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Gannett Co Inc  (NYSE:GCI)
Q1 2019 Earnings Call
May. 01, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter Gannett Earnings Conference Call. As a reminder, today's conference is being recorded.

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

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

Thank you. Good morning, everyone, and welcome to Gannett's First Quarter 2019 Earnings Conference Call. As a reminder, the call is being recorded and webcast. Joining us today from Gannett are Bob Dickey, President and Chief Executive Officer; Ali Engel, Chief Financial Officer; and Barbara Wall, Interim Chief Operating Officer and Chief Legal 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 2018 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 the performance for the quarter, I'd like to thank all of our shareholders and employees for your support during this proxy season. And if you still haven't voted, we encourage you to protect the value of your investment in Gannett and vote the WHITE proxy card for all of Gannett's eight Independent Director nominees. Your vote is important. For further information on any proxy related topics, I would refer you to the public press releases and presentations that we have issued over recent weeks. That said, our focus today is on our first quarter 2019 financial results and we don't intend to comment further about the proxy contest on this call.

With that, I'm going to move on to the first quarter highlights from our marketing solutions and consumer organizations. I will then turn it over to Ali, who will conclude with our detailed financial results.

Overall, we are very pleased with our first quarter results and we've delivered better than expected performance in print advertising and circulation and a 15% increase in adjusted EBITDA driven by our disciplined cost management. We also experience robust new client acquisition in March and April that we believe will contribute to improved digital advertising and marketing services revenues in both our publishing and ReachLocal segments in future quarters. Importantly, we are making significant progress toward our transition to a digitally led product and revenue model as evidenced by our strong digital-only subscriber growth, which we are confident will drive shareholder value. Looking at the publishing segment, print advertising trends were better than expected and held steady year-over-year despite the later Easter. Specifically, our national retail business was stronger across most of our top accounts.

On the circulation side, paid digital-only subscriber volumes grew 39% year-over-year to 538,000, more than halfway to our 1 million subscriber goal which we remain on track to reach in the next two years. We also had stronger than expected single copy revenues in the quarter at both USA TODAY and in our local markets reflecting improvements in volumes and some price increases. Our digital advertising and marketing services revenues in the publishing segment showed mixed trends with strong results from our national sales channel and Newsquest offset by weaker trends in our domestic local markets. Of note, we continued to deliver double-digit growth in national digital media revenues with solid results from both our premium and programmatic channels. This strong national digital media growth combined with the improved single copy trend and strong syndication revenue gains led USA TODAY to achieve flat year-over-year total revenue for the quarter.

We are encouraged by the transformation of our flagship property and USA TODAY's strong revenue performance is another proof point that our digital strategy is working despite the challenging industry environment. Turning to our ReachLocal segment, we reported continued growth in adjusted EBITDA and margins driven by the addition of WordStream and higher average revenue per client. Overall, revenues in the quarter were up slightly year-over-year reflecting the addition of WordStream offset by the sale of certain international operations and lower client counts in North America. The lower client counts reflect a couple of larger accounts that churned and slower than expected new client activity across both our local markets and ReachLocal's core markets in the seasonally slow months of January and February. We believe this temporary softness was due to some disruption from our local sales organizations as well as being slightly understaffed at our ReachLocal sales organization leading into 2019.

Importantly, we are already delivering robust new client acquisitions in March and April, which is a leading indicator of more robust growth in future quarters. As we mentioned last quarter, the marketing solutions organization is laser focused on acquiring new clients, retaining existing clients, continuing to improve sales tools and packages, and conducting digital marketing services sales training. Given the breadth of our ad products, we added a sales specialist team to ensure our local sellers can deliver the digital marketing solutions expertise to provide a competitive sales advantage. Progress with sales reorganization was evident in the quarter with our metros and community sales teams delivering strong DMS client growth in March, as previously mentioned, and the newly formed retail call centers have shown progress in reducing churn.

Looking forward to the second quarter, our product team will launch a LOCALiQ starter pack across several test markets offering clients lead management and tracking, listings and review management, and graphic design services. We will target these starter packs at our existing clients who are not currently using our DMS products as an easy introduction to our services, which directly aligns to our strategy of driving deeper client penetration of our DMS products. Lastly, for our marketing solutions organization, I want to highlight an award received earlier this week from AdExchanger. We were up against all the big names in the industry. We received best use of data by a publisher for our Grandstand tool. Grandstand is an in-house developed artificial intelligence creative platform using deep learning and computer vision to determine which design elements in an ad are going to perform best with our local audiences.

The platform provides thousands of local businesses across the nation access to the latest marketing technologies to further inform their marketing and advertising strategies with an innovative use of data. We're very excited to be recognized with this honor as Kris Barton, our Chief Product Officer, and his product teams continue to work hard to give our clients a competitive advantage. Turning to our consumer organization, we delivered a strong quarter with revenues ahead of it -- ahead of expectation and continued growth in audience trends. In the first quarter, our monthly unique visitors as measured by ComScore totaled 129 million, up 2% year over year in line with our peer set. We continue to make progress on our loyalty goals with the percent of readers coming back more than twice a week growing to 37%.

During the quarter we also launched Storylines, a new network wide mobile product that allows users to dig deeper on related stories highlighted by editors and this feature is already driving increased visit depth on mobile platforms. We delivered particularly strong performance across video with revenues up 33% year-over-year due to increased video programming on our pages, the rollout of our new cross platform responsive design video templates that is driving increased engagement, and strong growth across our affiliate network. Our solid video results are also enhancing syndication revenues, which grew by 50% in the quarter driven by a new deal with Yahoo! and our continued strong results from our partnership with MSN. We also recently launched Blue Chair Production, a short form video production studio, within our content ventures group to further accelerate growth in franchise video content.

We remain focused on driving growth in our paid digital-only subscriber base through a variety of tactics, including continued tightening in our meters. I'm pleased to report we again drove robust growth in paid digital-only subscribers while at the same time increasing our subscription rates, which resulted in a 70% digital-only revenue growth year-over-year. We are continuing to test different price points and metering methods in our local markets, rapidly deploying best practices to similar markets, and quickly ending tests that do not show positive results. Our product team had a busy first quarter delivering new products and enhancements to drive paid digital-only subscriber growth including developing a USA TODAY crossword puzzle application that launched in April, piloting a paid ad free app in several local markets, and adding dynamic meters to more personalized messaging based on user behavioral data.

As expected, we saw declines in our full access subscriber revenues as we cycled last year's pricing action, but overall volumes were slightly ahead of our projections. We will continue to focus on retaining our most loyal subscribers with content that resonates strong customer service and more modest pricing actions as we look ahead. And finally for the consumer organization, I'm pleased to congratulate our six newsrooms that were recognized in the National Headliners Awards program. USA TODAY had two first place finishes in the news series, Top 20 media market and health, media and science categories while Detroit, Milwaukee, Nashville, Palm Springs, and Redding were also among the winners. We steadfastly believe in the important role our journalists play every day in their communities and we are committed to remaining a trusted source of news and information across the communities we serve.

We are confident that continued throughout investment -- that continued thoughtful investments in our newsrooms and marketing solutions will enable us to deliver best-in-class journalism while driving growth and enhanced value for our shareholders. Across our organization, we remain focused on running our operations as efficiently as possible to enable investment in key growth areas and protect journalism while at the same time being mindful of our markets and overall returns to shareholders. In the first quarter we signed a contract to outsource some of our technology functions, announced the closure of four additional production sites, and restructured some newsrooms to more holistically manage state coverage. While these cost efforts are difficult, they are critical to the future of our Company.

Before I turn the call over to Ali, I want to take a moment to thank the team at Gannett and all our shareholders as this will be my last earnings call. It's been an honor to serve as CEO of Gannett. We've achieved a number of key milestones and accomplishments and delivered strong financial and operational performance since our spinoff in mid-2015. I cannot be prouder of all the employees across the Company who have contributed to our progress and I'm excited to follow Gannett's continued growth and success in the coming years. I am confident that Gannett has significant value creation potential through the continued digital transformation and execution of the Company's strategic pan -- plan. I truly believe that Gannett has a unique portfolio of assets, including the strongest digital marketing solutions set in the marketplace and I'm excited about what lies ahead for this great organization.

With that, let me turn it over to Ali.

Alison Engel -- Senior VP, Treasurer & CFO

Thank you, Bob, and good morning, everyone. One quick housekeeping item to start. In the first quarter of 2019 we had one more Sunday and one less Monday as compared to 2018. These day trades benefited our print advertising and circulation revenues in the quarter and therefore we have provided metrics adjusted for the day trades. As we mentioned last quarter, these day trades will have a negative impact in the third quarter. Consolidated revenues were $663 million compared to $723 million in the first quarter of 2018. The revenue decline reflects the challenging secular trends in both print advertising and circulation, partially offset by the WordStream acquisition and strong paid digital-only subscriber revenue growth. On a same-store basis, total revenues declined 9% in the first quarter. Further adjusting for the day trades, the decline was 9.9%.

Total digital revenues of $246 million represented 37% of total revenue, up from 35% a year ago. We were particularly pleased with our strong gains in adjusted EBITDA in the quarter, up 15% year-over-year driven by lower payroll and benefits cost, the addition of WordStream, and continued savings across most expense categories as we manage costs closely. Our adjusted EBITDA margins grew 190 basis points in the quarter to 9.5%. Specifically, total first quarter same-store operating expenses fell approximately 10% year-over-year reflecting the last quarter of benefit from the B2B reorganization efforts that started last April as well as the early retirement program that started in January. Newsprint expenses fell slightly in the quarter as volume reductions were more than enough to offset higher prices. Turning to the publishing segment, first quarter revenues were down 9.1% on a same-store basis. Further adjusting for the day trades, the decline was 10.1%.

As Bob mentioned, print advertising trends were slightly ahead of expectations for the quarter, down 19.3% on a same-store day adjusted basis. This decline is consistent with the Q4 trend despite a late Easter, which shifted holiday advertising into April 2019 from March 2018 a year ago. We did see a slowdown in our same-store digital advertising and marketing services revenues, which fell 5.2% year-over-year. Digital marketing services revenues continued to be our best performing category, up 6.2% year-over-year as gains in average revenue per client more than offset lower client counts. These lower counts are a combination of slower client acquisition activity, reflecting a seasonally slower period for advertising, and some continued impact from our sales reorganization. As discussed, we have seen meaningful improvement in these key metrics in March and April, including March being our most successful period of DMS client wins, and we expect stronger revenue growth as the year progresses.

Within digital media, revenues declined 5.4% on a same-store basis reflecting weaker local trends partially offset by continued strength in national. On the local side, we continue to see a shift toward performance based marketing like our digital marketing solutions and some downward pressure on CPMs. Additionally, as expected, we saw modest impact on page views and therefore programmatic revenues from our decision to lower our meters to more aggressively grow our paid digital-only subscribers. At national, we continued to see very strong results with revenues up 11% year-over-year further illustrating why Gannett continues to serve as a trusted comprehensive marketing partner to both national and local businesses. These strong results were driven by solid growth in both our direct sold and programmatic channels and our strongest categories were financial services, automotive, and telecommunications.

As expected, digital classifieds continued to negatively impact our overall digital advertising and marketing services result, which trends similar to the fourth quarter. If you were to exclude digital classifieds, publishing segment digital advertising and marketing services revenues were down only 2.9% on a same-store basis in the quarter. Switching to circulation, our same-store revenue adjusted for day trades declined 5.9% year-over-year. At our US local markets, we saw the impact of starting to cycle last year's full access subscriber pricing initiatives offset in part by several premium additions and strong growth in digital-only revenues. We did see better than expected single copy volume trends at both USA TODAY and our local markets, which combined with some pricing actions late in Q1 led to the revenue outperformance.

As Bob mentioned, paid digital-only subscriber volume growth remained robust in the quarter, up 39% year-over-year to approximately 538,000 as we are aggressively targeting new digital subscribers. We also saw improved growth in our digital only revenues with solid retention as our new subscribers move off their introductory rates to higher monthly rates. Turning to our ReachLocal segment. First quarter revenue was $97 million, up 1% year-over-year driven by the addition of WordStream and offset by the divestiture of certain international businesses and lower client counts. Continuing our strategy of streamlining our international operations to focus more on our North America operations, in early April we announced the sale of the Brazilian operations, which represents approximately $8 million in quarterly revenues and a couple million dollars in annual adjusted EBITDA.

Going forward, the ReachLocal regional presence will be comprised of the US, Canada, Australia, and New Zealand. On a same-store basis, ReachLocal segment revenues declined 6% as North America new client acquisition was slower than expected early in the quarter and there were a couple larger clients that churned and our sales teams were understaffed headed into the start of the year. We are pleased to report that in March we had saw our strongest monthly new client growth and new budget acquisition in the past four years setting us up for improved trends in Q2 and the balance of 2019. Total North America revenue was up 15% in the quarter driven by WordStream as well as gains in the Gannett local markets and SweetIQ. Digital advertising revenues; which include products such as search engine advertising, social advertising, and display advertising; were down 6% in the quarter due to lower client counts although our average revenue per client grew slightly.

Our subscription revenues grew 163% year-over-year in the quarter due to the WordStream acquisition. Driven by the addition of WordStream, our North America client base grew to 15,800 in the quarter, up 20% year-over-year. On an organic basis, our client counts were down 8%. Our average revenue per client grew 5% year-over-year excluding WordStream and totaled roughly $2,000 in the quarter. WordStream continues to meet our expectations and is progressing on numerous revenue and operational initiatives as planned. Early in Q2 we launched a new Google Shopping subscription offering, which allows clients with merchandise to feed inventory into Google Shopping ad placements. E-commerce is a fast growing segment for local businesses and our product development team at WordStream identified a new product opportunity and successfully delivered the product earlier than expected.

Adjusted EBITDA for the ReachLocal segment showed continued improvement with margins expanding to 8% in the first quarter, up from 6% a year ago. This improvement reflects the addition of WordStream and higher average revenue per client. As mentioned last quarter, our priority for 2019 is to focus on topline revenue growth and as a result, our Q1 margin was impacted by investment in additional sales and marketing resources. Our GAAP net loss for the quarter was $12 million reflecting $17 million of after-tax restructuring, asset impairment charges, and other cost. Turning to the balance sheet. We ended the quarter with $301 million in debt, including the $171 million liability portion of our convertible debt and $130 million drawn on our revolver. Our cash balance was $89 million at the end of the quarter resulting in net debt of $211 million.

Capital expenditures totaled $13 million for the first quarter reflecting investments related to digital product development as well as projects supporting our ongoing facility consolidations and real estate transactions. There were no shares repurchased this quarter and we paid $18 million in dividends. We are not making any adjustments to our full-year guidance that we provided in February.

And now, operator, we will open the line for questions. Thank you.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question comes from Kyle Evans with Stephens. Your line is open.

Kyle Evans -- Stephens Research -- Analyst

Hi, good morning.

Alison Engel -- Senior VP, Treasurer & CFO

Hey Kyle.

Kyle Evans -- Stephens Research -- Analyst

I'd like to start by congratulating Bob, happy retirement. And maybe on a related note, an update on the CEO search is my first question.

Bob Dickey -- President and Chief Executive Officer

Sure, Kyle. First of all, thanks. And I have always enjoyed working with you and the team at Stephens so much appreciate your support over the years. As it relates to the CEO search, we've been pretty consistent. The Board has selected a leading search firm. We've had a really good list of potential candidates and they're continuing to go through the process. We've publicly stated that a selection will not happen prior to our annual meeting which is a couple weeks away, but hopefully a decision shortly thereafter. In the interim, a couple months ago Barbara Wall took on the Interim Chief Operating Officer role and that's been working out very very well for us. You know Barbara. she's been with Gannett over 30 years, a key business partner of mine. And very very comfortable that the transition with the new CEO will go very nicely. And I do plan to stay on as a consultant to the Board and future CEO for the next few months as well. If needed, I'll be there for him.

Kyle Evans -- Stephens Research -- Analyst

Great. A few questions on circulation, you know I'm going to ask the obligatory pricing volume trends underlying circulation. We'll get that out of the way. But as you give those, could you kind of talk about the outlook for 2019 and then maybe even a longer-term outlook there on kind of where you expect to give or take price?

Bob Dickey -- President and Chief Executive Officer

Sure, Kyle. I think the one thing that we've noted was that our volumes were slightly better than we had projected as we cycled through price increases. So I think that right now we think that we can maintain that, but I'm going to -- because Maribel is always ready for your question, Kyle, I'm going to let Maribel give you a little more color.

Kyle Evans -- Stephens Research -- Analyst

Great.

Maribel Wadsworth -- President, USA TODAY NETWORK & Publisher of USA TODAY

Good morning. And again thank you for always raising these questions. We have, as Bob said, seen some moderation in our volume declines in the quarter. We are cycling at more aggressive pricing that we had begun in 2017 and continued in 2018. End volumes were down in the high teen range, but our pricing yields remain strong in the low double-digit range. So, that part is working well. I think you'll remember we spoke to having adjusted our approach to pricing late in 2018 and into this year. We believe it's a more strategic approach where we're excluding those customers who are on the higher end of our rate range who are paying a premium for our content already and instead targeting those subscribers who are on the lower end of that rate spectrum. And so far this pricing strategy is performing in line with our expectations, but it will have a negative year-over-year impact as the overall targeted increase is less than last year.

Kyle Evans -- Stephens Research -- Analyst

Got it. While I've got you, it sounds like you guys are making good progress to your 1 million digital-only subs goal. In your best estimation, how much of that is incremental and how much of that is cannibalization and then kind of is there a longer-term goal that we should circle?

Maribel Wadsworth -- President, USA TODAY NETWORK & Publisher of USA TODAY

It's a good question. There's no question there's a mix in our digital-only circulation volumes. We are pleased we are growing our net new digital-only. There is some percentage of that that are folks who are adopting digital from our previous full access subscriber base. But it's -- overall very strong, we're very pleased with the growth, nearly 40% year-over-year increase in volumes. Especially pleased in our ability to continue to grow the revenue side through improvement on the rate side. That's very strong retention on the one hand and on the other hand, stepping folks up to higher rate more aggressively and so you see there 70% year-over-year growth on the revenue side in the quarter. So, that's been very important. We are -- you heard both Ali and Bob speak to this, we are being much more aggressive. We're tightening up meters across a variety of our markets.

We have to help us Kris Barton and his team in product, work to implement dynamic meters that allow for more personalized messaging to our users that we believe drive stronger conversions. So, that's -- that's certainly important. And we're also focused on new product development to diversify that portfolio and hopefully expand the number of offerings we have. Just in April as a matter of fact we launched the USA TODAY crossword puzzle application. We're very happy with the very strong out of the gate downloads for that application and we're recognized as one of Apple's new games they loved, which helped really drive those downloads. Obviously conversion to paid will be key and we'll be watching that very closely, but that's definitely a focus for us.

Kyle Evans -- Stephens Research -- Analyst

And is there a long-term goal? I mean what's the three to five year outlook on that 1 million digital-only?

Alison Engel -- Senior VP, Treasurer & CFO

We've stated and it's in a lot of materials we've put out recently, but about 1.5 million -- growing to 1.5 million plus.

Kyle Evans -- Stephens Research -- Analyst

Okay. Can we dive down on the ReachLocal down...

Bob Dickey -- President and Chief Executive Officer

Hey Kyle. That 1.5 million won't take five years by the way. That will be on the shorter end...

Kyle Evans -- Stephens Research -- Analyst

Yes, I figured that out. Thanks. In other words, you're not going to get -- you're not going to get three to five?

Bob Dickey -- President and Chief Executive Officer

No.

Kyle Evans -- Stephens Research -- Analyst

Okay. That's fair. Can we dig down into the ReachLocal down 6% same-store. You alluded to some larger client churn. Do you have any idea what's driving that churn? And then how should we think about the margins for that given it sounds as like you were a little under invested in the first two quarters and maybe now you've got your sales people back in place? Just kind of how should we think about margins sequentially across the year?

Bob Dickey -- President and Chief Executive Officer

Yes. I think the margin's going to be fine because we expect to take advantage of the great job Kevin and the team have been doing with acquisition growth in March and April. They've put some plans in them late last year, early this year as they started to see an expected sort of a slower start to the year and you've seen that across the industry. For us, we're very excited how quickly their -- the team was able to energize the sales effort and those acquisitions will certainly start to pay off. We've also seen some improvement in churn. So, we will continue to build the margin and keep it in that. It always starts out at the lower end of January and then as revenues grow during the course of the year will -- that will benefit the margin as well. Kevin can speak. We lost a couple of large clients. It's not uncommon in the business too. As they get larger, many of them attempt to bring it in-house, I've made reference to that in the past, and we had a couple of those go that direction. We also saved a couple with WordStream, which we said was part of the appeal of WordStream was we now have a service to be able to sell to those who want to go to a do-it-yourself approach. Kevin, any other color you want to add.

Kevin Gentzel -- President, USA TODAY NETWORK Marketing Solutions

Yes. Just to reiterate to all that said, March was a very strong month for us in new client acquisitions and April is looking good as well. So, we're expecting improved trends in Q2 and more robust growth in the second half of the year. We've also been making investments in lead gen in Q2, which should help in the second half as well.

Kyle Evans -- Stephens Research -- Analyst

Great. Thank you.

Bob Dickey -- President and Chief Executive Officer

Thanks Kyle. Appreciate it.

Operator

Thank you. And our next question comes from Michael Kupinski with Noble Capital Markets. Your line is open.

Michael Kupinski -- Noble Financial Capital -- Analyst

Thank you. And Bob, I want to offer my congratulations. It's been nice working with you over the years, I appreciate it.

Bob Dickey -- President and Chief Executive Officer

I always enjoyed those (inaudible).

Michael Kupinski -- Noble Financial Capital -- Analyst

A couple of quick questions here. You -- the Company obviously nicely beat my cash flow estimate for the quarter, the cost came in lower than expected, and I believe that you had some facilities consolidation last year. When did those kick in and when will you start cycling against those cost reductions?

Bob Dickey -- President and Chief Executive Officer

So, I'll let Ali touch on that since she is responsible for that great performance there.

Alison Engel -- Senior VP, Treasurer & CFO

Yes. I don't have the exact dates of all the ones we did last year, Michael, but we just did four more. So, we're just continuing to work through rationalizing everything that is going on within that organization. So, we have very significant cost savings built into the GPS organization for 2019 and continue to work through that. So, it's -- they're happening throughout the year last year and they're happening throughout the year this year as well. So... (multiple speakers) as well. Yes.

Bob Dickey -- President and Chief Executive Officer

Usually, Michael, the timing for us -- usually the timing for us just the way it takes to plan and execute these as we start the cycle consolidations from the year before, we're usually in the process like Ali just pointed out of bringing in three or four more on. So, we tend to cover that fairly nicely in terms of once we roll against those year-over-year comps.

Michael Kupinski -- Noble Financial Capital -- Analyst

Got you, OK. And then just going back to the ReachLocal, the -- and can correct me if I'm wrong. But at one point the strategy of ReachLocal was to concentrate on higher margin account -- accounts and you were focused on margins and now it seems like you're pressing the accelerator on the revenue. In my -- did I get that wrong or -- because I'm just curious?

Bob Dickey -- President and Chief Executive Officer

Mike, you got it right in that we wanted to diversify the products that we were selling because when we first acquired ReachLocal, we were in that -- going back a few years now, but I think it was in the 1.2 to 1.5 products per client. We're now over two. And as we've been able to upgrade -- not upgrade but train and lift the sales staff outside of the -- in the local markets, they're starting to emulate what we saw ReachLocal, which is selling more products and we're also very proud of the fact that as we are acquiring these new clients because of that, we're holding our average revenue per client as well pretty steady right now at over a couple thousand -- about $2000 a client. So, we're not -- also seeing our ARPUs slip because we're bringing a bunch of clients who are at the lower end of the spend. And so right now, we feel once we achieve that annual margin in that 10% to 12% range for ReachLocal that we've really supported Kevin's plan to add additional sales resources.

I made reference to the specialist that we hired. That's already paying off because we're able to go in the market and double team the clients with that local knowledge and local relationship and then bring somebody in who can really speak to the needs of that client and help them. As you know, local businesses are going through multiple exchanges and sales calls with different clients or different vendors and it's very complicated anymore, they just don't have of the time. So, we're really starting to show that LOCALiQ is resonating. Kevin and his team are also doing seminars in local markets that are being very well received by those businesses who are coming to these and learning how we can handle kind of a full A to Z suite of products for them. I'm going to let Kris Barton, our Chief Product Officer, just take a minute or two and kind of speak to some of the things they are doing on the product side that's helping Kevin's team sell this full suite. Kris?

Kris Barton -- Chief Product Officer

Yes. So as we've diversified our portfolio, a couple of things that we're focused on are on the products themselves, continuing to deleverage the large datasets that we have combined with Gannett and grow our identity to really get more prescriptive recommendations on how we should be selling to our clients. And so hopefully what that translates to is we can -- in a matter of minutes we can grade a client, give them a score, and then recommend a set of offerings and respective budgets to them to really sort of simplify that entire process. And again that's sort of leveraging all the data and the work we've done to expand our portfolio, to make it simpler, and then go to market. And so that -- we're continuing to optimize that toolset and really focusing on the operational side of getting that honed in with the sales leadership teams.

Bob Dickey -- President and Chief Executive Officer

And then I think, Kevin, if you could just real quick. One of the keys, we started these inside call centers to bring those lower spend clients. There was a lot of churn last year, we knew we'd experience that. Now we're seeing that they're really starting to get traction. So, why don't you just briefly speak to what you're seeing in terms of churn improvement there, sales performance, et cetera?

Kevin Gentzel -- President, USA TODAY NETWORK Marketing Solutions

Yes. The vision behind standing out the inside sales call centers and we located them in three geographic regions has been to move a significant segment of our lower spending clients so that they could be treated in a bespoke manner by call centers who are able to build best practices, able to help these types of local clients propel into a digital future as it's been a print heavy category for us, and ultimately to start to grow the number of clients for the breadth of our business. And as we've gone through this transition, Q1 was actually the first quarter that it was fully and completely in ready form to go to market and so we've seen dramatic improvement there and we have continued expectations of improvement as we get into Q2 and certainly the second half.

Bob Dickey -- President and Chief Executive Officer

And then, Michael, the last thing I would say is we're very happy with WordStream. Kris Barton is managing -- helping -- work with Howard to manage that operation and that is a higher margin business. So the combination of all that, we're very confident we can keep the pressure on growing the topline and maintaining the margin.

Michael Kupinski -- Noble Financial Capital -- Analyst

Well, thanks for the added color. And in terms of WordStream, what type of growth rate would we expect with WordStream in terms of the revenues? And then maybe on the overall picture, just to kind of frame your thoughts given that you expect that the ReachLocal segment is expected to show better growth in subsequent quarters especially in the second half, if you can kind of maybe give us a frame of reference of what type of growth are we talking about; mid single-digits, high single-digits, double-digits? I mean can you give us an idea of what you're expecting?

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

Yes. Mike, this is Stacy. I think you -- on WordStream, I'd say we're still cycling that in. That's not in our same-store numbers at this point. But on a pro forma basis, that business is growing strong double digit and I think we expect that to continue. So, that'll roll into our second half same-store numbers at ReachLocal, which will obviously help those growth rates as we go into the second half of the year. So, I think we should see more robust growth as we head into the second half of the year.

Michael Kupinski -- Noble Financial Capital -- Analyst

Got you. And just one final question. I know that you didn't buy stock in the quarter, but can you remind me what you have left on the share repurchase authorization?

Bob Dickey -- President and Chief Executive Officer

It's like north of $100 million.

Michael Kupinski -- Noble Financial Capital -- Analyst

Okay. Alright.

Alison Engel -- Senior VP, Treasurer & CFO

Thanks, Mike.

Michael Kupinski -- Noble Financial Capital -- Analyst

Alright. Thank you so much. Appreciate it.

Bob Dickey -- President and Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from Alexia Quadrani with J.P. Morgan. Your line is open.

Anna Lizzul -- JPMorgan -- Analyst

Hi. This is Anna Lizzul on for Alexia Quadrani. Thank you for the question. I think you touched on this earlier in the call. Looking at operating expenses in Q1, the cost of sales decreased about 10% year-over-year. We were wondering if you could talk more about how you see cost reduction continuing for the remainder of the year.

Alison Engel -- Senior VP, Treasurer & CFO

Yes, sure. Great. So look, we're cycling some of the things that started in April of last year in the first quarter so we don't think in the second quarter we'll see cost declines as large as the first quarter. We do think in the second quarter also if, as we expect, we'll be hiring our new CEO, some of the CEO transition cost will hit in the second quarter and a couple of other timing issues come through and we expect some higher costs associated with our technology outsourcing project. So, in the second quarter, we expect the same-store cost expenses to be down more in mid-single digit as opposed to what we saw in the first quarter. But we do expect as always to see costs being down. We're very cognizant of the need to continue to be very cost conscious and we are always looking at different ways to manage our expenses and have -- are very focused on that as you can see and appreciate.

Anna Lizzul -- JPMorgan -- Analyst

Great. Thanks so much. If I could ask the follow-up question. How much of the decline in the print advertising do you attribute to..

Bob Dickey -- President and Chief Executive Officer

Hello. Lost you.

Alison Engel -- Senior VP, Treasurer & CFO

I'm sorry we lost you. Do we attribute to..

Anna Lizzul -- JPMorgan -- Analyst

How much of the decline in the print advertising do you attribute to the later Easter this year and also how much of a benefit are you expecting with the later Easter for print advertising in Q2?

Bob Dickey -- President and Chief Executive Officer

Anymore Easter is sort of a wash, it's not...

Alison Engel -- Senior VP, Treasurer & CFO

It's not too much, yes.

Bob Dickey -- President and Chief Executive Officer

It's not a big lift like we used to see.

Alison Engel -- Senior VP, Treasurer & CFO

It's a little bit of an impact. It's nothing material.

Anna Lizzul -- JPMorgan -- Analyst

Alright, great. Thank you so much and best of luck to you, Rob.

Bob Dickey -- President and Chief Executive Officer

Thank you very much.

Alison Engel -- Senior VP, Treasurer & CFO

Thank you.

Operator

That's all the questions we have. This concludes today's program. Ladies and gentlemen, thank you for participating in today's conference. You may all disconnect. Everyone, have a great day.

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

Thank you, operator.

Duration: 47 minutes

Call participants:

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

Bob Dickey -- President and Chief Executive Officer

Alison Engel -- Senior VP, Treasurer & CFO

Kyle Evans -- Stephens Research -- Analyst

Maribel Wadsworth -- President, USA TODAY NETWORK & Publisher of USA TODAY

Kevin Gentzel -- President, USA TODAY NETWORK Marketing Solutions

Michael Kupinski -- Noble Financial Capital -- Analyst

Kris Barton -- Chief Product Officer

Anna Lizzul -- JPMorgan -- Analyst

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