscription income.

One point I'd like to make clear before we leave this slide is that we do not expect the performance in any individual quarter to necessarily match these full year 2018 targets for each business line. There is both cyclicality as well as a ramp-up time for some of the investments we have underway, and these things will introduce some fluctuation quarter-to-quarter. However, we are committed to achieving these targets for the full year of 2018.

Now if you turn to Slide 8, you can see how our investment in new revenue contributors has helped to significantly reduce our dependence on traditional print revenue over the past 4 years.

The combination of our 2018 growth initiatives and less dependence on traditional Print Advertising revenue as it declines, gives us comfort that we will be able to achieve our plan for top line organic revenue growth. And importantly, a long future of steady growing revenue.

I'd like to turn to Slide 9 to delve a little deeper into UpCurve's performance. UpCurve is our SMB solutions platform that was previously known as Propel Business Services. We underwent a rebrand in the summer of 2017 to create more distinctive branding for this offering as well as its product lines. The digital marketing services products are now known as ThriveHive, and the cloud-based IT products are now known as UpCurve cloud.

UpCurve offers a suite of products and services that bring technology and automation to our SMB customers that supports their growth, productivity and company-wide efficiencies. Our products can be tailored to the needs of each SMB and integrated à la carte or in various bundles.

ThriveHive is our digital marketing services product that offers a range of services from a SaaS do-it-yourself guided marketing platform to a do-it-for-me complete marketing agency.

In the fourth quarter, our active customers grew 16% with the top customer verticals being in the automotive and professional services basis.

Automotive, in particular, was a great story in the quarter, due to some new products that we launched late in Q3. One is a vehicle video marketing product, which produces the best possible HD full motion videos that can be shot directly off of a smartphone or camera and quickly uploaded with automatic voiceover to then be used across their websites and other marketing pages.

We also launched intelligent inventory, which uses computer algorithms to analyze what inventory is selling on a dealers' lot and across the local region to help dealers more effectively market and find customers in a targeted fashion. These are great examples of how we continue to innovate the products that ThriveHive is offering to stay on the cutting edge of what is available in the digital marketing space.

Automotive has also been historically strong vertical for our newspaper markets and Print Advertising. So tailoring digital marketing offerings to this customer base is a great example of how we are leveraging our strengths and product innovation and combining that with our traditional media footprint to drive growth now and in the future.

UpCurve Cloud is our IT services offering that encompasses a number of products focused on helping SMBs grow faster, smarter and more efficiently. In this space, counting licenses serviced is more representative of our scale than counting customers because we often service all the employees of a single customer. For our 2 largest product offerings, SugarCRM and Google G Suite, we now fulfill more than 100,000 licenses as of the end of 2017. This is a 10.7% increase in licenses sequentially from the third quarter of 2017.

This revenue stream is very stable, as we are experiencing less than 10% annual churn and over 65% of the revenue is recurring. Margins are also strong, averaging over 20%. We are recognized as a top product partner being named 2017 SugarCRM Global Partner of the Year and as a Google Premier SMB Partner.

From a financial performance perspective, UpCurve grew to $71.3 million in revenue in 2017 and that was up 34.5% to the prior year. Within the quarter, UpCurve Cloud produced $4.2 million of revenue and that was up 64.2% to the prior quarter. And ThriveHive earned $16.6 million in the fourth quarter, up about 25% to the prior year. Our penetration rates are still small relative to the 5 million SMBs in our markets, so we anticipate this business will be a key driver of organic revenue growth, not only in 2018, but for many years to come.

If you turn briefly to Slide 10, you'll see that we've been growing UpCurve -- our UpCurve business at an 83% compounded annual growth rate, since its inception. Very excited about the prospects for this business.

The fourth quarter was a very business one -- busy one for us on the M&A side, so let's turn to Slide 11 for a quick review of our recent acquisition activity. In the fourth quarter, we integrated our largest deal of 2017, the Morris Publishing Group, which we bought for $120 million. And as I mentioned earlier on the call, this deal has exceeded our expectations thus far. We also closed on a small deal in Rhode Island for $1.2 million at the end of October. This deal plugs very nicely into our Providence, Rhode Island daily newspaper. We have also been working on an attractive slate of deals that are in the pipeline, a couple of which we announced this morning and anticipate to close in the first quarter.

We believe the Eugene, Oregon Register-Guard will be a great addition to our footprint out West. Eugene is a thriving market and serves as the home of the University of Oregon. With over 47,000 in Sunday circulation and a long history of strong local journalism, this acquisition fits perfectly into our criteria and, we believe, will present great opportunities for both UpCurve and our GateHouse Live business.

We also anticipate that we will close on a small newspaper group located in central Massachusetts. That is a great complement to our current Massachusetts footprint, particularly Worcester, Massachusetts.

Moving on to Slide 12. You will see the full track record of acquisitions completed since our spin, which is now nearly $900 million in total purchase price.

Executed at an average multiple of 4x the sellers LTM As Adjusted EBITDA, by raising $50 million from the accordion feature of our term loan earlier this month, our pro forma liquidity now stands at $132 million, which positions us well to take advantage of the very robust deals pipeline I mentioned earlier on the call.

Now I'd like to close my remarks this morning, and I briefly refer to Slide 13. New Media finished the year with total shareholder returns that significantly outperformed its peer group. New Media's 2017 total shareholder return was 13.8%, while our peer group declined on average around 17%. We spent considerable time over the course of the year, talking about and presenting our company and strategy to both current and prospective investors, showing how our assets and our strategy differentiate us from our traditional peer group. We think we continue to be a very compelling investment opportunity. Our dividend, which has grown 4x since our inception, once each year, is currently yielding over 9%.

We continue to invest in and grow free cash flow, both organically and through M&A. We have very good liquidity and large NOLs expected to offset future taxable income. We are very pleased with 2017, especially the fourth quarter and how the year ended. And we're very optimistic for 2018. And as I mentioned very early in the call, January and February are off to a very good start with trends that are actually better than our fourth quarter trends and that gives us more reason to be optimistic about 2018.

And now I'd like to turn the call over to Greg to walk you through the specific -- more specifics on our financial performance and on our NOLs. Greg?

Thank you, Mike, and good morning, everyone. I'll now be speaking to Page 15 of the supplement.

Fourth quarter revenue was $394.4 million, up 18.2% to the prior year on a reported basis and a decrease of 5.6% on an organic same-store basis. As a reminder, organic same-store is a metric that gives us an apples-to-apples view of asset performance in the current period versus the prior year period.

Traditional print revenues was $175.2 million for the quarter and decreased 13.2% on an organic same-store basis to the prior year. Within that category, preprints, classified print and local print categories declined 15.8%, 11.5%, and 12.9%, respectively, on an organic same-store basis.

Digital, our consistently growing revenue category, increased 28.6% to the prior year to $41.7 million. UpCurve is our largest component of digital and generated $20.8 million in the quarter, up 31.7% to the prior year.

Circulation, which comprises approximately 36% of New Media's total revenues, was $140.2 million, down 0.6% to the prior year on an organic same-store basis.

Digital only subscribers were up 52% to over 78,000 at the end of the quarter.

Turning to Commercial Print, Distribution and Events. Revenue in the quarter was $37.3 million, up 6.2% to the prior year on an organic same-store basis. Within this category, commercial printing, which by far is the largest component in the category, grew in the low to mid-single digits on an organic same-store basis, while events more than doubled their performance to the prior year. As Adjusted EBITDA was $59 million, an increase of $9.3 million or 18.8% to the prior year. And free cash flow was $47.8 million, up $9 million or 23.1% to the prior year.

The $47.8 million of free cash flow represents an 81% conversion rate of As Adjusted EBITDA into free cash flow, demonstrating the strong and consistent cash flow generation that we produced.

Net income from the quarter was $26.4 million, up $11.9 million or 82.3% to the prior year. We benefited by $4.2 million from the 2017 Tax Cuts and Jobs Act, but even excluding this benefit, net income was up by more than 50% to the prior year.

Turning to our results on a full year basis. Revenue was $1.34 billion, up 6.9% to the prior year on a reported and a decrease of 5.9% on an organic same-store basis.

Remember that I said, fourth quarter organic same-store revenues was down 5.6%, so the Q4 performance was an improvement sequentially into the full year performance, and that's a very good sign for us as we head into 2018.

Traditional print revenues were $594.2 million, down 13.3% on an organic same-store basis, basically the same as our Q4 trend. So this category remains under stress, but it's remained consistent.

Digital revenues were $143.4 million, up 15.7% to the prior year. Within this, UpCurve was $71.3 million, up 34.5% to the prior year on a reported basis.

And circulation for the full year comprised just over 35% of our full year revenue, but it's at $474.3 million, down 0.4% to the prior year on an organic same-store basis.

And Commercial Print, Distribution and Events was $130.1 million, up 2% to the prior year on an organic same-store basis.

As Adjusted EBITDA was $166.1 million, up 10.2% or 6.6% to the prior year. And free cash flow was $126 million, up $12.6 million or 11.1% to the prior year. On a full year basis, 75.9% of As Adjusted EBITDA converted into free cash flow. And as Mike also mentioned, had we owned Calkins and Morris for the full year, we estimate this would have added approximately $20 million in additional As Adjusted EBITDA, which converted at an even higher rate to free cash flow since we did not use any debt in the transactions.

Strong operating close to the year for us. The Q4 results fairly consistently outperformed the full year results, which bodes very well for us as we head into 2018. But the full year 2018 result -- '17 results are still pretty good because on a reported basis, revenue, EBITDA and free cash flow, all outperformed the prior year in the high single-digit to low double-digit range.

And this is against an outstanding share count that is lower by 200,000 shares versus the prior year, due to $5 million of share buybacks that we executed on during the second quarter that purchased over 391,000 shares at an average purchase price of $12.79 per share, almost 21% lower than our closing price yesterday of $16.11.

Turning to Page 16. I have included here a slide to illustrate the substantial tax assets that we have available to shield future taxable income. We have almost $960 million of tax basis, which shields the first $130 million of taxable income through depreciation and amortization. That more than offsets the annual taxable income we generate, thus we report a taxable loss despite the strong free cash flow that we generate. This also drives the determination that all $1.42 of dividends paid out in 2017 are treated as a return of capital for recipients.

Each new acquisition we close has the effect of continuing to grow our tax basis, which in turn increases the annual depreciation and amortization tax shield that we get to utilize. So this dynamic continues to play out due to our pace of new acquisitions. And then remember that beyond that annual shield, we have over $220 million of tax net operating losses available, if that annual tax basis DNA was not sufficient. And even better, in addition to those facts that I just shared, the new 2017 Tax Cuts and Jobs Act has several further benefits. The headline, of course, of that act is lowered corporate tax rates and eliminating the alternative minimum tax, but it also has provisions that further accelerate recognizing depreciation and amortization for acquisitions and the usability of tax assets. So when you put all of this together, we do not foresee that we will be a substantial cash taxpayer for many years. That preserves our strong operating cash flow, which we will continue to use to drive additional shareholder value.

These are expected to be significant assets for our shareholders and are not readily apparent until you dig right into it.

We ended the year with $43.1 million of cash on the balance sheet, $39.5 million available undrawn revolver. Subsequent to the quarter end, we closed on the $50 million of additional term loans providing net liquidity to us of $49.2 million. So that gives us $131.8 million of liquidity as we begin 2018. We announced 2 anticipated acquisitions this morning, which will draw just over $15 million, but you can see there's still substantial liquidity available to continue our pursuit of highly accretive acquisitions.

Debt outstanding at the end of the quarter was $368.4 million at an average blended rate of 7.82%. Net leverage against our LTM as Adjusted EBITDA is 2.0x.

We're proud to have reported 3 consecutive quarters with EBITDA and free cash flow ahead of the prior year. And as I discussed, our performance within the year has been accelerating. We continue to find and execute on highly accretive acquisitions. We continue to successfully raise capital in support of our strategic plan, and we've even demonstrated that we will use our cash to buy our own stock when we see that as the best use of our funds to create value for shareholders. We have net leverage right at our target of 2.0x, and we have significant liquidity and debt capacity available to continue executing on highly accretive transactions.

Operator, we'd like to open up the call for questions.

(Operator Instructions) Your first question comes from Kyle Evans with Stephens.

Any meaningful movement in the buyers multiple for the recent deals that you've done? And maybe even into the pipeline. And I've got some other follow-ups.

Not really. Just -- in general, we're seeing very similar multiples. In fact, the multiple for our Eugene, Oregon deal is on the low end of our range, closer to 3.5x. So not really. Some of the deals in the pipeline are in better or faster growing markets than we've traditionally been in. So you see a little bit of a multiple push because of that. But essentially, we're still within the range that we're comfortable with.

You mentioned some better markets, are there -- are these -- when you look kind of at the next piece of your pipeline, are you looking at more things like Eugene, ones you choose these? Or are there some groups in there as well?

Well, we'll look at any and all of them, Kyle, and do what deals will work best for the company and shareholders. We're not afraid to tackle the onesie, twosies. And there's -- are certainly a lot more of those to do. We look at the bigger deals as well, but there are fewer of those to do. So we look at both, we'll do both, we have done both, but more of the future deals are the onesie, twosies just because there's a lot more of those.

You mentioned that Morris was exceeding expectations. Can you be a little bit more specific there? Is that revenue? Is that cost? Is it both? Just a little more color.

Both. So revenues have performed better than we thought we would initially see. It takes us a full year to get a lot of our new revenue initiatives really to start to show in these acquisitions. But those markets and those newspapers and the staffs have embraced what we brought to them quicker. So we've been pleasantly -- we've been pleased on the top line performance that they've had, but also the cost opportunity and synergies are exceeding what we thought they were going to be early on. So our EBITDA and cash flow performance has been stronger than we anticipated as well.

Got you. You detailed some pretty impressive growth for UpCurve. Can you talk a little bit specifically about what you're seeing within ThriveHive on the marketing services side?

Specifically, in terms of what, Kyle?

Just the growth rate kind of what -- which products are working there, which aren't. I'm just looking for kind of a barometric pressure read on small market, digital marketing services?

Yes. So our digital marketing services right now, we're seeing kind of the growth between 25% and 30%. I would expect that, that will accelerate in 2018 because we have some -- we have the Morris markets and then we have some markets in our pipeline that will do really well with these types of products and services. So we're kind of seeing 25% to 30% growth in current New Media markets with digital marketing services. And I would expect from an overall company perspective that will accelerate in 2018 because of the markets we're about to enter.

Got you. In the last call, we talked a little bit about taking up subscription pricing in the fourth quarter. It looks like that certainly helped out on the revenue front there. Can you talk a little bit about the impact to unit volume in the period? And what your thoughts are looking forward?

Yes, we didn't see any change in unit volume performance. We're still trending depending on size of market in that mid- to high single-digit volume decline or that pacing continues. We're actually focused on reducing those volume declines in 2018 and that's part of the subscription income revenue strategy that I laid out on the call this morning. And our centralized call center focused on customer service and retention, along with the increased investments in journalism and investigative reporting, we think, will lead to better volume performance in the quarters and years to come, which will then help alleviate pressure on having to continuously raise prices.

Great. What kind of price increases did you affect in the fourth quarter? Where you affected them?

Yes, so kind of in the high single-digit range. Stay below 10% with price increases. We're very cognizant of the continued pressure on consumers and their budgets. And I know some of our peers have been aggressive with very large price increases. But we think that leads to just too much carnage on the volume side, which you'll never get back. So we're hyper focused on the journalism side, the retention in the customer service side, so that our price increases can be much, much more moderate and tolerable by our consumers.

Got you. And then maybe one for Greg. At current pace, how long do you think the dividends could be viewed as return of capital?

Yes, it's a good question. I think given the Tax Cuts Act change, it's a little interesting because one of the less known features of that is the tangible assets for acquired assets. Actually, you get to write off completely in the first year. And so that's going to be a large increase to tax basis for asset yield. And then intangibles gets spread out over 15 years. So the dynamic playing out is, I think we're going to continue to have a net tax loss given that ability to write it off, but it does no impact to the strong cash flow we're generating, which we'll use to drive shareholder value.

Your next question comes from Lee Cooperman with Omega Advisors.

Before I ask my question, I'd like to compliment you, not gratuitous. When your stock was at a low, you implemented a buyback program, you showed a willingness to think on the part of the shareholders and you did an excellent job in capital management. I want to compliment you. Turning to my questions. You've mentioned that you had about $130 million of available cash to do deals. As you look at the course of the deals, what is the return that you're earning on this $130 million or costing you? And what can you earn on what you buy in terms of the increment to potential earnings? Second, again, my question is on UpCurve. This is really a high-growth business in a modestly growing business. What level of revenues, profitability you think you need for UpCurve to be spun out as a free-standing business? And third question has really been asked is on the tax shield, which is a nice thing because we create long-term capital gains instead of ordinary income, but the first 2 questions, if I may ask.

Yes, sure. So Lee, the deals we're doing today, so the $130 million that we'll deploy in the future, our leverage yields at the time of acquisition are about 28%, so somewhere between 27% and 30%. And then when we realize synergies from those deals, our yields jump to about 40%. So we're seeing levered returns of about 40%, which I think you could expect to see on this $130 million of capital as we deploy it into these types of deals. UpCurve is a $70 million revenue business today, I think probably worth 5x revenue. I don't think that's reflected in our share price today, so there's $300 million to $350 million of value there today in that business. If it was trading independently in a stand-alone company, I think you'd see that kind of valuation in it. I think it's a little bit too small today. I think Lee, your question is right on what's the right size for it to be public. I don't know that specific answer, but my guess is $250 million to $350 million in sales, which we'll be at in the next couple of years is probably the right size for that company to be better off to have its own independent capital structure.

There are no further questions. This will conclude today's conference call. You may now disconnect.