Katy Murray - Senior Vice President and Chief Financial Office Jim Moroney - Chairman President and Chief Executive Officer Grant Moise - Executive Vice President of A. H. Belo and General Manager of The Dallas Morning News.

Jonathon Fite - KMF Investments.

Ladies and gentlemen, thank you for standing by. Welcome to A.H. Belo Corporation’s Second Quarter 2017 Conference Call. [Operator Instructions] Also as a reminder, today’s teleconference is being recorded. And at this time, I will turn the conference call over to your host, Chief Financial Officer of A.H. Belo Corporation, Ms. Katy Murray.

Please go ahead..

Thank you, Tony. Good morning everyone, and welcome to our second quarter 2017 conference call. I am joined by Jim Moroney, our Chief Executive Officer, who will assist me in leading today’s call. Grant Moise, Executive Vice President of A. H. Belo Corporation and General Manager of the Dallas Morning News is also available for Q&A.

Before the market opened this morning, we issued a press release announcing our second quarter 2017 results. We have posted this release on our website under the Investor Relations section.

Unless otherwise specified, comparisons used on today’s call measure second quarter 2017 performance from continuing operations against second quarter 2016 performance from continuing operations. Our discussion today will include forward-looking statements.

Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those statements. The company assumes no obligation to update the information in this communication, except as otherwise required by law.

Additional information about these factors is detailed in the company’s press releases and publicly available filings with the SEC. Finally, today’s discussion will include non-GAAP financial measures.

We believe that non-GAAP financial measures provide useful supplemental information to assist investors in determining performance comparisons to our peers. Reconciliations to the most directly comparable financial measures presented in accordance with GAAP are provided on our website under the Investor Relations section.

Earlier this morning, we reported adjusted operating income which excludes depreciation, amortization and severance expense of $2.8 million, a decrease of $3 million compared to $5.8 million of adjusted operating income reported in the second quarter of 2016.

The decrease year-over-year is primarily the result of the $5.8 million decrease and revenue related to our publishing segment, offset by the $2.2 million revenue growth in our marketing services segment. One a GAAP basis net loss attributable to A.H.

Belo Corporation was $800,000 or a loss of $0.04 per share, a decrease of $0.07 per share compared to the second quarter of last year.

Turning to revenue highlights, for the second quarter of 2017 total revenue of $63.1 million represents a decrease of a net $3.5 million or 5.3% when compared with the $66.6 million reported in the second quarter of last year.

Advertising and marketing services revenue of $36 million reported this quarter reflects a net decrease of $2 million or 5.3% when compared to the second of 2016. While total revenue was down due to decline in print revenues, marketing services revenue increased $2.2 million or 36.6% on a year-over-year basis.

Circulation revenue for the second quarter was $19.1 million, representing a $700,000 or a 3.7% decline when compared to the second quarter of 2016. The decline was primarily due to a decrease in home delivery revenue.

Single copy revenue increased slightly, driven by an increase in the daily single copy rate which we put in place in the fall November of 2016, partially offset by a decreases in single copy volume.

Printing, distribution and other revenue reported was $8 million, which reflects an $800,000 or 9% decline when compared to $8.8 million reported in the second quarter of last year, this decline is primarily due to a decrease in the other revenue line related to events which the company did not host in the second quarter of this year.

Total consolidated operating expense in the second quarter was $63.5 million, a decrease of $500,000 or 0.7% compared to the prior year period.

Excluding severance expense of $277,000 and depreciation and amortization expense of $2.9 million, adjusted operating expense was $60.3 million, a decrease of $600,000 or 0.9% compared to the $60.9 million of adjusted operating expense reported in the second quarter of last year.

The decline is primarily due to decreases in outside services, newsprint and distribution expenses, partially offset by an increase in DMV revenue related expenses driven by revenue growth of $1.8 million 50.3% in the quarter. Turning to the balance sheet, as of June 30th, we had $64.9 million of cash and cash equivalents and no debt.

Through June 30th we have spent approximately $4.8 million of the $13 million of capital expenditure budget planned for the full year 2017. The $13 million does include the capital for the move to our new headquarters later this year.

As of June 30th, we had headcount of 1,189 which reflects an increase of 57 or 5% from the 1,132 we had at June 30th of 2016. The primary headcount driver was the conversion of a 117 production headcount from temporary to full-time employees and grown in personnel at DMV.

As a reminder, our conversion of temporary to full time employees has lowered our labor cost in our production facility. Excluding the increase in DMV headcount and the production conversion headcount, headcount decreased by 71 or 6.3% when compared to the prior year period.

In the second quarter we announced that we had placed our three downtown lots for sale, we are pleased with the interest that we have seen to-date and optimistic that we will be able to complete one or more transactions.

In regards to the pension, consistent with prior updates, we do not have any mandatory contributions this year or for the next several years. I will now turn the call over to Jim Moroney..

Thank you Katy and good morning everyone. In the second quarter we continued to see positive momentum in our growth strategies which are built around two principal pillars, digital and marketing services revenue, and digital subscriptions.

Our digital and marketing services revenue results this quarter continue to reflect the strong growth of marketing services revenue, especially coming from DMV. Against the second quarter of last year, DMV revenue grew $1.8 million or 50.3%, which is on top of a 90% growth that it had in the second quarter of 2016 over the second quarter of 2015.

Additionally, The Dallas Morning News sales team generated 283 sales to DMV and Speakeasy in the second quarter of this year and that compares to 137 sales generated in the second quarter of 2016, more than doubling the number from 20 from last year and this represents continued evidence of how we can leverage our newspaper customer base and improve the performance of our acquisitions.

The growth in our digital and marketing services revenue also continues to be a more meaningful – play a more meaningful part in contributing to our revenue.

For the second quarter of 2017, total digital and marketing services revenue was $13.9 million, an increase of $1.8 million or 14.8% over the $12.1 million reported in the second quarter of 2016.

The $13.9 million represents 38.5% of our total second quarter advertising and marketing services revenue compared with 31.8% for the same period in 2016, a 670 basis point improvement. In addition, the $13.9 million represents 22% of our second quarter total revenue compared to 18.1% for the same period in 2016, a 390 basis point improvement.

We are also pleased with the growth in digital subscriptions. At the end of the second quarter we had 20,270 paid digital subscribers, an increase of 3,269 or 19% when compared to the digital subscriber base at the end of last year and an increase of 2,101 subscribers or 11.6% over the total at the end of the first quarter.

In the second quarter we were very pleased to be recognized with numerous awards for our continued focus on excellence in journalism. Most recently we were awarded a national Edward R. Morrow Award for our breaking news coverage of the July 7th police ambush in Dallas.

Previous winners of this award include The New York Times for its coverage of the terrorist attacks and The Boston Globe for its reporting on the Boston Marathon bombing. Earlier in the year we received a 2016 Sigma Delta Chi award from Society of Professional Journalists for editorial writing in the large newspaper category.

The award merits the ambush Dallas coverage produced by the Dallas Morning New’s editorial team. And also on April, we were awarded thirteen national headliner awards including four first-place prizes for journalism in 2016. This annual contest is one of the oldest and largest of its kind to recognize journalistic merit in the media industry.

In addition, we were also recognized as a finalist for the prestigious Pulitzer Prize for Breaking News reporting for last summer’s deadly ambush of police in downtown coverage and the – at downtown Dallas and the coverage that we provided.

I’d like to take a minute now to recognize Keven Willey, our Vice President and Editorial Page Editor, who announced that she will be retiring at the end of this year at the 15 years of service to our company.

Keven’s leadership of our editorial board stands a testament to how our editorial board still plays a critical role in shaping the agenda of the city it serves and how it fosters informed discussion of important issues.

There is no better example of this than the 10-year editorial series bridging the North-South gap, which highlights the persistent and equities in our city and has been one of the most notable examples of our editorial vision.

In 2010, three Dallas Morning News editorial writers were honored with Pulitzer Prize for editorial writing for their work on their series. I’m grateful for all Ms. Kevin has contributed to this institution and to the mission it serves.

In closing, the work we are doing supports our mission to make our community stronger through quality journalism and provide innovative oral based, oral eye based marketing solution to our customers.

We look forward to the second half of this year as the company continues to deliver on our strategy of diversifying our sources of revenue, principally through growth and paid digital subscribers and marketing service revenue. Tony, we are now ready for questions..

Thank you very much. [Operator Instructions] And your first question will come from Jonathon Fite with KMF Investments. Please go ahead..

Good morning, thanks for your time today.

I have a couple of balance sheet questions, I just want to get – have an update on the timing of the headquarters move and any updates on asset sales that you could provide?.

Hi, Jonathan, this is Katy. As we mentioned on the call, we do still have the three lots in downtown Dallas, two are parking lots and one is WFAA Plaza. Those are held for sale, there is a fair amount of activity on those and I just mention I’m optimistic that we will probably close one or more transaction regarding those lots.

We are not disclosing price right now, obviously we are just in early stages of any of the negotiations. In regards to our downtown campus, what we have said in the past and it still holds until we actually move which we are scheduled to do later this year into our new headquarters.

We have not made any formal decisions around the campus that we have here and at that time when we do, we will definitely come back and let the investors know what our next steps and plans are, but again we don’t have to move out yet, and until we do, we are going to hold on that decision..

Katy, would you tell them kind of still what is our – at least the timing around our move as we know it now?.

Right now the anticipated timing of moving is starting in October and I will expect that we will be able to be complete by the end of the year..

Okay, thank you for that.

And is there any priority for the lots, it sounds like whatever happens with the headquarters facility will likely be a 2018 event, but to the lots that you guys are in process with, has there been any discussion on a priority of use of proceeds for that?.

There hasn’t been right now from a real estate perspective.

It sound like it was the right time to start looking at consideration for that and once we have either completed transactions or having industrial information, we’ll talk about capital allocation, that’s something we do consistently talk about, but there has been no specific discussion on the use of proceeds..

Okay.

And can you remind me, the 10-year rate, was kind of in the 2.50 range at the end of the last fiscal year, if we were to approach something close to three by the end of this year, can you talk a little bit about the pension sensitivities to that?.

Yes, the pension sensitivity consistent with prior discussion, about a 0.25 point move on interest rates, holding all of the investment side, so all the returns and everything else has been held consistently basically reduces our pension liability, call it, by anywhere between $10 million and $12 million.

Again that’s holding the return on the asset side, I mean a lot times when interest go up you know that the returns go down, but all things being consistent, a full point would be close to between $45 million to $50 million..

Okay, so half a point is almost a dollar per share of improvement to this value. And I think on the previous call you all had talked about kind of a sales alliance kind of a national negotiating arm as it relates to the print side.

Can you talk a little bit about the traction that that is talking and kind of what that might bode for the outlook over the next few quarters?.

Hey Jonathan, it’s Grant Moise, I’m happy kind of update you there. That group selling entity is called Nucleolus. The group represents the top 30 newspapers, the top 30 largest markets in the United States.

That team is in full swing, I’ve been very pleased with the pipeline that they are showing of the number of advertisers that we are having new conversation with who have not historically been newspaper advertisers.

The early returns and revenue coming in of that initiative has definitely slowed the decline of that area of our business, however it’s not getting us back into the black and seeing growth year-over-year in national advertising, but I am pleased that they’ve helped kind of mitigate that decline of what we sell last year and actually we’ve almost cut that in half.

And again, if the pipeline converts, it can convert to closed sales, we will be very pleased if – how that helps each of us in the top 30 markets to have more active selling conversation with these national advertisers rather than what has historically been what I call, caught business where we just kind of catch what we were able to get, but I’m happy to have this group and pleased with the number of sales calls that they are making on our behalf..

Okay, great. Thanks for your time this morning..

Thank you..

Thank you [Operator Instructions] And allowing a few moments here, I’m showing no additional questions at this time. Please continue..

Jim with no additional questions, do you want to conclude?.

Call it a lap [ph]..

All right. thank you Tony very much..

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Once again those phone numbers are 800-475-6701 and 320-365-3844 using the access code of 426163. That does conclude your conference call for today. We do thank you for your participation and for using AT&T’s Executive Teleconference. You may now disconnect..