Gannett Co Inc  (NYSE:GCI)

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Q4 2018 Earnings Conference Call
Feb. 20, 2019, 10:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Q4 2018 Gannett 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 follow at that time. (Operator Instructions) As a reminder, today's conference is being recorded.

I would now like to introduce your host for today's call, Ms. Stacy Cunningham, Vice President of Financial Planning and Investor Relations. Ms. Cunningham, you may begin.

Stacy Cunningham -- Vice President of Financial Planning and Investor Relations

Thank you. Good morning, everyone, and welcome to Gannett's fourth quarter and full year 2018 earnings conference call. As a reminder, this call is being recorded and webcast. Joining us today from Gannett are Bob Dickey, President and Chief Executive Officer; and Ali Engel, Chief Financial Officer.

Before we begin, I would like to call your attention to our safe harbor provision for forward-looking statements in our financial results press release. The safe harbor provision identifies risk factors that may cause actual results to differ materially from the contents of our forward-looking statements. For a more detailed description of the risk factors that may affect our results, please refer to our financial results press release and our SEC filings, including our 2017 Form 10-K.

Also during this call, management's commentary will include non-GAAP financial measures. Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in the tables of our financial results press release, which we have posted to our Investor Relations website.

With these formalities out of the way, I'd now like to turn the call over to Bob.

Bob Dickey -- President and Chief Executive Officer

Thanks, Stacy. Good morning, and thank you for joining us today. Before we discuss our performance for the quarter and the year, I'd like to briefly touch on some of the recent news regarding Gannett. On February 4, we announced that our Board of Directors unanimously rejected an unsolicited proposal from MNG Enterprises to acquire Gannett for $12 per share in cash. After careful review and consideration, conducted in consultation with financial and legal advisors, the Gannett Board concluded that MNG's unsolicited proposal undervalues Gannett. It's not in the best interests of the Company and our shareholders, and is not credible.

During the meeting between representatives of Gannett and MNG on February 7, at which MNG once again failed to provide substantive answers to basic questions about its ability to finance and close its proposed transaction. MNG notified Gannett of its intent to nominate six candidates to stand for election to Gannett's Board of Directors at the Company's 2019 annual meeting. All of the candidates nominated are affiliated with MNG and/or its majority shareholder, Alden Global Capital.

Gannett will provide notice of the data of the 2019 annual meeting and the Board's recommended director nominees in our proxy statement and other materials to be filed with the SEC and mailed to shareholders. For further information, I would refer you to the public press releases of these topics that the Company has issued over recent weeks. Our focus today is on our financial results and we don't intend to comment further about these matters on this call.

With that I'm going to move on to our fourth quarter and full year highlights from our marketing solutions and consumer organizations, followed by discussion of our strategic priorities for 2019. I'll then turn it over to Ali, who will conclude with our detailed financial results and our outlook for 2019.

Overall, we are pleased with the fourth quarter revenue trends in our Publishing segment, which showed improvement as compared to the third quarter. Our domestic operation results were more encouraging, while our UK operations experienced weaker trends, as Brexit continues to create uncertainty that is impacting the UK economy. Our ReachLocal segment delivered another strong quarter of revenue growth and margin improvement, and WordStream continues to perform in line with our expectations.

Within the Publishing segment, we were particularly pleased to see stronger revenue growth in our digital advertising and marketing services category. National digital media revenues finished the year strong, up 18% year-over-year in the quarter, with solid results from both premium and programmatic channels. Strong audience and page view growth in our consumer organization also helped drive the improved digital media trends across both national and local. Our consumer organization delivered our best circulation revenue performance of the year, driven by our subscriber pricing initiatives. We finished the year with just over 500,000 digital-only subscribers, up 46% from year-end 2017, as we continue the transformation of our consumer business.

Turning to our ReachLocal segment, we reported solid fourth quarter revenue growth and adjusted EBITDA that more than doubled year-over-year, driven by the addition of WordStream and higher average revenue per client. We saw strong revenue growth within our local market client base, gains at are remaining international operations, and the continued migration of our client mix to larger spending accounts within the core ReachLocal North America business. For the full year, ReachLocal segment revenues grew 15% and adjusted EBITDA margins reached 12%, achieving our double-digit goal well ahead of expectations. Since acquiring ReachLocal in August of 2016, we have succeeded in turning an unprofitable business into a healthy and growing digital business and are providing our clients with best-in-class digital marketing products and services. And we are able to effectively lower our cash purchase price by 23% with tax planning and the utilization of tax assets.

In summary, ReachLocal has both driven improved financial results, and importantly, helped accelerate the digital transformation of our B2B business. Looking ahead, we are focused on new client acquisition, local market penetration and creating sticky relationships by up-selling our clients on our full suite of products. I'm incredibly proud of what we accomplished in our marketing solutions organization in 2018 and we believe, we are well positioned for another strong year in 2019.

During 2018, we made significant progress on our strategic B2B sales transformation, reorganizing the team to better serve of our clients, changing leadership and launching a new go-to-market brand, LOCALiQ. We are encouraged by the progress we are seeing with our metros and communities sales teams, who have consistently grown digital revenue year-over-year since the reorganization and have the goal of growing total advertising revenue by the end of 2019.

Our newly formed strategics team is taking a more holistic approach to our larger clients, creating solutions including both ReachLocal and SweetIQ products that delivered over 50% digital revenue growth in the fourth quarter. Our call centers, which are focused on our smallest, highest churn clients, are just starting to gain traction. And on the national side, at USA TODAY, our sales team achieved a key milestone, more than 75% of USA TODAY's advertising revenues are digital. And they achieved total advertising revenue growth again in 2018. Given the challenges facing many digital media publishers today, these results underscore the strong execution of our strategy by our national sales team and the USA TODAY brand.

Looking ahead to 2019, the marketing solutions organization will build on this strong foundation, the strategy, organization and branding, while also implementing additional technology -- technological improvements that will drive efficiencies across the entire sales process, from planning to order fulfillment. The sales teams across both Publishing and ReachLocal are laser focused on acquiring customers and driving improved sales productivity. Our sales efforts will be supported by investments in sales hiring and training, key marketing initiatives and product development to ensure our platforms and tools remain the best in the industry.

We know the future of the Company is digital and anticipate much more robust growth in our digital advertising and marketing services revenues in 2019. We are on track to achieve our target of more than 50% of our advertising and marketing services revenues from digital sources early in 2019, ahead of our previous schedule.

Turning to our consumer organization, there are also many successes to highlight. Our unique visitors, as measured by Comscore, reached an all-time time high of 133 million in November, driven by our unique and differentiated election coverage across our markets and from our national team at USA TODAY. For the full year, our unique visitors, as measured by Comscore, averaged 126 million, up 8% year-over-year, a strong performance relative to our peer set, which was flat. Our continued audience growth in 2018 is a testament to the success of our audience development strategy, which is being implemented across our newsrooms, our investment in key areas such as video, where we launched three new series this year that's delivered more than 1.3 billion views and our product development team's relentless focus on delivering best-in-class results.

Additionally, our focus on innovative new consumer experiences, like virtual and augmented reality, has supported our audience development efforts, in fact, just this morning, we're very excited that USA TODAY NETWORK was named on Fast Company's annual list of the world's most innovative companies for 2019. The company was listed as number four in the virtual augmented reality category. This is an outstanding recognition for our endeavors in emerging technology and storytelling, including our work for the Pulitzer Prize-winning, The Wall, the launch of our augmented reality app 321 Launch and our AR experience that supported our investigative journalism podcast, The City. Additionally, the team has released two AR projects this year, including Monday's AR experience around the Oscars and has over a dozen projects in the pipeline for 2019.

Finally, the top highlight of the year for our consumer organization was winning three Pulitzer prizes, the most network wins of the prestigious award in a single year since 1991. I couldn't be prouder of the extraordinary journalism our newsrooms produce each day, which strengthens the communities we serve, while expanding our audience and increasing monetization opportunities. While our industry is undoubtedly facing challenges, we at Gannett are committed to remaining a trusted source of news and information across our communities and we are confident that continued thoughtful investments in journalism and marketing solutions will enable us to do so, while also creating value for our shareholders.

In 2019, our consumer organization is focused on growing overall digital audience and engagement, retaining our loyal print subscribers and creating products and experiences that drive continued growth in digital subscriber base. We are making additional investments in video content, where we are experiencing strong returns, and in product development to increase engagement and conversion to our paid digital products. Based on the success we saw in 2018, we are lowering our pay wall meters across a broader set of our markets to drive conversion opportunities and we will be experimenting with hybrid models that will restrict access to certain premium content, while still metering the rest of the content.

And finally, building on our learnings from 2018, we will continue to look at increased pricing for our digital only subscription. This year we will also be investing in a variety of audience acquisition tactics to grow and nurture the top and middle of the funnel, to attract new users and increased conversions. There are very large non-paid audience, including more than 100 million unique visitors, 6 million newsletter subscribers and 2 million podcast audio listeners, to name a few. Growing these non-paid users and converting them to paid subscribers is a key focus for 2019.

For our full access subscriber base, we have implemented a more strategic approach to our pricing for 2019, excluding the customers who are ready -- who are already paying a premium for our content and targeting lower priced subscribers. Given the slightly smaller subset of subscribers and lower price points, we are anticipating less incremental revenue year-over-year from full access pricing and that overall circulation revenue trends will be lower in 2019.

Across our organization, we remain committed to running our operations as efficiently as possible to both enable investment in key growth areas and protect journalism, while at the same time being mindful of our margins and overall returns to shareholders. 2018, we consolidated three printing facilities, streamlined distribution routes, outsourced a portion of our inbound customer call centers and offered an early retirement program to our employees.

As we look ahead to 2019, our focus on efficiency will continue. Some key projects include the outsourcing of various technology functions over the course of the first half of the year, the restructuring of some newsrooms into a more holistic, lead managed, state coverage -- to holistically manage state coverage and additional printing and distribution efforts. While these cost efforts are difficult, they are critical to the long-term success of the Company. Amid all of these initiatives, we will continue to be disciplined in our use of capital for both organic and acquisitive growth opportunities to deliver value to shareholders, as we have in the past.

Before I turn the call over to Ali, I want to take a moment to thank the team at Gannett and all of our shareholders. I'm focused on supporting Gannett's leadership, continuing our digital transformation and positioning our brands for the future. We've accomplished a lot since the spin-off in mid-2015, growing our digital revenues to $1 billion or more than one-third of our total revenues, and creating an advertising and marketing solutions powerhouse that generates more than $780 million in digital revenue. We truly believe that we have a unique set of assets, including the strongest digital marketing solution set in the marketplace, an impactful local to national journalism, and we remain optimistic about our market position and future growth opportunities.

With that, let me turn it over to Ali.

Alison Engel -- Chief Financial Officer and Treasurer

Thank you, Bob, and good morning everyone. One quick housekeeping item to start. Our fourth quarter of 2018 had 92 days, while the fourth quarter of 2017 had 98 days. We estimate the six days accounted for $41 million in revenue and $30 million in adjusted EBITDA. When further comparing the 92-day course, in 2018, we had one less Sunday and one more Monday as compared to 2017. These day trades have a material impact on our print, advertising and circulation revenues, and therefore, we have provided metrics adjusted for the day trades. Looking ahead to 2019, we anticipate the day trades will positively impact our first quarter and they will negatively impact our third quarter.

Consolidated revenues were $751 million compared to $854 million in the fourth quarter of 2017. The revenue decline reflects the loss of six days and the challenging print advertising and single copy circulation environment, partially offset by the WordStream acquisition, full access subscriber pricing initiatives and digital and marketing services revenue growth.

On a same-store day-adjusted basis, total revenues declined 8.6% in the fourth quarter. Further adjusting for the day trades, the decline was 7.4%. Total digital revenues of $272 million, represented 36% of total revenue, up from 32% a year ago. Adjusted EBITDA totaled $111 million for the quarter, down 16% from last year. The solid growth in our ReachLocal segment and the addition of WordStream did not entirely offset the revenue pressures within the Publishing segment.

Total fourth quarter same-store day-adjusted operating expenses fell approximately 7% year-over-year, reflecting production and distribution savings as a result of facility consolidations and lower payroll and benefits expenses. These reductions were offset in part by expense increases at our ReachLocal segment associated with higher revenues and the impact of higher newsprint prices.

Turning to the Publishing segment. Fourth quarter revenues were down 9.8% on a same-store day-adjusted basis. Further adjusting for the day trades, the decline was 8.5%, an improvement from the third quarter trend. We were pleased to see an uptick in our digital advertising and marketing services revenue growth, up 3.4% on a same-store day-adjusted basis versus 1% growth in the prior quarter.

Digital marketing services revenues continued to be a bright spot, up 27.5% year-over-year on a same-store day-adjusted basis, driven by higher average revenue per client. We are seeing larger clients that are running more higher dollar campaigns. Within digital media, revenues returned to growth, up 2.3% on a same-store day-adjusted basis, with a strong national performance, offset by weakness in local display. At national, both our premium and programmatic channels delivered strong results with revenues up 18% year-over-year. Our strongest categories were media and entertainment, consumer technology, auto, telecommunications, financial services and retail.

As expected, digital classifieds continued to negatively impact our overall digital advertising and marketing services results, although they continue to show improving trends. Auto and employment both showed smaller declines as compared to the third quarter. If you were to exclude digital classifieds, Publishing segment digital advertising and marketing services revenues were up 6.7% on a same-store day-adjusted basis in the quarter. Same-store day-adjusted print advertising revenues fell 21% in the quarter and further adjusting for day trades, the decline was 19.6%. We continue to see some of the largest declines from our national pre-print advertisers and with our very smallest clients.

Switching to circulation, adjusted for day trades, our same-store day-adjusted revenue trends improved to down 3%, led by our US local markets, which benefited from our full access subscriber pricing initiatives and growth from premium additions in the fourth quarter. Single copy trends at both USA TODAY and within our local markets remain weak as expected. Digital-only circulation volume growth remained robust in the quarter, up 46% year-over-year to 504,000 subscribers, as we are aggressively targeting new digital subscribers. We also saw improved growth in our digital-only circulation revenues, which were up 38% year-over-year in the quarter, with solid retention, as our new subscribers move up their introductory rates to higher monthly rates.

Turning to our ReachLocal segment, the fourth quarter revenue was $105 million, up 3.5% year-over-year, driven by the addition of WordStream and solid organic growth, offset by the divestiture of certain international businesses. On a same-store day-adjusted basis, ReachLocal segment revenues grew 5%. We continue to see strong growth in average revenue per client, as the number of products per client continues to grow. As discussed last quarter, we will focus much of our conversation on ReachLocal North America business, as that represents the large majority of the segment's revenues. Total North America revenue was up 19% in the quarter, driven by WordStream, as well as gains in the Gannett local markets and SweetIQ.

By revenue category, our digital advertising revenues, which include products such as search engine advertising, social advertising and digital and display advertising, were down slightly in the quarter, driven in part by our continued shift away from smaller and lower margin clients. Our subscription revenues nearly tripled in the quarter, due to the WordStream acquisition and a 7% increase in our present solutions, such as listings and reputation management, SEO and website development.

Our North America client base grew to 15,600 in the quarter, up 17% year-over-year, driven by the addition of WordStream. Excluding WordStream, our client counts were down slightly, as we continue to focus on acquiring larger, higher ARPU clients as mentioned previously. These larger clients are more profitable and tend to have higher retention rates. Our average revenue per client grew 9% year-over-year, excluding WordStream and totaled just over $2,000 in the quarter. WordStream continues to exceed our expectations and is progressing on numerous revenue and operational initiatives as planned. Key initiatives include cross-selling SweetIQ listings and reputation management products to the WordStream existing client base, while the product development team is focused on a new Google Shopping subscription offering, set to launch in the third quarter.

The ReachLocal segment delivered another strong adjusted EBITDA margin, reaching 13%, up from 7% in the fourth quarter of last year, reflecting the addition of WordStream, higher average revenue per client and some year-ago charges at our international operations that depressed fourth quarter 2017 results. With solid EBITDA margins now established, our focus in 2019 is on driving top line growth through targeted investments in additional sales and marketing resources across all DMS products. Our GAAP net loss for the quarter was $14 million, reflecting $56 million of after-tax restructuring, asset impairment charges and other costs of which $30 million was non-cash.

Turning to the balance sheet, we ended the year with $304 million in debt, including our convertible debt, and $135 million drawn on our revolver. Our cash balance was $94 million at the end of the quarter, resulting in net debt of $211 million. Capital expenditures totaled $19 million for the fourth quarter and $63 million for the year, reflecting investments related to digital product development, as well as projects supporting our ongoing facility consolidation and real estate transactions. There were no shares repurchased this quarter and we paid $18 million in dividends.

We are providing the following 2019 outlook, which reflects growth in our digital advertising and marketing services and digital subscription businesses, as well as the continued pressures facing our print advertising and circulation revenue streams. Consolidated revenues between $2.74 billion and $2.81 billion, consolidated adjusted EBITDA of $285 million to $295 million, including approximately $8 million of one-time costs associated with the CEO transition. Capital expenditures of $50 million to $60 million, excluding real estate projects. Depreciation and amortization of $150 million to $160 million, excluding accelerated depreciation related to facility consolidations. The non-operating cost associated with our pension plans, recorded in other non-operating items, is currently estimated to be between $20 million to $25 million of expense as compared to a credit of $5 million in 2018. And finally, a non-GAAP effective tax rate of 28% to 30%.

Before I turn it back to the operator, I'd like to remind you that we will only take questions today related to our fourth quarter and full year 2018 results. Operator, we will now take questions. Thank you.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from Michael Kupinski with Noble Capital Market.

Michael Kupinski -- Noble Financial Capital -- Analyst

Thank you. A couple of quick questions. What was the average number of products per client for ReachLocal and what was it a year earlier?

Bob Dickey -- President and Chief Executive Officer

Yeah, we're in the neighborhood of about two products per client, we were in the -- depending if it was local or Reach -- if it was a Gannett or a Reach client, was more in the 1.4, 1.5.

Michael Kupinski -- Noble Financial Capital -- Analyst

Got you. And then in terms of the margins at ReachLocal, I know that you achieved your double-digit margins.

Bob Dickey -- President and Chief Executive Officer

Michael, I should note it's like 1.2 when we first acquired Reach, so it's been a nice steady growth.

Michael Kupinski -- Noble Financial Capital -- Analyst

Perfect. Thank you. I know that you reached your margin goals for ReachLocal, but I was wondering if you can just give us a little thought about maybe the colors on the margins that you'll expect for 2019 and what type of margin goals for the segment should we look for going forward and what type of sustainable margins, I guess, for that business do you think we should look for?

Bob Dickey -- President and Chief Executive Officer

In 2019, I think, we're pretty comfortable with where we're at, you know, it's going to be in that low double-digits of 11% to 13% is probably a number we can achieve. We are investing in additional sales resources, sales training, product development, but we'll be able to maintain those margins. And we see margin growth, if you look out -- some slight opportunity for margin growth as you look into 2020, 2021. But right now, we're really reinvesting now that we have the Company on very solid footing, really ensuring that we have the proper sales resources, training and product development investments that we need to grow the Company.

Alison Engel -- Chief Financial Officer and Treasurer

We'll get a tiny bit of accretion, Michael, from WordStream in that margin. So I think we won't have any trouble holding it with the impetus (ph).

Michael Kupinski -- Noble Financial Capital -- Analyst

Perfect. And then, I was wondering if you can talk a little bit about acquisitions. There are some obvious properties out on the market. And I was just wondering in terms of priorities and what you might be looking for, additional digital acquisitions, or are you still looking at the prospect of some traditional newspaper acquisitions. Can you just give a little priority on what you're looking at these days?

Bob Dickey -- President and Chief Executive Officer

Yeah, we've been pretty consistent that we are in the market to continue to look at opportunities like a WordStream that makes sense to help accelerate our growth on the B2B side and digital marketing services arena. And so, we're constantly reviewing what's available. But also in the publishing area, we've made comments in the past that with valuations coming down around the true digital pure plays that we're paying more attention to those opportunities. And we've always said that if there were some Publishing targets out there that made sense for us that could help us broaden our local to national footprint, we look at all of those, and we've consistently looked at those in the past. They haven't fit for us like in Austin or West Palm Beach, but we look -- we continue to be open-minded and will do so going forward.

Michael Kupinski -- Noble Financial Capital -- Analyst

All right, thank you, that's all I have for now. Thank you.

Alison Engel -- Chief Financial Officer and Treasurer

Thank you Micheal.

Bob Dickey -- President and Chief Executive Officer

Thanks, Michael.

Operator

Thank you. Ladies and gentlemen, our next question comes from Doug Arthur with Huber Research.

Douglas Arthur -- Huber Research Company -- Analyst

Yes, thank you. Ali, just last year when you highlighted the impact of the extra week, per se, or six days, I think you had a number of $49.1 million. Is that -- just so I am on the same page here, have you revised that to $41 million? Did I hear that correctly?

Alison Engel -- Chief Financial Officer and Treasurer

Stacy says last year was seven days versus six, so I think it was about a day. And I think that's about right. So I think, when we had it -- in the calendars, when we've had the day or so off, it's been around $6 million to $7 million and so that sounds about right.

Douglas Arthur -- Huber Research Company -- Analyst

And I'm sorry, did you say that the -- I didn't quite hear what you said the EBITDA impact was?

Alison Engel -- Chief Financial Officer and Treasurer

$3 million.

Douglas Arthur -- Huber Research Company -- Analyst

$33 million?

Alison Engel -- Chief Financial Officer and Treasurer

No $3 million.

Douglas Arthur -- Huber Research Company -- Analyst

$3 million? I'm, sorry, $3 million. Bob, you talked about the UK and Brexit. I mean, do you -- what are your thoughts on Newsquest? I mean this has been an asset in the portfolio for a long time. It kind of was ahead of the game years ago on the digital side. But it sounds like it's struggling right now. I mean, how do you sort of think about that over the next -- strategically over the next five years?

Bob Dickey -- President and Chief Executive Officer

Regarding digital, they've been not as forward leaning in the digital marketing services space. Over the last few years, they've done a really good job of selling their local display, digital display. Henry Walker and the team are outstanding over there, they still drive the highest margins in the UK, we have a really positive footprint. We've added some products acquisitions under Henry's guidance the last three years that have all paid off nicely for us. And right now, we launched LOCALiQ. Henry and his team, in the late third quarter, fourth quarter, launched LOCALiQ and are very aggressively utilizing the ReachLocal platform to sell digital marketing services.

So we see that as a very positive revenue stream for them. We have very ambitious plans over there, and so far they've been adding staff and clients. So I think, 2019 will be a real turning point for them in terms of the digital marketing services revenues. They are the best performer in the regional publishing month and quarter by -- each and every quarter and have been for about five years, that hasn't changed. We'll continue to take guidance from Henry on where there might be acquisition targets that makes sense, because of our footprint over there, we have the printing facilities, distribution, et cetera that we can make these accretive investments, and each and everyone has paid off for us.

Alison Engel -- Chief Financial Officer and Treasurer

We also benefit from a lower statutory tax rate, as well as able to repatriate cash from the UK in a tax-free manner. It's tax favorable.

Bob Dickey -- President and Chief Executive Officer

So I think, if you look at our five-year plan, Newsquest will continue to be an important part of that going forward and that's where we stand with Newsquest right now. I'm very happy with the team over there and the work they're doing.

Douglas Arthur -- Huber Research Company -- Analyst

Okay. That's very helpful. And then finally, I mean there's been a lot of management change here at the Company with Sharon leaving and you're retiring. I don't quite know what the timetable was on that. Can you -- what can you tell us sort of about the future leadership plans at the Company?

Bob Dickey -- President and Chief Executive Officer

Well, as it relates to the B2B, we announced that Kevin Gentzel, who had been our Chief Revenue Officer and working hand-in-hand with Sharon through the sales reorganization, he was one of the authors of that. Kevin has a very extensive background. He became President the first of the year of the B2B organization, and we have total confidence in Kevin's ability. He's been able to recruit some incredible talent to our team, as evidenced by some of the things that I pointed out. There is very few national sales teams out there that are showing 18% to 20% year-over-year growth. They've done it two years in a row. It's part of why we've been able to turn USA TODAY's overall operation into a very solid performer for us.

So, Kevin is incredibly well connected in not only the digital space, but in the advertising community in general. So we feel really, really good about Kevin's leadership. And the other announcement at that time was Kris Barton, who is our Chief Product Officer, was reporting to Sharon. He now reports to me. We've expanded Kris' role and he is an incredibly talented individual, he's already made in the past year tremendous strides in integrating our product development teams across the various enterprises. And Kris will be responsible for WordStream and SweetIQ, going forward.

So I think we've placed two really, really talented people in those organizations and they work really, really closely with Maribel Wadsworth, who is leading the consumer efforts, and evidenced by our fourth quarter both on audience, as well as the circulation revenue improvements that we saw. I think, the three of them are going to do a great job. On my personal situation, we've made it public that the Company has hired a search firm and the Board will continue to communicate at the appropriate time where that stands, and I have publicly stated that my intention is to retire on May 7.

Douglas Arthur -- Huber Research Company -- Analyst

And I assume the search is both internal and external candidates?

Bob Dickey -- President and Chief Executive Officer

I should have made that clear. Yes, it is. And it's very active as of today. Thank you.

Douglas Arthur -- Huber Research Company -- Analyst

Okay. Thank you very much.

Alison Engel -- Chief Financial Officer and Treasurer

Thank you, Doug.

Operator

Thank you. Our next question comes from Alexia Quadrani with JPMorgan.

Unidentified Participant -- -- Analyst

Hi, this is Ana Liza (ph) on for Alexia. Thanks for the question. You noted operating expenses had fallen about 7% year-over-year in 2018, and we were wondering how much cost do you think you can still take out of the business going forward? Thanks.

Alison Engel -- Chief Financial Officer and Treasurer

So thank you for the very good question, and one we get frequently. So we appreciate it. We definitely have built our 2019 plan around continuing to manage our cost structure, as we know that our legacy print advertising and circulation revenue streams will continue to decline, and we've been very transparent about that. We've implemented initiatives in 2018 and the beginning of 2019 that will save us roughly $60 million (ph). In 2019, these include outsourcing of our circulation call center, our early retirement program that we completed in December, newsroom restructuring efforts, more production and distribution consolidation and different projects that we've implemented in that area.

We've just finished wrapping up a technology outsourcing project in terms of signing the contract, now that projects kicking off that would generate modest savings in 2019 and then really run -- ramp those savings into 2020 and beyond. We don't think cost cutting or cost savings here are easy. They are a lot more project oriented, they have longer lead times and they require a lot of effort, but we're very focused on that, and we know that it has to be done and we've been good operators and have been able to do that in the past and believe we can continue to do so. Bob, do you want to add anything to that?

Bob Dickey -- President and Chief Executive Officer

Well, I think it's also evidenced that we take a very serious and strategic approach to this, to ensure that we do our best to protect the journalism that we produce and publish everyday. It's not by chance that we won the three Pulitzers and another awards last year. And in our local markets, we continue to have the largest audiences. We are number one or number two digitally and when you include our print readership, we usually are number one. And we take that very seriously.

Our commitment -- the Company is 113 years old, and it's the balance. We also believe that by investing in quality journalism we'll be able to continue our growth toward our digital subscription goals. We're very proud of the 46% growth we saw in 2018. And I hope -- I've even stated it before, we have an internal goal to get to 1 million digital subscribers and we feel really good about what we've learned in 2018 that we can accelerate that and continue to meet those -- ultimately hit our internal goal.

Operator

Thank you. Our next question, or our final question comes from Kyle Evans with Stephens.

Kyle Evans -- Stephens Research -- Analyst

Hi, thanks for taking my questions. You mentioned headwinds in print and tailwinds in digital. I wonder, if you could give a little bit more guidance and help us build to the midpoint of your revenue guide with a little bit more a closer look at the components of Publishing and ReachLocal?

Alison Engel -- Chief Financial Officer and Treasurer

Sure. Good to hear from you, Kyle. Look, we're looking very aggressively at the digital advertising and marketing services revenue growth, both in the Publishing and ReachLocal segment. For 2019, we're really focused on client acquisition in the digital marketing services side and increasing the penetration rate of our existing clients that buy digital or other products from us. There's a lot of potential here, as you've heard us talk about before, so that's a big focus in 2019. We're on track to achieve our target of more than 50% of our advertising and marketing services revenues come from digital sources in early 2019. We expect strong growth out of digital marketing services revenues. We expect more robust growth from digital media as we continue to leverage our national assets team and our unique branded content offerings and we think there'll be some stabilization within digital classifieds.

On print, advertising, we think, there'll be some modest improvement as we cycle the sales transition impact that we had in the second half of the year and begin to see the positive improvements in our SMB call center structure that's supporting our small client account base, which has been a little bit weak and it takes the longest impact through the sales transformation, because there's a very large number of those clients that we're working through that process. On circulation, we are going to see less benefit, as we discussed, from pricing in 2019. That will be partially offset by more robust growth in digital-only circulation revenues. So I would say combined, we have circulation revenues a little bit worse than we saw last year.

Kyle Evans -- Stephens Research -- Analyst

Thank you for that. And can we stick on to circulation for a minute, I'm a broken record on this one. Could you dive down and --

Bob Dickey -- President and Chief Executive Officer

Kyle, we'll be disappointed if you didn't ask this (multiple speakers).

Alison Engel -- Chief Financial Officer and Treasurer

We'll be disappointed, come on Kyle.

Kyle Evans -- Stephens Research -- Analyst

Here's my fat pitch for you. Can you dive down into the volume versus pricing trends in the quarter and help us think about that, looking forward into '19?

Alison Engel -- Chief Financial Officer and Treasurer

Yeah, I mean, if you're looking at the yield. It's in the high teens range, which is consistent with our expectations, this is for (inaudible). Our volume declines were in the high teens to 20% range. So a little bit about where we expected. Little bit more downgrade activity than we thought. About 7% to 9% of those volume declines are related to pricing. Related to downgrade, we're seeing daily volumes more than Sunday, as folks move from seven day a week to a lower FOD, which is a trend we've seen and we've expected. It aligns with our pricing strategy that focuses on key (ph) days of the week that are most valuable to the advertising and readership from those perspectives and Kevin's team will emphasize and understand that.

So for 2019, we're really focused on excluding from the pricing customers who are paying a premium and targeting those that we still need to bring up, very similar to what we're doing on the digital-only side, which is raising that floor. And so, because that's a smaller subset of our subscribers, because we've had such good success with this program, we're anticipating a little bit less incremental revenue year-over-year on that.

Kyle Evans -- Stephens Research -- Analyst

When you get to the end of next year, what do you think your volume will look like, roughly?

Alison Engel -- Chief Financial Officer and Treasurer

That's probably about the same, Kyle, in terms of downward trends, it will be in the high teens, low-20.

Kyle Evans -- Stephens Research -- Analyst

Okay. Thank you so much.

Alison Engel -- Chief Financial Officer and Treasurer

Sure.

Bob Dickey -- President and Chief Executive Officer

Thanks, Kyle.

Operator

Thank you. Ladies and gentlemen, thank you for your participation in today's question-and-answer session, as well as today's call. This concludes the program. You may all disconnect and have a wonderful day.

Duration: 49 minutes

Call participants:

Stacy Cunningham -- Vice President of Financial Planning and Investor Relations

Bob Dickey -- President and Chief Executive Officer

Alison Engel -- Chief Financial Officer and Treasurer

Michael Kupinski -- Noble Financial Capital -- Analyst

Douglas Arthur -- Huber Research Company -- Analyst

Unidentified Participant -- -- Analyst

Kyle Evans -- Stephens Research -- Analyst

More GCI analysis

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