USA TODAY Co Inc (TDAY) 2015 Q3 法說會逐字稿

Good afternoon. My name is Tiffany and I will be your conference operator day.

At this time I would like to welcome everyone to the New Media third-quarter earnings call.

(Operator Instructions)

Sara Yakin, Investor Relations, you may begin a conference.

Thank you, Tiffany, and good morning everyone. I'd like to welcome you to New Media's third-quarter 2015 earnings call. Joining us today are Mike Reed, New Media's CEO and President; Greg Freiberg, our CFO; and Kirk Davis, our 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 fact and may be forward-looking statements. These statements by nature are uncertain and may differ materially from actual results. We encourage you to read the forward-looking statements disclaimer in this 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 rebroadcasted without our consent.

And with that I would like to turn the caller to Mike.

Thank you, Sara, and good morning everyone. Thanks for your interest in New Media and for listening to our third-quarter earnings call.

Q3 marks another solid quarter for the Company and I'm excited to update you this morning on our progress as we continue to execute on all aspects of our strategy. As Sara mentioned, we did post a supplement to our website this morning and I will reference that throughout the call.

So turning to page 2 of that supplement, let me start with a quick summary of the Company. Today New Media owns and operates over 575 community publications including 125 daily newspapers that are located in over 490 markets across 32 states in the US. Our vast presence across the country provides great diversification as we are not overly exposed to any one customer, any one product or anyone market.

Our portfolio of local media assets are the dominant sources of comprehensive high-quality local news in the towns they serve. Of our daily newspapers nearly 50% are located in small communities with populations of 35,000 or less. And nearly all of these publications have been published for more than 100 years, resulting in significant brand recognition and readership loyalty. Notably our focus on small to midsize markets rather than large metro markets limits our exposure to national advertising and preprints, two volatile categories right now, leading to more stability and predictability of our revenues and cash flows, especially during tougher economic climates.

In addition to our traditional print and digital assets we also have a very exciting digital marketing services business called Propel and that helps small and medium-size businesses build a presence, get found and engage with customers online. Propel is the fastest-growing segment of our Company and as it continues to scale Propel is positioned to become a major part of New Media's future organic growth. The business had a particularly strong quarter with revenue and contract sales at all-time highs as well as announcing an exciting reseller agreement with Post Media which we will discuss in more detail later in the call.

In addition to our organic growth opportunity, our acquisition strategy is driving tremendous inorganic growth for the Company. With nearly $600 million of deals closed since inception and a robust pipeline for future acquisitions we believe New Media is well-positioned to consolidate the fragmented newspaper industry given our operating strategy, size, scale, our unique centralized services platform and deep expertise in acquiring and integrating newspaper assets.

Looking ahead we believe our newspapers will continue to generate significant recurring cash flow which will support and fund our growing dividend, acquisition opportunities and organic growth initiatives. And we believe New Media remains an attractive total return vehicle that will drive substantial future shareholder returns.

Now let's take a look at the quarter highlights and for that I'm going to turn to page 3 of the supplement. Our performance in the third quarter marks another strong quarter for the Company with total revenues, as adjusted EBITDA and free cash flow increasing 89.1%, 84.8% and 90.3% versus the prior year respectively.

On a same-store basis Q3 total revenues decreased 5.7%. That trend worsened a bit from last quarter as we cycled two tuck-in acquisitions, ACM Southwest and the Progress-Index now that we've owned those businesses for more than one year.

Importantly, though, we're pleased to report that excluding tuck-in acquisitions, so apples-to-apples revenue and publications we've owned for more than one year, continue to perform much better, declining 3.7% in the third quarter, highlighting the operational improvements we are able to make once we had time to execute on our strategy. I'm going to spend more time on this and share some additional thoughts with you in just a few minutes.

Digital revenues continue to be our strongest growth driver, totaling $29.1 million in the quarter and representing a double-digit increase of 13.1% on a same-store basis. Propel, a subcategory of digital, continues to perform well and was up an impressive 78.8% versus prior year. Our growth trend versus prior year for Propel has increased each quarter throughout 2015 and this is obviously going against a larger base in each quarter last year. We are very pleased with Propel's growth and are excited about the meaningful contributor this business is today and will be in our future quarters and years to come.

Despite continued pressure on local print advertising and preprint revenue we did a great job controlling costs and realizing synergies from acquisitions which led to as adjusted EBITDA of $40.1 million, up 84.8% versus prior year. Free cash flow in the quarter totaled $30.3 million or $0.68 per share, up $0.16 or about 30% versus prior year, despite approximately 50% more shares outstanding this quarter than in the third quarter last you. This is a 30% increase in free cash flow per share which demonstrates the real growth we are generating and driving for shareholders with our accretive acquisitions.

New Media's Board of Directors authorized a third-quarter dividend of $0.33 per share or when annualized $1.32 per share and this is 22% higher than prior year further demonstrating the growth we are generating for our shareholders. 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 the current low single-digit revenue declines. Furthermore with our dividend payout at 40% of pro forma LTM free cash flow we do not see it at risk of being reduced and instead see an opportunity to grow our dividend as we continue to execute on our organic and inorganic growth initiatives.

In addition to our strong financial results New Media also completed the acquisition of a 190-year-old daily newspaper in Monroe, Michigan, the Monroe News. We finished this acquisition in late September for $5.2 million or 4.1 times the seller's EBITDA so before synergies. The longtime newspaper of record in Monroe County is located near an existing cluster we have in Michigan making it an ideal tuck-in acquisition which we will integrate into that cluster in that operation. Given the fragmented nature of the local media market we believe there are many similar compelling acquisition opportunities for us to be able to execute on in the future, both near-term and long-term.

Now I'd like to turn to page 4 in the supplement if you will and let's take a closer look at our revenue trends on a same-store basis and in an apples-to-apples basis excluding tuck-in acquisitions. For the last 12 months same-store total revenue was down 3.5% and when excluding tuck-in acquisitions and looking at total revenues on a more apples-to-apples basis the decline was 5.2%. However, it's important to note that revenue and publications we have owned for more the one year performed much better than recently acquired papers, decreasing 3.7% during the LTM period versus 6.5% for those owned less than one year.

When looking at our overall quarterly revenue trends in 2015 please keep a few things very top of mind. This is important. First, we have nearly doubled the size of the Company this year with three meaningful acquisitions in the first half of the year.

Pro forma revenue for assets owned at the end of December, 2014 was about $700 million. Pro forma revenue for assets owned at the end of Q3 this year is more than $1.3 billion.

The assets we've acquired in 2015 have trends worse than ours and have room for improvement as you would expect, part of the reason we made the acquisition. More than 50% of our revenue right now comes from assets owned less than nine months.

At the end of 2014, most of our revenue came from assets owned more than one year as our acquisitions in 2014 were smaller in size. This large increase in revenue coming from newly acquired assets as a percent of total revenue has had a negative impact on our very near-term quarterly revenue trends. However, the important point here is that this does not change or impact our long-term view nor does it alter our strategy for long-term shareholder value creation through organic revenue growth.

Second point, our trends for newspapers owned more the one year are very stable and much better than overall industry trends. Over the LTM period revenue for these businesses owned more than one year was down 3.7%.

In Q3 revenue for this business was also down 3.7% and in Q2 revenue for these businesses was down 3.9%. So we actually saw very slight improvement from Q2 to Q3. The very important point or takeaway here is that things are not getting worse in our underlying business and we are on track with regard to our long-term value creation strategy.

Finally, our strategy remains consistent to create real organic growth in revenues and we are investing and allocating resources to these efforts. We see the opportunity to have real organic growth during 2017. Don't get lost in the quarterly revenue trends that are driven by assets in revenue that we have owned for only a short period of time and instead focus on the underlying business and our growth initiatives as we move our business down the path toward organic growth.

Improving revenue trends in our acquired properties also leads to cash flow growth. Local Media Group, our first acquisition, is a great example of the improvements we're able to achieve once we have had time to operate the business and specifically how that impacts cash flow. And I will run through those numbers a little bit later in the call this morning.

So there's no change to our outlook as mentioned in our last earnings. We believe as Propel continues to evolve and other new businesses evolve we see a path for organic revenue trends to improve and eventually grow in 2017. So in other words as our business evolves we also expect these current low to mid single revenue digital revenue declines to moderate throughout the next couple of years.

Also we continue to believe we can shield our cash flows from top-line declines in the near-term through continued measured expense reductions in our acquired properties and by completing tuck-in acquisitions. Both give us confidence in our ability to continue to grow free cash flow and grow our dividend.

To maintain flat same-store revenue trends in 2016 New Media needs to complete just approximately $20 million to $40 million of tuck-in acquisitions which we can fund organically with cash the business generates. This assumes a 3% to 5% in total Company revenues 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 that after dividends the Company generates over $80 million of pro forma free cash flow and we have a proven track record of successfully identifying and acquiring local media assets.

While accretive acquisitions are driving the Company's with near-term we continue to believe New Media's maturing digital businesses, new business initiatives and evolving revenue mix will lead to long-term organic growth. And as I just mentioned, we expect to begin to see real year-over-year organic growth before the end of 2017.

Now let's turn to page 5 because I thought it would be useful to walk through what the Company looks like today pro forma for the acquisitions we've done to date. Since becoming a public Company in February 2014 New Media's business model and strategy has been consistent and we have executed on all aspects of that strategy. And to reiterate at a high-level our strategy is to number one, grow our revenue and cash flows organically through new businesses, digital initiatives and improvement to content and consumer subscription products; secondly, be value-oriented buyers and make accretive and strategic acquisitions that create immediate inorganic growth; and third, return cash to shareholders in the form of a dividend supported by our strong cash flows, healthy margins and a 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 and have grown substantially to over $1.3 billion, $185 million and $144 million respectively. The blue shaded area of each column represents New Media's actual results for the last 12 months and these tie to our reported financials. The green shaded area of each column adjusts for material acquisitions and the totals reflect annualized numbers as if we had owned all those assets during the entire LTM period.

For the past six quarters New Media has consistently paid out a reasonable portion of its free cash flow as the Company has grown through accretive acquisitions. Nevertheless with our dividend at approximately 40% of pro forma free cash flow the dividend is more than covered, even with mid-single-digit top-line declines, especially when considering the synergies that we have yet to realize which will only enhance our cash flows. We continue to see an opportunity to grow our dividend as we execute on our organic and inorganic growth initiatives and see no risk of the dividend being cut or lowered.

Now let's turn to page 6 of the supplement to discuss our current valuation metrics and we believe the Company is quite misunderstood right now, creating a compelling upside to our current share price. Over the next 12 months using internally generated cash flow after dividend payments and assuming two terms of leverage on newly acquired EBITDA New Media is capable of deploying approximately $230 million capital. This would add approximately $0.94 of free cash flow per share, almost $1 per share to our current free cash flow per share and would imply a free cash flow yield of 24% on our current share price.

Given our growth opportunity and with our dividend yield above 7% we believe our shares are currently undervalued. 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. Despite generating total returns of 55% for shareholders since our inception in February 2014 and posting strong revenue and cash flow trends near the top of our industry New Media's current dividend yield remains well above pure play newspaper peers.

Now let's move to page 7 to talk about our exciting digital strategy and more specifically really about Propel. We're very excited about that as I mentioned at the onset of the call. Propel our full suite digital marketing services business is the fastest growing business we have today.

First launched in 2012 Propel helps small and medium-size businesses navigate the complex digital sector and better positions them for success. We believe New Media is uniquely positioned to partner with local businesses given our strong local media brands, our physical local presence, our full product suite dedicated client services and our experienced digital staff. And we believe Propel's performance thus far supports this thesis.

Q3 was another solid quarter for Propel with revenue of $8.3 million, an increase of 78.8% versus the prior year. Contract sales in the quarter were $11.1 million, up an impressive 92.6% versus last year and contract sales when annualized are now over $44 million. Contract sales are a great leading indicator for future revenue performance as it represents services that have already been sold, contracted but not yet fulfilled and subsequently not yet booked as revenue.

We believe New Media's ability to leverage its powerful local brand, its built-in comprehensive marketing capabilities and large in-market salesforce are critical strategic advantages for Propel. We continue to believe Propel has the potential to become a significant revenue stream for New Media as we expand our product offerings, further utilize our salesforce to penetrate our markets and enter new markets through acquisitions and reseller agreements. Looking at our performance versus past quarters, our results are showing that we are moving quickly in this direction.

Today we have approximately 2.2 million small businesses in our markets and we are doing business with more than 215,000 of them or 10% with our traditional media businesses. As of Q3 Propel had 6,600 active customers, a 20.7% increase versus prior year with an average spend of over $300 per month per customer.

With this in mind we believe we should be able to achieve similar penetration rates over time for Propel as our traditional business. But cut that in half and simply put 100,000 Propel customers will lead to more than $300 million in revenue, all of which is organic growth from where we are today.

In addition to the tremendous opportunity New Media has with its current footprint of newspapers we are thrilled to report that during the quarter Post Media signed on to become the largest reseller of Propel products and services in Canada beginning in October. Post Media is one of the largest news and media companies in Canada reaching over 11 million people every month across its print, web, smartphone and tablet platforms. Given that their well-known established brands and that they represent some of Canada's oldest and best-known media, combined with their reach we see a tremendous opportunity for Post Media to grow their digital business, so we're very excited to work with Post Media and believe this could lead to substantial future revenues for Propel as well.

In addition to the growth our digital businesses are generating, we are also realizing incredible returns on the acquisitions we have completed to date and for that discussion I'm going to turn to page 8 of the supplement. Since inception New Media has been committed to being a disciplined buyer of local media assets, completing nearly $600 million of acquisitions at an average multiple of 4.1 times the seller's LTM as adjusted EBITDA or at unlevered and levered yields of 23% and 31% respectively. Our track record highlights our ability to execute on our acquisition strategy well within our targeted range of 3.5 to 4.5 times the seller's EBITDA so that's before synergies.

After approximately $40 million of estimated synergies from the acquisitions we've completed, our multiple reduces to 3.2 times EBITDA and our unlevered yields jumped from 23% to 29% and our levered yields jump from 31% to 41%, incredible returns for investors. Let me say that again. Levered yields 23% to 29% -- levered yields 31% to 41%, great returns for our investors.

Despite current top-line declines the newspaper assets we've acquired are generating stable free cash flow driven by operational changes we're able to execute on. For example, Local Media Group, our first acquisition, is a group of assets consisting of 33 high-quality publications that have been the dominant and trusted providers of local news in their respective communities for over 75 years. It was a non-core business for the seller and at the time of our acquisition digital revenues were more than 50% below industry norm and expenses had only been reduced by 6% from 2010 to 2013 which led to 40% EBITDA declines for that business over the same time period.

Over the last two years under ownership we have executed on cost synergies, centralized many core functions, leveraged New Media's scale to reduce costs for materials and supplies. We've introduced Propel and strategically raised subscription prices based on data-driven methodologies. These actions did not only mitigate the substantial EBITDA declines the business once seen but also reversed those declines and drove growth.

As of the end of Q3, 2015 on an LTM basis EBITDA is up more than 46% since we closed that acquisition just two years ago. 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 and will continue to drive tremendous value for our shareholders both in the near-term and the long-term.

Turning to page 9 of the supplement let's briefly review the acquisition strategy and particularly the assets we have acquired to date in total including Local Media Group which we just discussed. First, the addressable market for newspaper acquisitions in the US is quite large and ownership is fragmented. In fact, we estimate the current market is worth approximately $26 million, made up of over 1,300 daily newspapers and approximately 350 different owners.

When analyzing potential targets we examine a variety of factors. However, all of our acquisitions must number one, be the dominant provider of local news in the communities they serve with long-standing established brands; secondly, they must be able to deliver unlevered yields of 20% or more and levered cash yields of at least 20% to 30%. To note all 10 of our acquisitions to date are well above these return thresholds as I mentioned a few minutes ago.

Third, we must see opportunities to expand digital and/or subscription revenue at the newly acquired assets. Finally, fourth we must see an opportunity to reduce their cost structure.

Since inception we have deployed nearly $600 million funded predominantly with cash on our balance sheet and incremental term loan debt. Importantly we view these two sources of capital as our primary sources for future acquisitions. Further we are very comfortable that these two sources of capital provide more than enough liquidity to allow us to execute on our strategy.

Looking ahead, we see tremendous opportunity for inorganic growth at New Media given the fragmented nature of the local media market, our capital structure, our platform and our proven ability to identify and execute on attractive, accretive acquisitions. From an organic perspective as the newspaper industry continues to evolve we believe size, scale, providing centralized services that are expensive for standalone newspapers to have on their own and executing on a robust digital strategy will help drive long-term organic growth. We believe New Media is extremely well-positioned in each of these areas.

And now I'd like to turn the call over to Greg for a few minutes for a detailed look at the third-quarter financial results. Greg?

Thank you, Mike, and good morning everyone. I'm now turning to page 11 of the supplement. Total revenue for the quarter was $312.1 million, an increase of 89.1% to prior year on a reported basis and a decrease of 5.7% on a same-store basis.

Given that nearly all of our tuck-in acquisitions have cycled out of our same-store numbers, revenue trends are essentially the same when excluding tuck-in acquisitions. However, revenue for publications we have owned for over one year performed much better, decreasing 3.7%, highlighting the improvement receipt once the Company has time to implement its strategy.

Digital revenue continues to be a very strong category, growing 13.1% on a same-store basis to $29.1. With Propel contributing $8.3 million which was up $3.7 million, or 78.8% versus the prior year we're really pleased with the tremendous growth occurring with Propel. To better illustrate the velocity that's being achieved, remember that we did $18.5 million of revenues in 2014.

In the third quarter LTM revenue performance is $27.5, the third-quarter annualized performance is $33.1 million and the third-quarter contract sales annualized is $44.4 million. So there's tremendous acceleration going on at Propel.

Traditional print revenue declined 10.4% on a same-store basis to $156.4 million impacted by continued pressure on preprints which declined 12.3% and local print advertising which declined 11.9%. Preprint trends were impacted by several major retailers decreasing their volume and multiple retail store closures in our markets, a trend that has been seen across the country this year.

Classified print decreased 6.2% on a same-store basis. However, obituaries and legals revenue continue to be stable subcategories and currently comprise over 35% of total classified print revenue. Subscription revenue, our largest revenue category at nearly one-third of total revenues, continues to be a relatively stable category for the Company and decreased 1.1% on a same-store basis.

Finally, commercial print and other revenue decreased 10.2% to prior year on a same-store basis. However, over 67% of the decline in this category was self-inflicted, driven by recent acquisitions shifting from external print relationships to intercompany revenues as the newspapers are now part of New Media.

Operating income was $14.6 million, an increase of $10.1 million to prior year. Net income was $6.1 million in the quarter, a big improvement from a net loss of $4.7 million in the third quarter of last year. As adjusted EBITDA was $40.1 million, an increase of $18.4 million or 84.8% over the prior year on a reported basis.

Finally, free cash flow generated in the quarter was $30.3 million, an increase of 90.3% versus the prior year representing an impressive 76% cash conversion rate of EBITDA to free cash flow. Free cash flow per basic share was $0.68, a $0.16 or 29.8% improvement to the prior year despite an additional 14.2 million shares outstanding. As a result of our strong cash flows and as Mike noted earlier our Board authorized a dividend of $0.33 per share, the same as in the second quarter and a 22% increase versus Q3 last year.

We ended the quarter with approximately $382 million of debt outstanding which is $15 million lower than the balance last quarter. We paid down our revolver by $14 million and through amortization reduced principal by an additional $1 million. We have $30.3 million of cash on the balance sheet and $25 million of availability under our revolver.

Gross and net leverage against our pro forma as adjusted EBITDA is 2.1 times and 1.9 times respectively, in line with our long-term target leverage level. As of Q3, liquidity is strong at more than $55 million, comprised of cash on the balance sheet and undrawn revolver. As Mike mentioned over the next 12 months we expect to have $230 million of deployable capital and if we invest that capital in line with previous acquisitions we will generate nearly $1 of incremental free cash flow per share.

Looking ahead we feel very good about the assets we own today, our platform and our capital structure, and we feel well-positioned to continue to execute on our strategy and create value for our shareholders. Operator, we'd now like to open the call up for questions.

(Operator Instructions) Jason Bazinet, Citi.

Thanks so much. I was just wondering if I could maybe get a little bit of color from you guys on that text on the lower left-hand corner of page 4 in terms of getting to flat-ish same-store revenues by 2017.

Is the right way to think about the bridge to get from where we are today to that aspiration is about call it mid-5s decline today, you pick up 2 points as you own the assets for a year and then the rest of it is Propel? Is it sort of that simple or is there more nuance to it?

It's really that simple. We have some other new business initiatives underneath Propel but they are all driven out of Propel. And so it really is that simple and you should see our trends moderate as we move towards 2017 and then growth in 2017.

Okay, and if I can just ask one follow-up, I think the first time you laid out that aspiration was on the 2Q 2015 call and you said it was sort of a two-year aspiration. In your text today and not in the presentation but in the press release you put out it said your goal was to get there by the year-end 2017. And I was just wondering is that sort of a half-year shift in terms of the timing of when you expect to achieve the aspiration or am I reading too much into it?

Reading too much into it. There is no shift in the timing of our aspiration. I think actually you read a little bit too much into our comments on the last call.

We said within two years meaning in 2017, we were in 2015. We don't know exactly which quarter we'll cross the inflection point but in 2017. So our view has not changed, we have not pushed our targeted out at all.

Okay. Thank you very much.

Jim Goss, Barrington Research.

All right, thanks. Got a couple of questions. One regarding the Post Media reseller proposition.

Would this tend to open up Canada as a market where you might even consider acquisitions? Or would those some of the Canadian market ownership restrictions stand in the way aside from any other fundamental issues you might have there?

Yes, so Jim this relationship with Propel and Post Media doesn't specifically open up an acquisition opportunity. However, we view from an acquisition standpoint really the world as potential opportunities. So Canada would be included.

There are some unique ownership laws in Canada related to how much of a newspaper you can own without being a Canadian citizen. However, our acquisition view of the world is not just the US or just North America but it's really everywhere. We're value-oriented buyers and finding really accretive attractive acquisitions where we think we can apply our strategy which will lead to organic growth and shareholder value creation then we look at that acquisition opportunity.

Okay and Mike do you sense that the Canadian markets are similar to US markets in terms of how they've evolved in the face of the digital world sort of intruding?

Yes, I think so. They might be a little bit behind where we are.

Post Media is a great company, a really good management team and have not deployed a comprehensive digital marketing services strategy so this is a huge upside play for them. And we're very excited and fortunate to have been chosen as their partner to make this happen. So it's a great opportunity for them we think but it's also a great opportunity for Propel.

Okay and if you get or if you achieve the acquisitions that the current financial situation would allow you to get to, would you then revisit whether you would move beyond that with some additional capital? Or would that be -- is there some endgame or target that you are envisioning in terms of the size you should ultimately get to?

There is no endgame in terms of the size we should get to want to get to. Our goal is to create outsized returns for our shareholders every year. And we aim to do that with the strategy that I talked about in the call today, and so we'll continue to look at acquisitions for the long-term, near-term and long-term. So there's no endgame, there's no number we want to get to. Our goal really is to create outsized returns for shareholders, near-term and long-term.

Okay and just a couple of other things, are you seeing any variances of experiences in key metrics by market size within your mix properties?

We're really not.

In terms of circulation and adds?

We're really not. We mentioned on the last call or maybe two calls ago that we see a little more weakness in our really metro suburban markets. We don't have a lot of those but we do see weakness there relative to the rest of our portfolio.

As you know the metro markets and suburban papers in metro markets are not part of our acquisition strategy. So as we continue to acquire we continue to lower our exposure to those markets in general. But really we're seeing pretty consistent results across the country in our markets set aside the small exposure we have to suburban metro markets.

Okay, thanks. The last thing, you mentioned no risk of a dividend cut but I'm wondering given the hit the stock has taken, does that play into the notion that maybe you should keep the dividend at a certain level until the yield catches up to it or will that not be a factor in your dividend considerations?

Not a factor. Our goal every day is to wake up and create shareholder value by executing on our strategy which as I mentioned organic growth number one, value-oriented acquisitions number two, returning and growing that return of capital to shareholders number three. Share price doesn't matter.

So it's free cash flow growth driven then in terms of supporting the dividend?

Correct.

Okay, thanks very much. I appreciate it.

Amy DeBone, Compass Point.

Good morning. Thanks for taking my questions.

I just wanted to better dig into the decline in same-store sales a little bit, the difference between the 5.7% and the 3.7%. It sounds like the difference is basically the exclusion or inclusion of ACM Southwest and then the Progress-Index. Is that correct?

It is correct. If you exclude the tuck-in acquisitions last quarter our decline was 5.3%. This quarter it was 5.7% and that's really driven as I mentioned in my call by having more exposure right now to revenue from new acquisitions versus old acquisitions.

I think that's the wrong number to focus on, though. As I said in my call the really the right number to focus on is the improvement we saw in the revenue performance of the assets we've owned for more than a year which improved from 3.9% decline last quarter to 3.7% this quarter and that 3.7% is in line with the last 12 months of 3.7%. So that's really the right number to focus on.

Okay. So it last quarter it was 5.3% and 3.9% and this quarter it's 5.7% and 3.7%?

Right.

Those are the differences. Okay.

And then just in terms of when I know that this was one of the first questions but when we're going to see print decline being offset with digital revenue improvement? Are there any specific publications within the portfolio where that's happening or almost happening that we can use as a proxy for what would happen on a larger scale eventually?

We don't disclose revenue performance market-by-market or asset-by-asset base so I can't give you specifics there. But I would say anecdotally that yes, we do have markets in our Company where revenues are growing over prior year.

Where revenues are growing because of the digital improvement offsetting print declines?

Yes as well as improvements that we're making in our strategy. Our strategy just to be clear I mean it's not just to drive digital. We make improvements to subscription through pricing.

We're growing our commercial services, leveraging our printing and our distribution platforms. We have new business initiatives beyond those and then we're seeing stability in classified revenue as well to some extent.

Greg mentioned in his remarks that 35% or more of our classified revenue comes from obituaries and legals and those are growing categories. So in some markets there's even more exposure to those categories and therefore classified is even more stable. So there's an entire strategy that we're executing on and we do have markets that are growing over prior year at this point in time.

Let me add to that, Mike. We called out Local Media Group as the star performer for us in the prepared remarks and the EBITDA and certainly that's an example where the seller had not invested into a digital product set, our marketing services like Propel will be introduced back to them and so that's had a profound impact.

So we see the results that we call out in Local Media Group, that's probably the oldest vintage we have. There you see the top-line performance like what Mike was talking about.

Okay. Okay. Then just last I noticed that Fortress didn't report any PCB incentive income this quarter, so was there no incentive income paid to Fortress from New Media in 3Q?

There was a small incentive accrued to Fortress in the third quarter of about $3 million. And that will be disclosed in our Q which will be filed after the bell today.

Okay, all right. Thank you.

I would now like to turn a call back over to Mike Reed, CEO of New Media.

Thank you. Today New Media's portfolio of local media businesses is one of the best in the country. Our revenue and cash flow trends consistently outpace the majority of our peers and we have a path to organic growth over the next two years.

Furthermore, as the Company has grown through requisition New Media has continually raised its dividend while lowering its payout ratio. We expect to have deployable capital of approximately $230 million over the next 12 months, leading to additional free cash flow per share potential growth of nearly $1. Nevertheless, as mentioned earlier today we think our Company is misunderstood right now and very undervalued with our dividend yield over 7%.

On the operating side our newspaper business continues to produce strong cash flows and healthy profit margins. We can preserve this cash flow with synergies from completed acquisitions. The revenue trends for the assets we've owned more than a year are not declining.

The underlying business is not getting worse. Looking ahead we continue to believe our position as a leading source of local news in the markets we serve combined with our strategic organic investment and our acquisitions will lead to substantial value creation for our shareholders.

Thank you for your interest in New Media. And we look forward to updating you again on our progress on our next quarter's earnings call. Thank you.

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