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Executives

Elaine Lintecum - Chief Financial Officer

Pat Talamantes - President and CEO

Mark Zieman - VP of Operations

Chris Hendricks - VP of Interactive Media

Analysts

Craig Huber - Huber Research

Avi Steiner - JPMorgan

Amy Stepnowski - Hartford

Patrick Fitzgerald - Baird

The McClatchy Company (MNI) Q4 2013 Results Earnings Conference Call February 13, 2014 12:00 PM ET

[Abrupt start]

Operator

Quarter 2013 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions).

Thank you. Ms. Elaine Lintecum, CFO. You may begin your conference ma’am.

Elaine Lintecum

Thank you Shirley, and thank you all for joining us today for our fourth quarter earnings call. Joining me today is Pat Talamantes, our President and CEO; our Vice President of Operations, Mark Zieman; and our Vice President of Interactive Media, Chris Hendricks. Our Assistant Treasurer, and Director of Investor Relations, Ryan Kimball could not join us this morning, but he will be available to answer any follow-up questions for you after our call. His number is 916-321-1849 and you can also find his contact information on our website.

This call is being webcast at mcclatchy.com and will be archived for future reference. Our earnings release was issued this morning before the market opened and I hope you have had a chance to review it.

This call contains forward-looking statements that are subject to risks and uncertainties that are described in our SEC filings. Actual results may differ materially from those described during the call. Also, we’ll be using non-GAAP amounts this morning and those non-GAAP amounts are reconciled to the most directly comparable GAAP measures in schedules that are posted on our website.

Now I’d like to turn the call over to Pat Talamantes.

Pat Talamantes

Thanks Elaine, and thank you all for joining the conference call today. I’d like to review our fourth quarter results and provide an update on the strategic initiatives that are driving the digital transformation of our business. We continue to execute on our revenue diversification and digital growth strategies. We’re pleased to see the total revenue trend improved this quarter compared to both the 13 week 2012 fourth quarter and to the third quarter of 2013.

Like a number of our peers our fiscal 2013 reporting period was a 52 week year compared to a 53 week year in 2012. And as a result, the fiscal fourth quarter of 2013 includes 13 weeks compared to 14 weeks in the 2012 quarter.

For the 2012 year we estimate that the reported net loss was reduced by approximately $4.0 million because of the additional week being reported. For purposes of the call today, we will generally limit our discussion regarding results from the fourth quarter of 2012 to a comparable 13 week basis and to a 52 week year for full year 2012 results.

So with that out of the way we did see another quarter of revenue growth from our digital subscription program in the fourth quarter. Additionally we reported growth in both direct marketing and total digital advertising revenues with the latter being driven by double-digit growth in digital only advertising.

We also continue to invest in revenue generation initiatives and enterprise wide operating systems while keeping cost in check and we again had another quarter of significant savings in interest expense due to both lower debt balances and interest rates compared to the same quarter last year.

We received $38.7 million in cash distributions from our equity investments during the quarter. Total equity investment distributions for all of 2013 equaled $42.4 million. We ended the year with $80.8 million in cash and entered the new year with only $29 million in debt principal coming due in late 2014 and then no maturities until the second half of 2017.

Let’s now turn to the details of the fourth quarter starting with revenues. Total revenues finished down 2.1% compared to down 4.2% in the third quarter of 2013 and down 5.3% in the fourth quarter of 2012. One driver behind the improvement was the growth in circulation revenues. Total circulation revenues finished up 9.1% compared to the same quarter last year. After excluding $4.9 million in revenues related to the continuing transition to fee for service circulation delivery contract at some of our news papers that I am sure most of you will remember from prior calls. Total circulation revenues were up 3.3% for the quarter.

The Plus Program finished the year on a strong note providing more than $8.8 million in new revenues in the quarter and $31.4 million for all of 2013. As a reminder our initial full year 2013 revenue guidance for the program when we started the rollout in May 2012 was for just over $20 million. We finished the year with 32,400 new digital-only subscriptions from the Plus Program and total digital-only subscriptions of more than 60,000.

For the quarter total advertising revenues were down 6.0% compared to the fourth quarter of 2012. And while our print advertising decline it was partially offset by advertising revenue growth of 2.2% in both direct marketing and total digital advertising. Digital advertising revenue growth continues to be powered by digital-only advertising which finished up in impressive 13.2% for the quarter.

Total digital-only related revenue which includes revenue from both advertising and circulations was up 15.8% compared to the same quarter last year. We continue to extend our reach beyond the daily printed newspaper via our direct marketing and digital advertising efforts.

On a combined basis, these two growing sources of revenues contributed 39.7% of our total advertising revenues in the fourth quarter. Within advertising categories total retail advertising finished down 7.1% in the quarter compared to the same quarter last year. And while this category was down the fourth quarter result does represent almost the 4 point improvement compared to the third quarter of 2013.

In terms of segments we saw this improvement in trends largely coming from department stores, building an home centers, furniture and the food and drug categories. In digital we saw a growth of 16.1% in digital-only retail ad revenues, which helped total digital retail increase by 3.1%. National advertising was down 17.9% in the fourth quarter. The decline was primarily due to difficult comparisons in the fourth quarter of 2012 when national was down only 4.2% year-over-year. Two volatile categories that were big helped last year banking and telecommunications pulled back in the fourth quarter.

Moving to classified advertising. This category finished down 4.6% in Q4 an improvement above Q3 of 2013 and the Q4 of 2012. And total digital-only classified advertising revenues finished up an impressive 19.1% in Q4. Within classified categories real-estate improved finishing up 2.2% compared to the fourth quarter of last year. It is good to see growth in both print and digital retail advertising. Did I say retail? I am sorry, everyone. That was real-estate advertising, you do that.

Automotive advertising as a whole finished down 2.0% in total, the best result of the year while digital auto grew 12.1% and digital was up 19.2%. Lastly employment in total was down 12.1% to last year which was very much consistent with prior quarters and we are encouraged by the 13.5% growth in digital-only employment advertising.

The digital success that we’re experiencing now is directly related to our focus on growing our digital audience. Monthly unique visitors grew 19.7% in the quarter and our mobile monthly unique visitor count was up 83.0% compared to the fourth quarter of 2012. We are seeing these positive results despite having installed metered paywalls at our newspaper websites as part of the launch of the Plus Program last year and despite taking website threshold down from 15 stories to 10 throughout Q4. For the quarter, mobile users represented 40.0% of total monthly new visitors. During the fourth quarter, we upgraded and launched new iOS tablet app and Android in iOS phone apps. The Android app upgrades were completed in January of this year.

We are also focused on other important digital initiatives, the roll out of impressLOCAL, our digital marketing services solution was completed company-wide in fourth quarter, impressLOCAL provides a suite of online products designed to offer local businesses, a comprehensive digital marketing solution. Additionally, we are expanding sales reach through audience extension partners including Yahoo!, Centro, Simpli.fi and other ad networks and exchanges.

We did mention our equity investments earlier during the quarter, Classified Ventures and CareerBuilder provided cash distribution to McClatchy totaling $36.5 million for the fourth quarter. In total, we received $38.7 million in cash distributions from our equity investments and $42.4 million in total for all of 2013. Equity income from all of our investments in the fourth quarter was $7.5 million, up 55.4% compared to the same quarter last year.

Moving to expenses, we were able to keep results in line with our expectations. Cash expenses excluding severance and certain other charges finished at 1.9% in the quarter compared to the fourth quarter of 2012.

Fourth quarter operating cash expenses also included $4.9 million in 2013 expenses related to the transition to fee-for- service, circulation delivery contracts at some of our newspapers. This expense increased with the company by the already mentioned $4.9 million increase in circulation revenues and that has no impact on operating cash flow.

Excluding this change, operating cash expenses were down $0.3 million in the quarter or 0.1% from the 2012 quarter just as we have expected. Keep in mind that included in cash expenses this quarter was a $3.0 million increase in pension expense and $2.2 million in investments related to new initiatives and enterprise wide operating systems.

Compensation expense excluding severance decreased 2.3% in the quarter and was down 5.2% excluding pension expense. We saw a 9.6% decline in newsprint expense. This decrease was driven by declines in volumes and the price of newsprint. Supplement and printing costs were essentially flat compared to the 2012 quarter.

During the fourth quarter, we announced further progress in our production consolidation efforts. We reached an agreement in December with the Dallas Morning News to begin printing The Fort Worth Star Telegram in February of 2014. Separately, in January of this year, we bought the Dow Jones production facility and related equipment in Charlotte, North Caroline. We will print both the Charlotte Observer newspaper and Dow Jones Publications at this site.

Including these arrangements, 14 of our newspapers are now printed outside the facilities or by other McClatchy Newspapers. And where it hasn’t been a print Dow Jones production, we have turned to in-sourcing in an effort to maximize the use of our printing facilities. Currently we are printing daily newspapers for other companies in 9 of our markets.

We know that improving revenue trends and focus on expenses are critical to our bottom-line results, earnings for the quarter excluding that net impact of certain items were $29.9 million compared to adjusted earnings of $29.8 million in the fourth quarter of 2012 on a 13 week basis, so essentially flat versus prior year.

We ended the fourth quarter with the cash balance of $80.8 million, total debt at the end of the year was $1.556 billion and we began, sorry we again benefited from a reduction in cash interest expense related to debt. For the quarter, this expense declined by $5.9 million compared to the same quarter last year.

Our leverage ratio at the end of the fourth quarter on a net debt basis, which is debt net of cash on hand was 4.58 times cash flow. In the fourth quarter we used $7.0 million to fund capital expenditures, bringing total CapEx to $33.5 million for all of 2013, $16.3 million of which was related to our Miami relocation.

Turning to the first quarter of 2014, we are seeing some impact from winter weather in the Midwest and Southeast; I know many of you experiencing that winter weather today, so we are sorry for that. That winter weather doesn’t help our visibility, obviously our print advertising trends, these two regions, the Midwest and the Southeast together account for 47.3% of our revenues in 2013.

For full year 2014 however, we still expect double-digit growth in digital-only advertising revenues along with low single-digit growth in both direct marketing and circulation revenues.

We expect expenses to be down in the low single-digits in 2014 excluding the impact of circulation accounting related expense increases. Expenses in 2014 are expected to include approximately $13 million of expenses associated with digital initiatives in 2014 compared to about $9 million in fiscal 2013, as we continue to look to redeploy expense dollars to growth opportunities.

Moving to cash related items, in early January of this year, we managed $25 million cash contribution to the pension plan. The discount rate used to value the obligation of our qualified pension plan grows nearly 100 basis points at the end of 2013, resulting in the unfunded balance of our GAAP pension obligation falling by nearly 50% to $303 million from $587 million at the end of 2012. And we expect based on existing IRS rules and various assumptions to contribute about $23 million to the qualified plan in 2015.

We expect capital expenditures to be around $29 million for all of 2014, with maintenance CapEx in the low $20 million area. We expect to continue pay down debt including the retirement of approximately $29 million of bonds maturing in November 2014 and then as I mentioned, we have no required maturities until the second half of 2017. So we feel very good about our run rate to complete our digital transformation.

And with that, I would like to thank you for your time this morning. And we will be happy to take your questions.

Elaine Lintecum

Shirley, we will be happy to take questions now.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Craig Huber from Huber Research. Your line is open.

Craig Huber - Huber Research

Yes, good morning. Can you hear me?

Pat Talamantes

We sure can, Craig. Thank you.

Craig Huber - Huber Research

Yes. My first question just on your outlook for your cash cost, I guess for 2014 you are seeing down 1% to 3% or so. Can you just go through a little bit further about the things that will be ordinary that are in that number if you were to put it top of the investments, top of the pension cost a little bit further please and the outside of the ordinary particular as your visibility on this circulation delivery contract changes how much you think that may impact that line, really it’s net of zero of course?

Pat Talamantes

Yes, that’s the important thing to remember and we’ll continue as we go through 2014 to do our best to call that number out so it doesn’t distort your analysis. So, that piece of it really depends on when newspapers are converting to these new contracts. It’s a little bit hard for us to forecast. And the best we can do for you is just to call it out as it happens.

As in regard more meaningful expense categories, of course we do have the investments that you mentioned for digital that’s about an incremental $4 million for the balance of 2014. Again the more successful we are on the revenue side of digital and our new product initiatives, there are some expenses related to that, hopefully that of course is revenue related.

In terms of pension expense, we do expect pension expense to come down somewhat meaningfully in 2014, I wouldn’t say that it’s going to come down as much as it went up last year, but it should provide a bit of relief there. And then we’ll just have to see as the year goes, obviously we budgeted for continue to print declines in 2014, we've tried to adjust our cost structure as best we can for that and we’ll just have to see how the rest of the year goes. Obviously, we've been good stewards of the cost structure here at McClatchy and we expect to continue to do that.

Craig Huber - Huber Research

Pat, this again $4.9 million increase for the circulation contract change here, I believe it was like a $1.8 million in the third quarter. So I assume such can be here for another three quarters at least, right?

Elaine Lintecum

Craig, this is Elaine. We had additional newspaper switch to contracts, the largest one being Fort Worth in the fourth quarter and a little bit (inaudible) and so that's why the number got larger. And as Pat indicated, those newspapers will continue their transition through the first part of certainly 2013 and other newspaper may also choose to switch and if they do what we reported, let me emphasize again, this has no impact on our operating cash flow, it’s a change in circulation revenues and circulation expenses. And that's why we always call it out for you.

Craig Huber - Huber Research

And two more quick questions please. As you guys looked at your digital ad revenue this last quarter, what percentage of it can you ballpark for us was tied to mobile as opposed to desktop internet, the ad revenue?

Pat Talamantes

I will start to answer that and then I will turn it over to Chris, maybe for more full discussion of mobile revenues. When we look at mobile revenues currently, the way we track it internally currently, we look at it primarily as a pure mobile, so. And when we talk about pure mobile, it’s certainly like our digital only member. Sure mobile for us is revenue that is specifically tied to a mobile ad buy, so advertisers meaning to be on a mobile platform.

Much of our actual mobile ad revenue if you think about it is coming because you have people visiting our websites, our newspaper websites on mobile devices. And they’re seeing the same ads, they might see if they were at their desktop. That sort of mobile revenue, we don’t right now as of 2013 -- we don’t track that mobile revenue as a pure mobile even though our mobile unique visitors and traffic is obviously inclusive of somebody visiting our newspaper websites on their tablet for example. So long way I think in 2014, we’re looking to track better for investors and internally revenue that’s coming from any advertising that’s being seen by users who are on a mobile device. So that’s what we’re attempting to do in terms of tracking data. But Chris, maybe from a business perspective, you can talk a little bit more how we’re going about and trying to generate more revenue from mobile?

Chris Hendricks

Right, hey Craig. During Q4, as Pat mentioned, we implemented new standardized job on news company to push the envelope as far as you’re native mobile apps are concerned. As a result of that during the year, we saw about 42% increase in our native mobile advertising revenue, keep in mind it’s small still because as Pat just mentioned, most of the traffic does go to the browser base. So we are expanding it and we are putting in place products that both the typical native app user would want as well as looking at what we are going to do with responsive advertising as we move forward. So we have to take the project underway with that to make sure that as we transition to responsive design environment that the dollars that are associated with traditional browser based revenue do move over into the mobile space.

Craig Huber - Huber Research

I appreciate that. The pure mobile digital only revenue you talked about Pat early on, is that say less than 5%, it’s pretty small, right?

Pat Talamantes

Yes, exactly.

Craig Huber - Huber Research

Okay. And then my last quick question here Elaine for newsprint, can you just give us the metrics if you would for in the quarter excluding the extra week a year ago to change newsprint consumption and also average price?

Elaine Lintecum

Sure, (inaudible) were down about 9.7% and price was down 4.6%.

Craig Huber - Huber Research

Great, thank you.

Operator

Our next question comes from the line of Avi Steiner from JPMorgan. Your line is open.

Avi Steiner - JPMorgan

Thank you for taking the questions. First one here, you seem to have had good success with the Plus Program. I think we are about to anniversary that launch. And you are still calling for gain and I just want to be clear is that for the entire line item or is that just for Plus that will be offset by print subs dropping off?

Pat Talamantes

That’s a really helpful clarification Avi, thanks for helping us do that. So when we look at the Plus Program in our circulation overall, our strategy going forward now that subscription is really a bundle subscription, we are really looking at circulation pricing as a combination. So while there will be some year-over-year gains that one could tie to the Plus Programs because we’re just now anniversarying it and that will help total circulation revenues. We are also looking at being quite a bit more analytical in data oriented with regard to what we think there are opportunities in subscription prices. And we think that that and provide us additional circulation revenues as well.

And then finally in terms of our digital-only subscriptions, you saw we had 32,000 digital-only subscriptions in the fourth quarter. We do think there is an opportunity to increase that number over the course of the year, not significantly. Our goal is not to drive necessarily digital-only subscriptions, but we do think there is some opportunity through marketing, through testing our thresholds on the paywall a bit more. We do think there is an opportunity to increase that number a bit and that would generate some additional subscription revenues as well.

So it’s a multifaceted approach, it’s not going to come from any one area. And of course we not expecting tremendous growth in circulation revenues as we said, we are expecting low single digit being in that category.

Avi Steiner - JPMorgan

That is a helpful clarification, thank you. You discussed some production consolidation opportunities, you are taking advantage of -- I think you said your arrangements like those in ‘14 markets. How many more opportunities are there like to add in your (inaudible) portfolio close to it? And then can you size what savings come from those types of opportunities?

Pat Talamantes

Thanks Avi. In terms of whether there are more opportunities, there are and we work on them, but the ones aren’t done yet, there are typically reasons why they are not done yet, because they are little bit harder to get after. And with Fort Worth opportunity and the Charlotte opportunity and now in full swing those were two opportunities that were pretty significant for us, and we are working on additional lines although the opportunities there for expense savings probably are not as significant.

I think the most important thing for us and for investors to be thinking about is as we are able to outsource production further, there is greater flexibility in terms of operations when we do that, and we also don’t have to continue to invest in the iron behind the production. And that is probably even more of the return that we see now than just you would see on the operating expense line.

Elaine Lintecum

And those savings are reflected in our guidance already Avi, in terms of expense next year.

Avi Steiner - JPMorgan

Okay. And just I think you bought some assets in Charlotte; is that a big number or small amount of cash out for company?

Elaine Lintecum

So our $29 million of CapEx for the 2014 budget includes that as well as some -- the continued systems investments that we are making in enterprise wide system. So the maintenance CapEx for McClatchy is in roughly the $20 million range as we said. and so that is included in the CapEx number for 2014, we are not breaking that number out specifically because we can’t according -- for the agreement.

Avi Steiner - JPMorgan

Okay. That's...

Pat Talamantes

That you probably have your answer there.

Avi Steiner - JPMorgan

Yes thank you. Let me stick on the cash statement. Your liquidity position is probably the best it’s been at least in seven (inaudible) And if I’m right about Q1 cash growth further putting whether impact gone it’s a side for a second and should growing before whatever happens from (inaudible). So you really have a very little pre-payable debt right now and I know you are going to highlight the ‘14, but how do we think about your uses of cash beyond that and would you consider long and secured (inaudible) yes, at the right opportunity but would you broaden it to anything related to the equity and acquisitions? Thank you.

Pat Talamantes

Thanks Avi. We really appreciate you are calling that out. Because it requires a lot of effort to get to that position. And so greatly appreciate you are mentioning it. (Inaudible) people that we were, the last quarter and quarter before that. So we’ll always be good towards of the capital. And there is obviously a lot more to pay attention to when you have $80 million of cash moving on the balance sheet and that cash is accumulated.

So let me turn it over to Elaine to give you a more thoughtful response on how we’re looking at the cash and the debt and then if you have any follow-ups we can take that.

Elaine Lintecum

So we obviously consider current situation to be on kind of a high quality problem, more gratified by the confidence in the company that's reflected in our bond process. And we continue to watch the market and look for times when we can enter it, when prices are at a point where we feel like we can kind of get a reasonable return. Of course one of the benefits of our capital structure is that we do have the long runway and we have the advantage of patients.

So you are right, I will highlight that $29 million of bonds are coming due later in the year and that we will be maturing those. We do have pension payments that we mentioned that we made at the beginning of the year and some CapEx that’s required for the year. And beyond that we’re going to watch the market and continue to execute our strategic plans including digital investments in the company and if that means holding cash for some periods we’re going to be patient and we’re going to buy bonds when it makes economic and strategic sense to us.

I know that’s a little bit of a long answer but as I would fall back on Pat’s comment that we’re the same people that we’ve always been in terms of focus on debt, but we just also want to be smart about it.

Avi Steiner - JPMorgan

Fair enough. I’ll ask two more questions here in an effort. Number one, on your first quarter comments I am sure we are not going to look forward but we’re midways through February here, could you talk about January at all in anyway?

Pat Talamantes

It’s really just not useful to do it, because what we see is such volatility in the month that it really just leads people to making the long conclusions one way or the other. We have in family good month than we have in family not so good months and it’s just not useful for us to release monthly results. And that’s really why we don’t, right. So we shouldn’t do it just for a month because one month has s already passed. So sorry about that but I think we’re just going to have to stick to that policy.

Avi Steiner - JPMorgan

Okay. I lied, I may have one additional, but did anything unique happened in Florida this past quarter that at least look like that regionally did a little bit better?

Pat Talamantes

Well, I believe they did have a relatively easier comp because you may recall that last year they have a below trend quarter, they have been doing very well and they just kind of ran into a [bus] a little bit in the fourth quarter.

And so, I would say, in terms of this year they have been doing very well with the health category, department and discount stores came back a little bit for them, it’s a very strong market for real estate. And so, it’s really a combination of stronger trends this year. They have been really the strongest region in the last few for some of -- on the ad revenue side, so stronger trend this year up against weaker comps in the fourth quarter.

Avi Steiner - JPMorgan

Okay. And very last one, and thank you for letting me to run off lights a little bit, not necessarily my intention, but I am sure you are not going to be able to comment on apartments.com sales process, but I will try something this way, could you help us size that within Classified Ventures’ business overall as a percentage of the total in any metric you would like to provide?

Elaine Lintecum

I think if you look in our Form 10-K last year we did filed Classified Ventures’ financial statements as an exhibit, there may be some additional information there Avi.

Pat Talamantes

That’s really the best we can do for you.

Avi Steiner - JPMorgan

Okay. I appreciate the time. Thank you.

Pat Talamantes

Thank you.

Operator

Our next question comes from the line of Amy Stepnowski from Hartford. Your line is open.

Amy Stepnowski - Hartford

Hi, thanks for taking the call. Two questions, one a little bit more specific first on newsprint side. In your guidance with regards to expense, can you just give us an idea are you assuming that you will see some increases on the newsprint side and is it -- will it get phased in over the year or can you give us any sort of view on where that’s going?

Elaine Lintecum

We don’t necessarily expect, as Pat said, we have budgeted for not growth in print advertising, so we don’t expect that usage will go up. And I would say at this point we don’t see a catalyst for newsprint prices increasing that may have changed for the years depending upon imports and exports given the direction of print advertising. So, I think generally we expect the newsprint expense line to be down and that will be reflected as it was this year a combination of both usage and pricing.

Amy Stepnowski - Hartford

Okay, great. Thank you. And then bigger picture, obviously one of the lead items on your quarterly release was the advertising revenue from non-traditional sources now reaching at about 40%, 39.7%. Can you give us an idea of how far along do you feel like you are in terms of that transition? And is there any level that you could point us to in terms of when you feel like you sort of reached the maturity level on that transition?

Pat Talamantes

Sure. I will comment maybe a slightly different way, Amy. From the perspective of what we don’t believe in McClatchy is that the digital transformation means that we go to 100% digital and direct marketing. We think that there will be profitable print products for long a time to come. And so, while print will become a smaller and smaller percentage of our total revenues in digital and direct marketing, we expect to grow.

It’s not going to be this kind of the sea change where all of a sudden print drops off the pace of the year and all we’re left with is print and digital and direct marketing. So, we expect that overtime these kinds of ratios will change gradually and that overtime it will become more and more the case that we regard print as a very profitable part of our product line in that kind of the big focus, which it had been in the past.

So, it’s more gradual, it doesn’t go down to zero, but that print product is very, very important for a significant, very significant portion of our communities and we’re very focused on providing leaders what they want, where they want it and how they want it and print is still very much a piece of that.

Amy Stepnowski - Hartford

Okay, great. Thanks very much for that.

Operator

Our next question comes from the line of Patrick Fitzgerald from Baird. Your line is open.

Patrick Fitzgerald - Baird

Hi guys. impressLOCAL, does that helping you guys from digital newspaper advertising perspective or now they just go in set up a website and that's basically its service?

Pat Talamantes

Yes. Thanks Patrick. The impressLOCAL, Mark Zieman give you just a more detail on how we go about that business. It is still relatively nascent; we think that there is a good size opportunity there for us. Really it represents a philosophical change in how we go about selling into our marketplace where we are most focused on small and medium size advertisers who have a tougher time with their digital advertising and they trust us. And so we can find some opportunities there.

It also helped us move away from larger advertisers and develop better relationships with these smaller advertisers that may have had a tough time finding good opportunities for us, because historically our print products have been so expensive. But Mark let me turn it over to you and maybe you can elaborate on that a little bit?

Mark Zieman

Yes. And just we are on the same page, impressLOCAL is our digital marketing solution for small and medium size advertises as Pat mentioned and that includes a portfolio of products that continues to involve and change overtime which would include reputation management search, banners even in some cases prints. And last year, in 2013, we had two markers testing it for most of the year. We finished rolling this product out until all of the markets by year-end.

So 2014 will really be the first full year of impressLOCAL sales across McClatchy and those sales again will fall into many different buckets and they were one of the reasons that we had good results in local banner revenue in Q4 as we rolled impressLOCAL out.

So, it’s still early days in terms of rolling it out, but the feedback from our customers has been encouraging. We do expect that impressLOCAL will add meaningfully to our digital-only growth in the future. And I also would point out that big part of our impressLOCAL probably just a customer facing dashboard that can track the success of ad campaigns and we create those dashboards with the help of Tru Measure, which is a leader in media and measurement and analytics and we purchased them last year.

And Tru Measure also gives us the ability to expand impressLOCAL to other medium markets outside McClatchy for instance they recently signed an agreement with the Virginia Pilots. So, we expect those kinds of deals to accelerate in the months ahead as well.

Pat Talamantes

Yes, dead on Mark, very good. The ROI that’s been required from advertisers these days, it’s very important to measure that and track that for them and give them the confidence to make the ad buy and true measure and their dashboard really helps us with those sales. So Mark, thanks. Patrick, did you have anything else?

Patrick Fitzgerald - Baird

Yes. With the direct marketing guidance, how much is that if you could break that down in terms of price and volume, just roughly?

Elaine Lintecum

It’s kind of more broken down in terms of kind of categories if you will, a lot of the growth in direct marketing comes from our Sunday Select program and Sunday Select is basically a set of pre-print. So it’s typically delivered to subscribers in our Sunday newspapers but we also have non-subscribers that request to receive that package. So, it’s very popular with both advertisers and the non-subscribers. And we distributed about 675,000 households in 2013 with those Sunday Selects. And that’s a lot of those driver growth but that direct marketing also includes direct mail, our total market coverage products which is distributed to non-subscribers and niche products of which we have many, many, over 200 niche products in various markets that we sell. So, it’s a combination of products but a lot of the growth is coming out of the Sunday Select.

Pat Talamantes

And just to make sure everybody’s clear because sometimes how we account for direct marketing gets a little muddle. But in terms of inserts that are delivered in the newspaper, those get counted in our retail advertising, retail and pre-print advertising. And so the inserts that Elaine is talking about get delivered in our Sunday Select bundles to non-subscribers that are on the knocked in basis, those are in to direct marketing category. So, just to be clear about that.

Patrick Fitzgerald - Baird

Okay, thanks. And then kind of a complicated question, but how would operations at McClatchy be impacted I mean not looking for actual EBITDA decline but like more generally from a revenue and cost perspective if you or if classified ventures were completely independent?

Pat Talamantes

That’s just not something that we can really go into. We do -- we have broken out information historically in our filings about, both the classified ventures, financial statements and their relative impact on McClatchy’s revenues and expenses. And I think that we will return you to find that information. Anything you want to add there Elaine?

Elaine Lintecum

No, I don’t think so. I think their financial statements are clear about what revenues come from the partners versus what revenues come from their own network sales. But we don’t break that out individually and haven’t in our financial statements.

Patrick Fitzgerald - Baird

Alright. Thanks a lot.

Pat Talamantes

Thank you.

Operator

Our next question comes from the line of Craig Huber from Huber Research. Your line is open.

Craig Huber - Huber Research

Yes, I have a similar type question here. What is your appetite right now for monetizing your equity positions in classified ventures, the whole thing and/or class carrier builder right now?

Pat Talamantes

I hate to be hopelessly consistent, Craig. But as we have said over time that, we like these assets a lot, they do a lot for our ad sale teams when they go after market, they have product to sell, they definitely put us in a competitive advantage compared to our peers in those markets and other competitors. So we really like those assets as part of our product portfolio. Obviously they are growing. And as you saw -- as we mentioned twice in the call notes and once in the press release, this is growing up a lot of cash. Having said that, if we could look at a multiple that would compensate us for the growth that’s coming from those products for us, we’d have to take a look at that and then just make a rational economic decision about, whether we’d be open to something or not.

Obviously, digital multiples out in the M&A market place are seemingly higher than they have been for a while. And so that could create more opportunities. But at the end of the day, we’ve got fast growing assets, those valuable assets we think that for us to part with them we’d have to be well compensated for that.

Craig Huber - Huber Research

It’s the fact Pat that they’re so intertwined with your sales efforts work for digital advertising and going back for some stuff, and then also with the partners as well. I mean, how prohibitive do you guys look at if you did saw at it some point that would mess you up in terms of your own operations?

Pat Talamantes

It’s just something that goes into the calculation; it’s something that goes into the calculation. And we could also look at as we have said before, the potential for affiliating going forward and or not, but that would all just go into a calculation of purchase price et cetera.

Craig Huber - Huber Research

Okay, thank you.

Operator

There are no further questions in queue at this time; I turn the call back over to the presenters.

Pat Talamantes

Great. Well, thanks everybody for taking the time to be on the call today. We know it’s a busy and blessed three day, so we appreciate it and we will talk to you next quarter. Thank you very much.

Operator

This concludes today’s conference call. You may disconnect.

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