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Martha Stewart Living Omnimedia, Inc. (NYSE:MSO)

Q4 2013 Earnings Conference Call

February 25, 2014 08:30 AM ET

Executives

Katherine Nash - IR

Daniel Dienst - CEO

Ken West - CFO

Analysts

Robert Routh - National Alliance

David Bank - RBC Capital Markets

Michael Kupinski - Noble Financial

Larry Yavner - LBY Partners

Operator

Good morning and welcome to the Martha Stewart Living Omnimedia Fourth Quarter and Full Year 2013 Earnings Conference Call and webcast. All participants will be in a listen-only mode until the question-and-answer session of the call. At the request of Martha Stewart Living Omnimedia, this call is being recorded. Anyone with objections should disconnect at this time.

At this time it is my pleasure to introduce Katherine Nash, Investor Relations, Martha Stewart Living Omnimedia. Katherine, you may begin when ready.

Katherine Nash

Thank you and good morning everyone. Welcome to Martha Stewart Living Omnimedia's fourth quarter and full year 2013 earnings conference call.

Before we begin, let me remind you that our discussion will contain forward-looking statements, which are made pursuant to the Private Securities Litigation Reform Act of 1995 as amended. These statements are not guarantees of future performance and involve certain risk and uncertainties that are difficult to predict. Actual future results and trends may differ materially from what is forecast in forward-looking statements due to a variety of factors, many of which are described in our SEC filings.

Also non-GAAP numbers are reconciled to GAAP in an attachment to our press release, which appears on our website at marthastewart.com.

Thank you, and now I'll turn the call over to our CEO, Dan Dienst.

Daniel Dienst

Thank you, Katherine. I'd like to thank our investors, partners, and employees for joining us this morning. I had a chance to introduce myself to our investment community after about 12 hours on the job for our Q3 earnings call. It’s an honor and privilege to be here on behalf of MSO, and to update you on what we have been up to over the past few months. Needless to say, we have been quite busy.

When I first addressed you a few months ago, we committed to our shareholders and employees a few things that we would attempt to tackle as we closed out 2013. These initiatives fell largely into two major buckets; bucket one was what I referred to on the Q3 call as the noisy, distracting balls up in the air such as litigation with esteemed merchandise partners; and bucket two related to a wholesale reevaluation of how we run our business to become a more efficient, nimbler generator and monetizer of ideas, inspirations, content, and product, but let me hit those buckets in order.

As to bucket one and as many of you already know, we amended our merchandise and partnership with J.C. Penney to reflect a more targeted universe offerings. As part of this settlement, JCP returned and we in turn retired 11 million shares of MSO stock previously purchased by JCP, representing approximately 16% of the company's outstanding shares. In sum, this is effectively a buyback of an enormous amount of ownership for no cash consideration. JCP also relinquished their two Board positions and I'd be remiss if I didn't thank their director appointees, Mr. Bob Peterson and Mr. Michael Zacharia for their dedicated service during that time of transition. We are very pleased to renew our relationship with JCP, and of course are rooting for their repositioning in the retail marketplace.

Also in bucket one, was our costly, highly visible, distracting, and candidly embarrassing litigation with our valued partner Macy's. As we also committed to you, we put that matter to bed at the close of 2013, and I am deeply grateful to the leadership team at Macy's and our direct partner, Macy's subsidiary MMG, for giving me and our entire team a chance to reinvigorate our mutually profitable endeavor. We are excited about the current collaborations taking place to drive and grow the business of bringing beautifully designed, high quality, and affordable products to the Macy's customer for many years to come.

Now let's take a moment and talk about bucket two what I previously referred to as a reevaluation of how we run our business to become a more efficient, nimbler, generator, and monetizer of ideas, inspirations, content, and product. For context, in our fourth quarter, we charged the entire leadership team and our entire employee base with a basic premise for our reorganization. If we were a startup in a drafty loft in Red Hook, Brooklyn, with a highly valuable brand and an active brilliant founder, how would we build our business from the ground up? Others in the industry have hired high price external consultants to drive this type of thinking, and I am proud of our team for doing it on their own. It was also their hard work and making some extremely tough decisions; some involving human assets, is already yielding tangible financial benefits.

As part of this reengineering of how we do business, we have gone hard at our costs to match current and projected revenue opportunities, and reflect the stark realities of the marketplace. Perhaps, most important on the culture side, we have abandoned traditional operating models and cumbersome internal hierarchies, particularly on the media side of our business to become a hungry, efficient machine that spends its time ideating and out on the street preaching the value proposition of the spark of our Martha Stewart idea rather than bottled up in internal meetings, running ideas up a chain of command.

We have torn down legacy silos, created a single centralized content group, and with the realignment of our office layout, interactions of between ad sales, content, digital, and merchandise are all happening in real time.

When we tear down silos, we inevitably spill some grain, but I am awed by how quickly our groups have pulled together. Our creative folks have been baptized as business people and our business people have been baptized as creative folks. All in the name with our one company, we are all Martha culture. To all of our valued employees, I'd say, thank you.

So now, what do we want to be when we grow up? That is a seminal question for ourselves and our investors, as we move our way through 2014. We are past the days when everything on the cost side of our business was excused in the name of the brand, but let's not allow anyone to misinterpret the eradication of that false premise. Now, more than ever, we are ferociously protecting and investing in our brand. Monetization and growth opportunities across all business lines in North America and in deed abroad are vigorously being pursued. We have unshackled ourselves from external distraction and from internal incumbencies, and some of the best and brightest in our business, I am confident that we will make smart decisions with the capital entrusted to us by you, our shareholders, and that the best years for our company are indeed ahead of us.

I will now hand the call over to Ken West, our Chief Financial Officer, and he will take you through the details of our fourth quarter and full year 2013 results.

Ken West

Thank you, Dan, and good morning everyone. I will review our business progress in the fourth quarter with a perspective around 2013 as a whole, provide early insights into 2014, and then Dan and I will address questions.

Overall, our results for the fourth quarter showed bottom line improvement year-over-year. Total revenues were $47.4 million in the fourth quarter of 2013 compared to $56.4 million in the fourth quarter of 2012, as growth in merchandising revenues was offset by lower revenues from publishing, which reflects the company's strategic decisions last year and the publication of two print titles.

Despite lower top line performance, operating income grew to $5.9 million compared to $1.4 million in the prior year, and basic and diluted net income per share was $0.12, up from $0.02 in the prior year. Results for full year 2013 also mirrored top line decline, along side improved bottom line operating results. Total revenues came in at $160.7 million compared to $197.6 million in the prior year.

Total operating loss was $1.9 million, compared to an operating loss of $56.4 million in the prior year, and included in our 2013 results were restructuring charges of approximately $3.4 million; $2.8 million recognized in the fourth quarter. Our 2012 results included a $44.3 million non-cash charge for the write down of goodwill and restructuring charges of $4.8 million; $3.5 million of which was recognized in last year's fourth quarter.

This equates to a net loss per share of $0.03 for full year 2013 compared to a net loss per share of $0.83 in 2012. A few items to note: our Q4 results included reimbursement from our insurance carrier associated with costs incurred in the Macy's litigation, and non-cash revenue resulting from the 11 million shares returned from J.C. Penney.

As mentioned on our last earnings call, I anticipated the 11 million shares to be accounted for a lump sum at a certain value, but the accounting exclusion was to recognize the value of that shares ratably over the term of our license to J.C. Penney. As a result, our Q4 results include 1.3 million in non-cash revenue from the amortization of this value. Total Macy's litigation related cost of $3.8 million in 2013 excluding the insurance settlement. But over the course of this matter, related costs exceeded $7 million. As for other items of note, earlier in 2013, we recognized a net gain on the sale of our Whole Living subscriber list.

Let's now turn to our fourth quarter segment performance, starting with publishing. Revenues in this segment significantly improved, compared to third quarter 2013, but were down approximately 20% from a year ago. The decline was anticipated due to the company's strategic decision last year, the end of publication of two print titles, and reduced the frequency of our flagship title, Martha Stewart Living, where we published two issues in this year's fourth quarter, and three issues in last year's Q4. However, the decline was partially offset by higher digital revenue, which was up 10% for the quarter. Additionally, print ad sales were higher this Q4 per issue than last year's comparable Q4 issues. Operating loss and publishing was $1.8 million and improvement from the prior year's loss at $2.3 million, and while there is clearly more work to be done to further improve profitability, we made significant improvements throughout the year.

On the digital side, as I just mentioned, we saw an increase in advertising revenue in the quarter, reflecting strong performance in use of our video content, and increased visits to our website from local devices. Consumers are increasingly engaging with our brands via social media, demonstrated by almost 9 million fans and followers across all platforms, including 1 million fans on Facebook and almost 3 million followers on Twitter.

As anticipated, broadcasting revenue was down in the quarter, due to a non-recurring fee collected last year, related to the prior Martha Stewart show which aired many years ago on the broadcast network. Revenue in the fourth quarter of 2013 was $0.8 million, compared to $4.8 million in the fourth quarter of 2012. Operating income was $0.3 million in the fourth quarter, compared to operating income of $0.3 million in the fourth quarter of 2012.

Merchandise revenues were $18.2 million, up 12% from $16.2 million in the prior year. The increase was primarily due to the royalty revenue recognition from J.C. Penney. Operating income increased $13.6 million for the fourth quarter, compared to $11.3 million in the prior year.

Lastly, related corporate expenses for the fourth quarter, expenses were down due to a $2.5 million reimbursement from our insurance carrier, related to the maintenance litigation, lower litigation fees and lower executive comp. In December, as Dan mentioned, we implemented a structured headcount reduction plan, ending the year with 406 full time employees versus 538 as of December 31, 2012. This resulted in a $2.8 million restructuring charge to operating income, primarily in publishing.

Looking at the balance sheet, we ended the quarter with cash, cash equivalents, restricted cash and short term investments at $46.2 million. We maintain a healthy working capital position and remain debt free.

I will now review our outlook for the full year 2014; as we work to improve performance in 2014, there continues to be a great deal of activity across our publishing group in building audience and reinforcing the strength of our brands, particularly in digital, media and mobile, where we continue to see strong performance in case of our video content and increased visits on Martha Stewart websites from multiple devices.

In addition to our digital properties, Martha and Emeril also continue to expand their vibrant social media audience. We believe digital advertising growth will be a catalyst for the business in 2014, with revenue expected to increase, but be offset by a decrease in circulation revenue. Print advertising revenue is expected to be flat for 2014. On the expense side, savings will be generated by lower editorial expenses from reduced headcount, and lower facilities expenses. However, these savings are partially offset by higher digital and circulation expenses, due to our continued investment in user acquisition costs.

Merchandising revenue is anticipated to slightly decline in 2014, primarily due to lower anticipated royalty revenues from the Home Depot. These declines will be partially offset by the amortization of non-cash royalty revenue, resulting from J.C. Penney's return of our stock, and matches up against our already realigned cost structure and anticipated to narrow our product categories with certain retail partners. Overall, we remain focused to ensure that we have the right products in the right retail environment.

Corporate expense are expected to be approximately $1 million lower than 2013, primarily due to reduced headcount and savings in executive comp.

That concludes my comments, and I'd now like to turn the call back over the operator for questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). Your first question is from Robert Routh from National Alliance.

Robert Routh - National Alliance

Great job guys. Couple of quick questions. First, I know in the past, you guys had mentioned the opportunity to potentially do something with the 10th Floor lease that you have at your headquarters. I am curious if you were able to do anything with that, is that still there or were you able to get that done? If so, could you give us the estimated cost savings that would result from that? And then as a follow-up, can you give us any sense as to what your legal expenses were on a quarterly basis tied to all of thislitigation that you have been going through for the past several quarters, because I would assume that going away, that would be 100% margin for modeling purposes when we kind of back into what the 2014 and 2015 numbers could be?

Ken West

Good morning Rob, this is Ken. With respect to the 10th floor, I can tell you today that effectively we are off the 10th floor, and that is expected to generate about $1.5 million to $1.6 million annual savings on a prospective basis, and we have that lease along with the lease for our ninth floor, up through -- continuing through January of 2018, so we have had a few more years to generate those savings.

As far as legal expenses, I included some references to legal expenses in my prepared remarks, and you can find out a lot more detail associated with legal expenses we have incurred upon reading our Form 10-K annual report, which is expected to be filed potentially this afternoon or at latest tomorrow, so look forward to that in detail.

Daniel Dienst

And Robert, this is Dan, I’ll just add to it and thanks for your questions. The 10th Floor obviously was not just -- I shouldn't say obviously, but was not just a cost savings exercise. Clearly, $1.6 million a year is important for our company, but it was also part of the conscious decision to realign sort of our idea factory here, and moving people together, realigning them, so there is this flow of ideas and having people segregated on separate floors was a blessing and a curse, so it was a cost out initiative, but it was also a reconfiguration of how we ideate.

Legal expenses, as Ken said, there will be a lot of detail in the K that gets filed, but circa, without focusing on Q4 alone, you think about the distraction and the annoyance of putting aside any costs associated with the litigation with our merchandise partners was probably a $7 million to $8 million venture over the past two years.

Robert Routh - National Alliance

Great. And just one follow-up to that, because I heard that there were a lot of potential partners that wanted to do deals with Martha Stewart or Emeril or both, but were hesitant to do so until this litigation was resolved because they wanted to be sure everything was clean and they could move forward. I am wondering if you could comment at all about potential new partnerships internationally as well as domestically, is there anything or any truth to that rumor that was going around or not? Were there people who were kind of knocking on the door that kind of put the brakes on during this litigation process that now are coming back to the table?

Daniel Dienst

I mean, we don’t comment on rumors. But I think it’s a statement of the obvious that if you are litigating with two of our esteemed partners, it would make people wary, and I think that’s why it was important to go very quickly and put those matters to bed. We are seeing it not just with those partners and the amount of activity that’s happening in the spirit of that relationship, which is longstanding, particularly in the case of Macy’s, but the energy level between our teams is extraordinary and grateful for that, so we get to restart and the reinvigoration on those specific items, and then of course, it does free up the opportunity to again be unshackled by some of that horror and noise as we explore these new partnerships, and there is, as I said in my opening commentary a tremendous amount of activity as we look for wide space opportunities across what we do well.

We said on top of lifestyle, and there are wide spaces available in North America, in the U.S., and in deed abroad. Now the chain of distribution for international business are different than they are in the States. We know that the level of dialog and opportunity in front of us is nothing short of extraordinary. That being said, we are going to be very careful of what we do is going to be brand on, be reflective of who we are, and if we are going to dedicate resources, the finite resources that we have that there should be a very strong ROI on that investment in time and money.

Robert Routh - National Alliance

Great. Thank you very much and congratulations again.

Daniel Dienst

Thank you, Robert.

Ken West

Thanks Robert.

Operator

The next question is from David Bank from RBC Capital Markets.

David Bank - RBC Capital Markets

Hey, thanks guys. Dan, thanks so much for your really clear introduction, I think, with respect to what’s been accomplished and conceptually how you are trying to drive sort of a culture and organization that’s more focused and more productive. I think your thought process there is really clear. We are all excited to move the dialog beyond cost savings, and I know, you kind of said you’re still working on what you want to be when you grow up, but I thought I’d take another pass on – I think the unanswered question that remains which is, when you think about driving earnings and revenue and earnings growth over the next kind of three years, how big can this company be, and what are the things that sort of have to go right category wise that kind of get you there? Because you sort of set the factory up, but we’re not exactly sure just how much volume you can drive through?

Daniel Dienst

That's a good question David, and it’s a big question. I will try to make a smaller answer if I can. If you use your factory analogy, we are not really interested in volume per se. Well I think what we have all learned here over the past few years is that, you can generate a lot of volume, but it costs you a lot of money to do it, and so if you are running any manufacturing plant, where essentially, an idea factor as I said earlier, we want to make sure, that as we go out to the market, be it in North America, be it in South America, be it in Central America, all opportunities, we have got a team in India right now, as we move to let's say the PRC, but we are doing so by deploying dollars that are going to yield these strong ROIs.

So the opportunities for this company, if you really step back and look at it, we have been very U.S. centric. Our brand tests extremely well. Our founder tests extremely well, particularly in the second world and emerging markets, where this next generation post their first generation of wealth creation, are starting to move back into their homes. They are moving out of restaurants and showy opulence and they want to live like we do here in the States and nobody can teach us better about how to live well than Martha Stewart. So I think the opportunity is far extraordinary, and what we are doing here is agonizing candidly about what those first few big moves will be.

So I look forward to updating all of you, I don't have the luxury of three years David, but we are going to build this business for the long term. So if there is something sustainable and has a strong earnings characteristic to it, in the next quarter or two, we hope to be able to update you on some other initiatives.

David Bank - RBC Capital Markets

Okay. Thank you very much.

Daniel Dienst

Thank you, David.

Operator

Your next question is from Michael Kupinski from Noble Financial.

Michael Kupinski - Noble Financial

Congratulations on a good quarter you guys. It has been a lot of tough work. Couple of questions. If we are looking at the publishing segment, I was wondering if you can update us on the goals there? I know that previously, the management had indicated that, they would look for 10%, maybe even 15% margins in that business, and certainly by the, I guess, the tone of what you gave us in terms of 2014 and the outlook, that may not happen. I was just wondering, do we get to those -- first of all, if you still have those margin targets? Then secondly, if we were to look at how to attain those targets? Is it really a function of revenues, or do you think that there is further costs, further headcount reduction? Just can you give us some idea of what their goals are for publishing?

Ken West

Mike, those are very good questions, and we do have the same targets in mind for the long term, and on a short term basis, we've made some steps in regard to making this a more efficient publishing operation as Dan had mentioned in his prepared remarks and the comments he just shared. Its going to take some time, and the focus here is on revenue generation, specifically in the digital space. So that's just generating the digital ad dollars, native dollars, even some display dollars, but focusing on revenue generation for this publishing operation.

Michael Kupinski - Noble Financial

And in terms of --

Daniel Dienst

Michael, I will add to that. We live, as you know, particularly in the media side, but just not any part of our business, its [indiscernible], or what we say internally, Darwin on steroids, and internally, we have taken that same sort of approach to our DNA, which is, we create a centralized content group. There is a period, [indiscernible] we talked about it internally, and I will speak to it openly here. Discomfort as we adjust, but that adjustment period here is going to be best idea wins. Highest monetary opportunity wins, and we are going through that right now, and that should translate a fair amount of confidence into the kid of margin targets that you just illustrated.

Michael Kupinski - Noble Financial

Do you have any specific goals to get to those margin targets, like do you think that you will be able to get to those in 2015, or what type of timeframe are you looking at?

Ken West

We haven't put a timeframe on it.

Michael Kupinski - Noble Financial

Okay. And then in terms of just the headcount, are you looking at further headcount reductions, is that a possibility at this point?

Ken West

No. And I should have addressed that when I first spoke. No, we have gone really hard, as I said to you, this was perhaps, an exercise without pressing [ph], at least in my limited experience. This was not a top down, dictated, give me a bunch of heads. This was a, as I said in my preamble, a thoughtful -- hurry up a thoughtful exercise about how we run our business, when I think we have got it right. Now as you through this period here, we are going to find some things we missed, we are going to find some holes that need to be filled. We are hiring actually. We have become a magnet for talent again. As you look across the universe of people who are successful, in any area that we touch, we have trained many of them, and we are starting to be again a magnet for attracting talent, apart from retaining talent.

So a couple of notable hires along the way here, so again, we are in the building mode, and we've got the foundation right.

Michael Kupinski - Noble Financial

Okay. And just to follow-up on the previous question on international expansion, I know that J.C. Penney was your -- was going to be the outsourcer for your international expansion, and certainly, that was been rewritten with the amendment of the J.C. Penney's contract. What are the opportunities in terms of the international expansion and the prospect of getting another outsourced partner? When do you think that you might have something in place? Do you have at timeframe for that?

Daniel Dienst

We are working on it now, and we are sort of thoughtful about, whether you have one large partner shoulder-to-shoulder or you break down into markets and products and identify micro-partners, if you will, and what our internal resources are to help drive that as well. So it’s a work in progress, as we speak. So I would be remiss if I -- its too early for me to say to you. One big partner, one big investor, but we are going to break down into micromarkets.

Its interesting, our publishing and our magazines Strictly Living is out in the market. It is a brand advancer. We have numerous international markets. We are in really licensed deals, we retained strong editorial content control of what ends up in an Indonesian or Turkish or Mexican publication or Chinese publication. So there are brand advances out there. They are doing really well, small. They are not going to make the quarter so to speak, but they are a great way to start that brand, test out into these markets, and really proud of them.

Michael Kupinski - Noble Financial

You have obviously hired somebody last year, in terms of the head of your international merchandising. I was wondering if you have any thoughts then in terms of a timeframe when you like to have some of these kind of [indiscernible]?

Daniel Dienst

I'd like to have them done yesterday, but again, we are going to be thoughtful and we are going hard at it, but we are going to get it right.

Michael Kupinski - Noble Financial

Then my final question, The Home Depot, obviously its one of your new, I think probably your only partner, which doesn't have a minimum guarantee. And I know that outdoor furniture has always been one of the company's strongest categories in the past, and it seems like it has been -- one of the categories has been faltering at Home Depot. I was wondering if you can give us an update on that particular line. Are there any options that the company might have in terms of looking at additional partners outside of the Home Depot relationship that might be able to pick up from the lines that may be products and things that may be Home Depot is not carrying? Can you just kind of give us your thoughts on that relationship, as well as prospects for improvement there, and may be the prospect for additional partners?

Daniel Dienst

Let me say it this way, instead of addressing one specific important partner, we have great relationship with Home Depot, level of communication is great, tied back to, I think it was David's prior observation on a [indiscernible] question. What's the spirit of the relationship? A relationship is communication, and identifying and targeting opportunities for retail partners to drive their revenue, and also manage our resources, so we are not throwing up ideas and spending capital, or wasting capital on our side. I am very pleased that across the spectrum of our relationships, we are going to look at, within the portfolio of offerings, at each of our merch partners, what's working and what's not working.

If something's not working, is it weather, let's move past weather, because I don't think we will talk about weather for the next two months. After that, what really works and what doesn't work. So we can align our resources internally here, to drive great products and great ideas off our backs and our capital, drive their sales. If something isn't working, in the spirit of relationship, we will be in constant dialog about where to go elsewhere with the blessing that's required by certain partners. So those discussions are happening, and again the proverbial win-win.

What works for them -- if something's not working for a merchandise partner, retail partner, they don't want to steal ideas from us, and I don't want to tie up six people, the storyboards and everything else spending money. So let's be very targeted, let's all figure out together what works and right product in the right home is what we are after.

Michael Kupinski - Noble Financial

I appreciate that, I was wondering if in your contract though, that you have the ability to pursue a different retail partner for some items that may not be carried at Home Depot for instance?

Daniel Dienst

Again, moving away from specific management. In some cases there are exclusive product categories, I think we have all figured out that adventure for the past three years, and then there are gray areas and white areas; and even in the gray areas, we have always been in communication with our partners, because they are partners. We are not going to run amok, and we will then do things softly. So it depends contract-by-contract, relationship-by-relationship.

Michael Kupinski - Noble Financial

I did have one final question, in terms of the outlook for the first quarter. I mean, is there any color, I appreciate the color that you have given us for the full year. Any thoughts in terms of the revenue offline items that we might have in terms of publishing or may be merchandising for the first quarter?

Ken West

When you say offline, you mean one-offs or?

Michael Kupinski - Noble Financial

No I mean, in terms of just how the business is shaping up in terms of revenues in the first quarter?

Ken West

We don't give a specific outlook per se or guide, we are not that mature yet. But I would look to the market, and you can get a sense as to the challenges for everybody, be it in media or merchandise. In Q1, where you've had a -- if you speak to any of our bigger peers if you will on the media side, a little sluggish start out of the box with ad dollars being swapped around, again, with our reduced cost structure, I think we are going to fight the fight, generally optimistic and there should be a springing release of some money into Q2. On the merch side, you see the traffic issues related to weather that's ripped through most of the U.S. So I would just look to the big boys and girls, who some of whom reported this morning and enjoy your own conclusions.

So I think you want to generally tough, but I think we got it right, in terms of the cost side, and got a very nimble, hungry organization, a bunch of fired up people. So reasonably optimistic, as we push our way through the first half.

Michael Kupinski - Noble Financial

Perfect. Thanks for taking all the questions. Appreciate it.

Daniel Dienst

All right. Thanks for the interest, Mike.

Ken West

Thanks Mike.

Operator

(Operator Instructions). The next question is from Larry Yavner from LBY Partners.

Larry Yavner - LBY Partners

Over the last quarter and today, there has been a lot of talk about aggressive cost saves to better align yourselves with the current marketplace. I was wondering if you could quantify some of these cost saves and talk more specifically about your progress on the cost structure reductions?

Daniel Dienst

Thanks Larry. Ken, why don't you give him the number?

Ken West

We didn't disclose it per se, but the question was asked [indiscernible].

Daniel Dienst

Thanks. So Larry on a general basis, we have reduced our overall headcount, because a lot of those cost savings came about, as a result of human capital. We have reduced our headcount to approximately 400 employees at year end. We anticipate that that is going to generate annual savings, in excess of $11 million, but a portion of that is being reinvested in circulation management and digital investment. So we have taken out, what we natively -- the cost [indiscernible] and efficient operation and investing in integrating those operations to work the best.

Ken West

Circa $11 million.

Larry Yavner - LBY Partners

Great. Thank you guys.

Daniel Dienst

Thank you.

Operator

That wraps up our Q&A session for today. Thank you for participating in today's teleconference. You may now disconnect.

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