Katy Murray - Senior Vice President and Chief Financial Officer James Moroney - Chairman, President and Chief Executive Officer.

Christopher Mooney - Wedbush Securities Inc. Barry Lucas - Gabelli & Company David Cohen - Minerva Advisors LLC.

Ladies and gentlemen, thank you for standing by. And welcome to the Q3 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, your conference is being recorded.

I would now like to turn the conference over to CFO and Senior Vice President, Katy Murray. Please go ahead..

Thank you, Louis, and good morning, everyone. Welcome to our third 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 Dallas Morning News is also available for Q&A.

After the market closed last night, we issued a press release announcing our third 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 third quarter 2017 performance from continuing operations against third 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 this 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.

Yesterday afternoon, we reported net income attributable to A. H. Belo Corporation of $2.6 million, or $0.12 per fully diluted share, an increase of $0.14 per share compared to the third quarter of 2016.

On a non-GAAP basis, adjusted operating income which excludes depreciation, amortization, severance expense, and pension plan settlement loss was $4.2 million, an increase of $1.9 million compared to the $2.3 million of adjusted operating income reported in the third quarter of 2016.

The increase year-over-year is primarily the result of expense management. Turning to revenue highlights for the third quarter of 2017, total revenue of $60.6 million, represents a decrease of a net $4.2 million or 6.5% when compared to the $64.8 million reported in the third quarter of last year.

Advertising and marketing services revenue of $34.9 million reported this quarter, reflects a net decrease of $3.4 million or 9% when compared to the third quarter of 2016. Circulation revenue for the third quarter was $18.8 million representing an 800,000 or 4% decline when compared to the third quarter of last year.

The decline was primarily due to a decrease in home delivery revenue. Single copy revenue also decreased compared to prior year, driven by a decline in single copy volume, partially offset by an increase in the daily single copy rate, which we put in place in November of 2016.

Printing, distribution, and other revenue reported was $6.8 million, which remains flat compared to last year. Total consolidated operating expense in the third quarter was $65.6 million, an increase of 300,000, or 0.5% compared to the prior year.

Excluding severance expense of 531,000, depreciation and amortization expense of $2.8 million, and pension plan settlement loss of $5.9 million, adjusted operating expense was $56.4 million, a decrease of $6.1 million or 9.8% compared to $62.5 million of adjusted operating expense reported in the third quarter of 2016.

The decline in expense is primarily due to decreases in employee compensation and benefits, temporary services, distribution, and newsprint expense. Turning to the balance sheet, as of September 30, we had $50 million of cash and cash equivalents and no debt.

Through September 30, we have spent $7.8 million of the $13 million of capital expenditures planned for this year. This includes the capital for the move to our new headquarters later this quarter. Our cash balance as of today is approximately $65 million.

As of September 30, we had headcount of 1,107 which reflects the decrease of 82 or 6.9% from the 1,189 we had at September 30 of last year. Excluding the hiring at DMV of five and the conversion of production temporary the FTEs of 51, the Company’s headcount decreased by 138 or 11.6% when compared to the prior year period.

As a reminder, our conversion of temporary to full-time employees has lowered our labor costs in our production facility. In Q3, we continue to execute on our strategy to de-risk our pension plans.

We made a voluntary contribution of $20 million and using those funds and additional assets of $23.5 million from the plan, we transferred approximately $43.5 million of pension liabilities to an insurance company. As a result, we reduced the number of participants in our pension plan by 796 or 36%.

At this time, we do not expect to have a mandatory contribution until 2023 and assuming no changes in the interest rate and the rate of return we are currently seeing on our plan asset that contribution would be approximately $3 million. In the second quarter, we announce that we replaced our three downtown lots for sales.

In September, we sold one of those lots and this month we closed on the other two lots. In total, the Company has received net proceeds of approximately $21.3 million and I will discuss the tax impact when I cover taxes in a minute.

We are also very excited that we will start our relocation to our new headquarters in a couple of weeks and expect that we will have all employees moved by the end of the year.

Once this move is completely will turn our attention to our existing headquarters, while we have not yet made a decision on our next step we have been engaged in various due diligence on the property, so that we can move quickly once we make a decision.

This quarter we continue to calculate our income tax provision using this rate method of approach, while we had capital gains on the sale of all three of our properties. The pension contribution is tax deductible and will offset 100% of those taxable gains.

In addition we continue to generate net operating losses and the only cash tax we had at the annual taxes margin tax at approximately $1.2 million. We are very pleased with the accomplishments we made this quarter and monetizing our real estate assets and reducing our pension liabilities. I would now turn the call over Jim Moroney..

Thank you, Katy, and good morning, everyone. In the third quarter, we continue to see positive momentum in our growth strategies, which are built around digital advertising and marketing services revenue and digital subscriptions.

Our digital advertising and marketing services revenue results this quarter continue to reflect the strong growth of our marketing services revenue, especially coming from DMV, against the third quarter of 2016 DMV revenue grew $1 million or 20.3%, which is up against one 106% growth that DMV experienced in Q3 of 2016 over Q3 of 2015.

Additionally, the Dallas Morning News sales team generated 351 sales to DMV and Speakeasy in the third quarter. This compares to 323 sales generated in the third quarter of 2016, an increase of 8.7%. I'd like to emphasize though that what is most important here is the absolute number of 351 sales.

The growth in our digital advertising marketing services revenue will also continues to make a more meaningful contribution to our revenue.

For the third quarter of 2017 total digital advertising and marketing services revenue was $13.7 million, which represents 39.3% of our total third quarter advertising in marketing services revenue compared to 36.6% from the same period last year, a 270 basis point improvement.

In addition, the $13.7 million represents 22.7% of our third quarter in total revenue compared to 21.6% for the same period last year, 110 basis point improvement. On a year-to-date basis, total digital advertising and marketing services revenue was $40.6 million or 22% of total revenue.

This compares of $37.6 million reported for the comparable period in 2016, which represented 19.4% of total revenue for that period. We are very pleased with the market opportunity that we see in front of us due to continue to grow new segment of our business and make it a more meaningful part of our Company's financial performance.

We are also encouraged with the growth in digital subscriptions, this quarter we made steady progress and building a base of pay digital subscribers, which increased to 22,103 at the end of the third quarter, a gain of 1,833 subscribers or 9% on a sequential basis of the total at the end of the second quarter of this year.

On a year-over-year basis, digital subscribers grew 9,158, or 70.7%, when compared to the total digital subscribers of 12,945 at the end of the third quarter of last year.

This quarter, we also capitalized on the popularity of Texas High School Football by making available, a paid season pass that gives subscribers to this season pass access to all of our Digital High School Football coverage including a live play-by-play, which we provide for more than 50 local High School Football games each week.

In the month of September, we signed up 570 new paid subscribers to the service. This is the first time we've offered access to a niche site separate from our all digital access bundle.

These early results suggest that there can be other narrow verticals that have passionate followings for which we can offer a special paid digital subscription separate from our all access bundle. In addition to our season pass, we experimented with game passes, which allow for 24-hour access. In our first month, we sold 76 single game passes.

This opens up another avenue for paid digital access, time-based access and we will look for ways to experiment more with this kind of paid access offer in the future.

As we have discussed previously, we are making the growth of paid digital subscriptions our highest priority and we will continue to adopt best practices and look for innovative ways to give consumers content they are willing to pay for.

In addition to being very pleased with the growth that we have seen in both digital subscriptions and in the growth of our digital advertising and marketing services revenue, I am also pleased with the balance sheet accomplishments that Katy described previously.

By announcing that we will be paying a special dividend of $0.14 and then in the fourth quarter, we will be restarting our share buyback program. We are letting our shareholders know that we have listened to them and that we continue to appreciate their support and confidence. Louis, we are now ready for questions..

Thank you. [Operator Instructions] First question is from Chris Mooney from Wedbush Securities. Please go ahead..

Good morning, all..

Good morning, Chris..

Good morning, Chris..

Just for fun can you enlighten us, why $0.14, instead of $0.15 or $0.13 or $0.20 or whatever?.

Chris, we decided that we would peg it to a 1% of our market cap and we did a little research and kind of pick the median point for what most public companies have been doing as of late in terms of special dividend distributions and that number at that median was about 3% of market cap, so that comes to about $3 million and that’s translated to $0.14.

I'm so glad you asked because I kept thinking about we should do $0.15, but then we said no, we are going to stay with the stat and we're going to go right there at the median, so that's how we got there..

Okay. Glad to see the share repurchase returning as you can imagine that you talked about a bit.

Any thoughts beyond the 1 million shares that proposed or being reinstated?.

Yes. I mean, Chris we have prior authorization for the 1 million shares right now. I think as you’ve seen the number of shares that we trade and are flowed and just kind of the rules around where shares to bought back, feel like that's enough for right now.

Obviously, if we see that trend differ, we can go back to the Board for additional authorization, but this allows us to start the process immediately..

Okay. Series of kind of random questions.

The CapEx that you're spending on the new headquarters is what being expensed or is it being capital?.

It will all go into service this quarter right now, but there is a portion of cash paid, so that's why you see in the cash flow statements. And then it will all go in service and you'll start seeing the depreciation expense probably start in December or early January..

Okay.

And the CapEx – could you give me the number again on how much you’ve guys spend that would be CapEx plan this year?.

So the entire plan was $13 million….

Is that $7.8 million?.

Right, so the entire plan was $13 million, we’ve spent $7.8 million..

Okay..

Why don’t you break that up between the building and the operation?.

Yes. The $7.8 million, approximately $3.8 million is to the Stettler, the new headquarters right now and the rest of that will be coming through in the fourth quarter..

Okay. And the cash balance, currently I think you said that which I didn't write-down because I wasn’t expecting it..

$65 million..

Okay. So that means you've closed on the two lots..

Yes. We closed on one in September, it was fully funded and we closed on the other two a little over two weeks ago and fully funded. Pension contribution has also gone through as well. We have paid the $20 million for the voluntary contribution. So that $65 million is a net number..

Okay.

If we get back to the old question, what are you going to do with it?.

So Chris, we should have less on the balance sheet, so that we won't have to address this question. Just having fun, I’m having little fun.

Chris, as we've talked about before we are still very focused on trying to make some acquisitions that will supplement and fill in some of the gaps that we have in our marketing services portfolio that we're offering to customers.

And we have been out this whole year with the help of an investment banking firm led by Tim Storer, who was the head of DMV when we bought it. And as you know, he has been close for us now. And he's been out looking, and for the right kind of acquisition, we're probably in a similar space to what we paid for DMV. We're looking in that range.

We're not at the best of from on anything, but we have some – identified some companies that we think are very attractive and we have spoken to our board about it and we'll talk to them more about it at the December meeting..

Okay.

So nothing before the end of the year?.

I highly doubt it. I don't think that will happen. I think we need to have some more dialogue with our board in December, and I don't think anything will happen. If it happens at all that quickly, but that remains the priority for the cash that we have today on the balance sheet..

Okay. Katy, when you addressed the lots, several conference calls ago, you had noted that you – I believe you talk to would have a value of $15 million to $20 million, so $21.3 million is nice to see.

Jim, I think, you’ve given a – at the headquarters at $25 million to $30 million or more, you still feel comfortable with that range?.

Yes. I feel comfortable with that range. As we’ve said, we haven’t put the property up for sale yet, but Katy and Chris and others have been doing a lot of real due diligence to get us to a place where we can make a decision quickly after we move in and we hope to be moved in by the end of this year.

Katy tells me that every week and we are going to get started and I think we’ll actually be fully out of this building, at least all the employees out by the end of the year which would be welcome. I think everybody is looking forward to that and then that gives us the opportunity to really make a decision about how we proceed with this building..

Okay..

Nothing at our due diligence has done anything to discourage us from that number that you threw out..

Yes. Certainly there is a lot of activity Downtown, Dallas. The entire….

Yes. I will tell you that Katy has done a marvelous job with these three parking lots. Honestly, I think she has sold them for some of the highest square foot prices that we seen in Downtown, Dallas and maybe we’ll be as fortunate here with this building, but we will have to wait and see..

Can you give us any indication not necessarily a glue, but what those lots are going to become?.

The lots right now, no, two of them right now are parking lots already. One is in open plaza. What the buyers are going to do with that? I haven’t been as involved in those discussions, but two of them are active parking lots today..

Okay.

On the digital side of the business, 20% growth, if I recall correctly, the year-over-year number from the second quarter was a 40% number?.

I think it may have been even a little higher than that. But I think is in the 40% to 50% range..

So first you're talking a DMV specifically?.

Yes..

That was the number I mean and here's what I would say about that, I think the third quarter we're not unlike a lot of the other industry that the seasonality in the third quarter, especially when you're starting to see some of the vacations and people out and about.

So I think the third quarter number well less than the second quarter, not seeing anything from a trend perspective on that or anything to present concern..

Okay. And just a random question, you all had lost a number of subscribers in the fourth quarter and perhaps right after the fourth quarter due to, my guess, unhappiness amongst this base on the Presidential election.

Have you been able to recover any of those or you picking up anything new from that?.

We followed those subscribers that told us that they canceled because of our recommendation of Hillary Clinton for President. And we have gotten back some of them, but as I would say, it's less than 20% of those that we have been at specifically identified and specifically identified as coming back..

Okay.

When I look forward to meeting with you at some point in the next few weeks or month and [indiscernible]?.

Great, thanks Chris. We look forward to getting together..

Thank you. [Operator Instructions] Our next question is from Barry Lucas from Gabelli & Company. Please go ahead..

Thank you and good morning..

Good morning, Barry..

Hi, Barry..

Jim maybe or Katy you just refresh our memory.

Is there anything left in the real estate portfolio other than the headquarters building?.

On the other land, I mean building that we own is our printing facility at the North Dallas, some about 25 acres we own that and the printing facility. But again that is not only do we print our own paper, but we have a number of commercial printing arrangement that we print out of there as well..

Is there a way if you go back and look at the purchase price of DMV and what it's done for you to provide a return on investment?.

I think every two things we have to do with that Barry. I think, one, we knew when we bought DMV that it was going to be accretive on its own basis. But I think the real opportunity for has been the cross-sell opportunity in the topline revenue growth that we've been able to leverage without increasing the expense space.

What I would say if I had to – and I don't have an analysis in front of me, but if I had to kind of put a peg on kind of what the return on investment would be I would say it's definitely in the double-digits and continues to accelerate as we continue to see the increase in sales from the DMV from the TDMN sales force going into DMV.

But I don't have an exact percentage for you, but it has been accretive..

And significantly ahead of your cost of capital?.

Absolutely..

Okay. You talked a little bit about trend and the sequential slowdown digital more being seasonal anything else, but as you look at the trends, I mean then you had to maybe [indiscernible].

When do those gains assuming they are sustainable, out way print the points so when might you think we reach an election point, on the current base of business without any additional?.

Yes, Barry, we haven't actually projected that out in the way that you just described it. We've seen a couple of quarters, one last year which was the fourth quarter, where we had an unexpectedly aggressive decline in print, which causes two different things to happen.

One, it makes it more difficult to out run that decline rate during the quarter or during the year. But as time goes on it depletes the amount of revenue that we receive from print and therefore makes that easier the long-term to offset. I'll tell you what we'll do.

We're kind of thinking along the same line and I'll talk to Katy and maybe at a future call we might try to give some guidance around that. It's a little bit tricky because we don't have the experience with acquisitions like DMV that we might had, if we were doing what other newspaper companies have been doing buying up more newspapers.

So let us go and take a look at it and see if we can come up with something that isn't – that we feel confident enough to give you some information around..

That's fair.

Last one for me would be the job you’ve done on expense reductions is very incredible, but going forward as you look at the business, how much room do you think you have left to run?.

Barry this is a perennial question and we get it asked all the time we ask ourselves all the time. I think the best thing that I can say is that we have continued to be able to take our expenses down aligned with the declines in revenue and still maintain the strength of our franchise.

I think that both our digital what we published digitally is a very strong product, and I think we can say that particularly because we're now seeing a great growth in paid digital subscriptions. We're putting things out there that people necessary aren't getting from other news providers and therefore they're willing to pay for it.

We also still have a very strong print franchise. We published a very large paper by most metro standards a day in terms of number of pages and news columns.

We're still at 48 inches and width not at 44 and we're proud of that because I think it helped us maintain that franchise and retain both a good number of subscribers, and we're probably among the three or four highest priced metros in the country. And I think it's because of the quality of what we put out.

So we're going to continue to demonstrate the kind of expense management that we need to align the publishing particularly in the print publishing revenues along with an expense that keeps that business profitable. And today it is still a profitable contributor to our overall business. Someday that we will hit that wall. I don't know when that is.

It's certainly closer than it was last year and the year before and the year before because we've taken a lot of expense out as you noted.

But we are still confident that we can have a profitable publishing business by doing both expense management as well as now trying to grow digital subscribers, which we – that falls in the segment of our business that is under publishing and we think that's going to be a real contributor, both not only to revenue, but also to profitability because of the high margin involved and adding one more digital subscriber has very little expense associated with it.

So I'm hoping to see some improvement in the sort of profile of profitability of the publishing business as we continue to build our digital subscriber base..

Great. I misspoke. Let me throw one more out. I think you lap the cover price increase in the fourth quarter.

Again, when you think about room to run or elasticity of demand, maybe you talk a little bit about the plans for circulation pricing?.

Yes. Well on the home delivery side, as you know we continue to employ the services of the company, which helps those segment. Our home subscribers into different levels of elasticity around the opportunity to surprise them and we continue to do that.

So that some subscribers will see a higher price increase than others, some maybe none at all, but we know we still have some headroom on that basis, and of course, every sequential year you may pick up a little more of that headroom that you used up the year before.

On a single copy side, we had a consistent price in Sunday delivery for a long time, probably time to take a look at that single copy as we mentioned – daily single copy as we mentioned we increased last year at this time, so if we do anything on a single copy side probably along with the Sunday product, but we haven't made that final decision as yet..

Great. Thanks for that Jim..

You bet..

Thanks Barry..

Thank you. Our next question is from David Cohen from Minerva Advisors. Please go ahead..

Good morning, guys..

Good morning, David..

Good morning, David..

So one thing that you haven't really touched on to be thought process that underlies the pension vision and I'm wondering if you can sort of talk us through the decision to do anything at all, number one and then the decision to do it at the level that you did it rather than just sort of wait and see of higher interest sales about? So I would like to hear your thoughts related to that?.

Sure, David. I will give you my thoughts and then Jim could add.

We look at the pension this year, we consistently every year try to identify ways to continue to de-risk the pension and we’ve been successful not only with the program over the last several years of rolling over and many people cash out, but the opportunity to actually segment a portion of our retirees entity risk that by transferring liability to an insurance company, with something we started discussing this year.

As you know the market and return on assets right now is an all-time high.

When we look at the ability in the third quarter to not only utilize some cash on our balance sheet, but actually looking to utilize some of the plan asset and the actual in the earnings that we had on those it made financial sense we were able to segment a portion of the retirees we took out 36% of the retirees, which – with a great move for them, there with a top insurance provider in the country for transaction like this.

And it again it allowed us to continue to push out any mandatory pension contributions. I think the other thing with this is by taking advantage of it in the third quarter, we actually reduced our pension benefits fees that we would have pay this year that would have been $1.3 million.

We save $0.5 million on that and took it down through under $800,000.

So I think when you look at it from a return perspective and how to maximize the value of the cash that we were able to do and take care of an obligation, I mean I look at pension liability and while people may save well it’s not really debt, it really is and I look at that way and I know many others do. So it’s really an obligation that we have.

We took advantage of the returns that we would earned through the third quarter of this year from cash on the balance sheet we are successful and making that transfer and I think again, overall took down the PBGC fees, which were great that will be an ongoing savings, which will continue to added plan asset.

Our funded plan status after this transaction is now at 83%, which is again from an S&P perspective, really where everyone is from median and in my opinion, I think now the pension it kind of goes on auto pilot and it something that we taking care of and again if all things hold constant, we're not looking at another contribution for over six years and so I think that's a good outcome for everyone involved including the retirees..

David, I'll just add that taking care of our retired employees who have a portion of their livelihood tied to these pensions is a high priority for our Board. It is for them as much of debt obligation as it is a moral obligation and with the assets having such a great run of return credited that Katy in the rest of the pension investment committee.

It was the right time we felt to harvest some of those games and help de-risk the pension plan. We took the $20 million, which as you probably noted was just about same amount of money that we got from selling the parking lots.

So we were able to basically maintain the kind of cash that we have had for the first half of the year on the balance sheet and that low $60 million range and as Katy said, we kind of taken the pension plan for us off the table.

Also look we've been waiting around for interest rates to go up for years and years now and we ended up with a large market correction, before those interest rates went up, which might also then cause those interest rates to go back down.

We might have said we missed an opportunity to harvest some of these gains that we've seen in the assets in the pension plan.

So it was – for us the timing call to do something that we think is important to do and indicate to us how much flexibility we now have to go out and make some acquisitions and using the cash we have on the balance sheet which we think will then drive greater performance for our Company during operations..

And you guys didn't mention in your comments right now the tax implications, I assume that this yield more than just the parking lots sales going over right?.

It does. So the pension contribution of $20 million is fully tax deductible. The parking lots gains that I mentioned were about $30 million to fully offset that.

We are in an NOL generating position as you know and from a capital loss perspective that is something that we would be able to continue to utilize in the future and then on operating losses as well. So I think we have some flexibility from a tax perspective.

And I think the next question would be especially around the building, if we make a decision to sell this property and the answer is yes, that these losses in capital from a loss perspective would be able to continue to help offset that..

Great. Thank you very much..

Thanks David. End of Q&A.

Thank you. And at this time, there are no further questions. Thank you. Please continue. .

Okay. If there are no further questions, we want to thank everybody for being on the call and we look forward to talking to you again in the New Year..

Thank you. Thank you, Louis..

Thank you. And ladies and gentlemen, this conference will be made available for replay after 11 AM today through November 7. You may access the AT&T Executive Replay System at any time by dialing 1800-475-6701 and entering the access code 431356 and International participants can dial 320-365-3844.

Those numbers again are 1800-475-6701 and 320-365-3844 with the access code of 431356. That does conclude our conference for today. Thank you for your participation and for using AT&T’s Executive Teleconference. You may now disconnect..