The McClatchy Company's CEO Discusses Q1 2014 Results - Earnings Call Transcript

Apr.23.14 | About: The McClatchy (MNI)

The McClatchy Company (NYSE:MNI)

Q1 2014 Earnings Conference Call

April 23, 2014, 12:00 PM ET

Executives

Ryan Kimball - Assistant Treasurer and Director of Investor Relations

Pat Talamantes - President and CEO

Bob Weil - VP of Operations

Mark Zieman - VP of Operations

Chris Hendricks - VP of Interactive Media

Elaine Lintecum – VP, Finance and CFO

Analysts

Craig Huber - Huber Research Partners

Matthew Dodson - JWest LLC

Dennis Leibowitz - Act II Partners

Michael Kupinski - Noble Financial

Jeremy Burton - PineBridge Investments

Operator

Good afternoon. My name is Shirley and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2014 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.

Ryan Kimball, Assistant Treasurer and Director of Investor Relations, you may begin your conference.

Ryan Kimball

Thank you, Shirley, and thank you all for joining us today for our first quarter 2014 earnings call. I’m Ryan Kimball, Assistant Treasurer and Director of Investor Relations, and I’ll be available to answer any follow-up questions you may have after our call this morning. My phone number is 916-321-1849 and you can also find my 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 got a chance to review it.

Joining me today is Pat Talamantes, our President and CEO; our Vice Presidents of Operations, Bob Weil and Mark Zieman; our Vice President of Interactive Media, Chris Hendricks; and our Vice President and CFO, Elaine Lintecum.

This conference call will contain 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, non-GAAP amounts discussed this morning are reconciled to the most directly comparable GAAP measures in schedules posted on our website.

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

Pat Talamantes

Thanks Ryan, and thank you all for joining the conference call today for a review of our first quarter results. A number of trends remained in place at McClatchy. You can see by the improvement in the total revenue trend this quarter compared to the first quarter of 2013 that we continue to benefit from the diversification of our revenues.

We’re still expanding our digital audience with mobile continuing to grow at a rapid pace, and we continue to invest in revenue-generation initiatives and enterprise-wide operating systems. In addition, our liquidity remains quite strong. We ended the first quarter with $96.4 million in cash, which has only increased since quarter end because of the proceeds from the Apartments.com sale.

Let’s now turn to the details of the first quarter starting with revenues. Total revenues finished down 2.7%, compared to a decline of 3.8% in the first quarter of 2013, and 2.1% in Q4 of last year. Despite the Easter holiday shift out of the first quarter and weather-related issues that affected some of our markets, we still saw growth from many of our core revenue sources.

Total digital advertising, direct marketing and circulation revenues all registered growth for the quarter. Total advertising revenues were down 6.7% in the quarter, compared to a decline of 6% in the first quarter of 2013. Retail advertising trends improved this quarter, compared to the same quarter last year despite the Easter switch, but national remains volatile.

We saw double-digit growth of 11% in digital-only advertising, which again provided another positive quarter of growth for total digital advertising revenues. For the quarter, total digital-only related revenues, which includes both revenues from advertising and circulation, were up 11.6%.

Within advertising categories, total retail advertising finished down 8.4% in the quarter, compared to down 8.7% in Q1 of 2013, and down 7.1% in Q4. Digital-only retail ads in Q1 2014 were up 14.2%, compared to the same quarter last year. Digital retail saw strong growth in banner advertising helped by the sales of our impressLOCAL products.

National advertising was down 11.4% in the first quarter of 2014, compared to down only 0.9% in Q1 of last year, and down 17.9% in Q4. The decline was related to a pullback in advertising primarily in the telecommunications and banking categories, and that’s not surprising considering the strong performance we saw up in these two categories in the first quarter of last year.

Classified advertising finished down 6.5% in Q1 of 2014, compared to down 6.7% in the first quarter of 2013, and down 4.6% in Q4. During the quarter, digital-only classified advertising revenues were up 10.8% to prior year. Total digital-only automotive advertising was up 17.6% in the quarter, helping to partially offset the decline we saw in print automotive advertising.

Total auto advertising finished down 2.9%, compared to down 5.7% in Q1 of last year, and down 2% in Q4. The quarter was a little more challenging for real estate and employment with both experiencing declines in print and digital advertising revenues. Real estate revenues did grow in Q4 of last year when it had far easier comps than the category this quarter, and as you know the real estate market has been softer of late.

In direct marketing revenues, we grew again, finishing up 1.3% in the quarter, compared to Q1 of 2013. When combined with total digital advertising revenues, these two growing sources of revenues contributed 41.6% of our total advertising revenues in the first quarter.

Another area of revenue growth for the quarter came from circulation. Total circulation revenues finished up 5.8%, compared to the same quarter last year, and were up 0.7% after excluding $4.3 million in revenues related to the transition to fee-for-service circulation delivery contracts at certain newspapers during the quarter that we’ve talked about in the past.

We have been able to grow our circulation revenues while at the same time successfully expanding our digital audience. In the fourth quarter of last year, we reduced our website threshold for free page views down from 15 stories to 10 per month and still reported growth in our monthly unique visitors during the quarter. That trend continued into Q1 as monthly unique visitors grew 33%, compared to the first quarter of last year.

Our mobile audience is growing and meeting the needs of mobile users remains a priority for us. In the quarter, mobile users represented 43% of total monthly unique visitors, compared to 40% in the fourth quarter of last year. We’ve also been busy improving the design and navigation of our mobile and desktop browser sites and native mobile applications.

We completed Android app upgrades in January on the tail of upgrading and launching new iOS tablet apps and phone apps during the fourth quarter of 2013. During the second quarter of this year, Kansas City operation will launch a responsive design mobile and desktop browser site designed with the needs of mobile consumers and advertisers in mind. From there, we expect all McClatchy websites will be rolling out responsive design websites in 2014 and 2015.

We’re also focused on other important digital initiatives as well. The rollout of impressLOCAL, our digital marketing services solution was completed company-wide in 2013. As you know, impressLOCAL provides a suite of online products designed to offer local businesses a comprehensive digital marketing solution. impressLOCAL is doing well and has helped fuel our growth in digital-only advertising in the quarter.

Growth at our Internet-related investments caused equity income during the quarter to increase 4.3% to $9.6 million, compared to the same quarter last year. And we will report our share of the gain on Classified Ventures sale of Apartments.com in the second quarter since the transaction closed on April 1.

Now to expenses, cash expenses, excluding severance and certain other charges, finished up 2.6% in the quarter, compared to the first quarter of 2013. First quarter operating cash expenses also included $4.3 million in expenses related to that same fee-for- service circulation delivery contract transition that we’ve just talked about, and because those two amounts offset, the increase in revenues, the increase in expenses, they had no impact on operating cash flow.

And excluding that change in expenses from this transition, operating cash expenses were up $2 million in the quarter or 0.8% from the 2013 quarter. Cash expenses this quarter also included $2.8 million in investments related to new revenue initiatives in digital infrastructure such as enterprise-wide operating systems.

Compensation expense, excluding severance, decreased 2.6% in the quarter. We saw a 10.8% decline in newsprint expense driven by declines in volumes and the price of newsprint. Supplements and printing costs were down 4.1%, compared to the 2013 quarter.

In the first quarter of 2014, we successfully completed our production consolidation plans in Charlotte and Fort Worth. In January, we purchased the Dow Jones production facility and related equipment in Charlotte. Shortly thereafter in February, production of the Charlotte Observer newspaper started up in the new location and printing of the Dow Jones publications also continued at this site.

And separately, in March of this year, the Dallas Morning News began printing the Fort Worth Star-Telegram. As we mentioned on our call last quarter, we’re always looking for production outsourcing opportunities that make sense. Including the Fort Worth outsourcing, 14 of our newspapers are now printed at outside facilities or by other McClatchy newspapers, and where outsourcing isn’t a viable alternative, we print daily newspapers for other companies which we now do in nine of our markets.

Moving to the balance sheet, we continued to strengthen the balance sheet further this quarter by improving our liquidity position. We ended the first quarter with a cash balance of $96.4 million, despite capital expenditures of $9.5 million, and the $25 million contribution to the pension plan that we made in early January of this year.

Total debt at the end of the quarter was $1.556 billion and our leverage ratio at the end of the first quarter on a net debt basis, which is debt to net of cash on hand, was 4.73 times cash flow. As I mentioned earlier on April 1, we received the expected $147 million cash distribution from Classified Ventures relating to its sale of Apartments.com.

We expect the after-tax proceeds to be approximately $92 million and expect to pay the taxes in the third quarter of this year. So pro forma for those net proceeds, our cash was $188.4 million at the end of the quarter.

Before I get to our outlook for the second quarter and the remainder of 2014, I’d just like to recognize significant accomplishments attained by McClatchy’s journalists. Editorial cartoonist, Kevin Siers from the Charlotte Observer was recently named the winner of the Pulitzer Prize for editorial cartoons. This is the Observer’s first Pulitzer in 26 years, and we’ve long known Kevin as one of the best editorial cartoonists in the nation and in fact many of the rest of those cartoonists work for McClatchy Papers. So, congratulations to Kevin and the Observer on that win.

I should also note that a strong investigative series in Sacramento reported by Cynthia Hubert and Phillip Reese on patient dumping by a Las Vegas mental health facility was a Pulitzer finalist and earlier in the year received a George Polk award and we congratulate them and all of the team at The Beat. I think these achievements are part of the continuing affirmation of the quality of the journalism at McClatchy Papers which is so critical to our long-term future.

Now, switching back to business trends and looking ahead, we expect the shifting of the Easter holiday into the second quarter to improve retail advertising revenue trends. For the full-year 2014, we expect double-digit growth in digital-only advertising revenues, along with low-single digit growth in both direct marketing and circulation revenues. Expenses are expected to be down in the low-single digits in 2014, compared to 2013 excluding the impact of circulation-related expense increases.

We still expect capital expenditures to be around $29 million for all of 2014, including the purchase of the Dow Jones facility in Charlotte. We expect to continue to pay down debt, including the retirement of approximately $29 million in bonds maturing in November of 2014, and then as I mentioned, no required maturities until the second half of 2017.

And with that, we’d like to thank you for your time this morning, and we’ll be happy to take your questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of Craig Huber from Huber Research Partners. Your line is now open.

Craig Huber - Huber Research Partners

I’ve got a few questions here and some housekeeping type. You’re down 9% print ad revenue in the quarter, how much of that you think was price versus volume?

Pat Talamantes

Well, Craig, I would say a couple of things on that. When you’re talking about a quarter where you’ve got an Easter shift involved, some of the way you look at average changes in rates, it doesn’t hold, it doesn’t tell you a lot because a lot of that is going to be mix issues, not necessarily organic changes in rates.

And so, I would just caution all of us on this call not to put too much importance in this -- in that statistic. Overall, I think the rate environment that we’ve been seeing the last few quarters continues to hold, which is for about a mid-single digit decline in rates and kind of the rest of that would be volume.

But again you’ve got not only the issues with Easter, but I think also issues with the winter weather that we had in the first quarter. So, I think this analysis probably makes more sense to look at at the end of the second quarter for the year-to-date, but that would be the answer there, Craig.

Craig Huber - Huber Research Partners

And the Easter effect in the quarter, how much do you think that hurt roughly, say 100 basis points, what’s your ballpark?

Pat Talamantes

I don’t think we’ve got the ability to adequately quantify that for you, but so like we’ve done in prior years, it’s probably best just to look at the year to date when we get to that point.

Craig Huber - Huber Research Partners

Okay. And then I have a newsprint question, average price percent change year-over-year and also consumption please.

Pat Talamantes

Elaine?

Elaine Lintecum

Sure. Average consumption was down in the 8% range and price was down in the 3% range.

Craig Huber - Huber Research Partners

Okay. And then also just wanted to ask here, it might be hard to break this out, but your digital ad revenue of $47 million in the quarter, how much of that would you ballpark is actually for mobile?

Pat Talamantes

For mobile, it’s a relatively small percentage of that, what you would consider to be ad revenue sold specifically on to tablets and smartphones would actually be a relatively small number for that. There is some upside there.

We are in the process of trying to track more of it based on the audience that we now have on mobile, but is looking at our actual websites, and that’s why we’re very focused on responsibly designed websites going forward. But it’s a relatively small percentage at this point, which points to the upside there.

Craig Huber - Huber Research Partners

And also, if I could just ask on the cost side, your other expense line, adjusted for the various one-time items both years, I guess if you take out also this 4.3 million transition for circulation delivery, if you take that out, it looks like it was up almost 6%. Can you just maybe walk me through what else is in there, some investment spending, it sounds like just the big buckets? Thank you.

Elaine Lintecum

Actually, Craig, as we mentioned, it was up more like 2% when you back that up and as we also mentioned, I think in the press release, a portion of that was investments that we made in kind of digital products and infrastructure. I would also say that given the growth that we’ve seen in digital-only revenues, there is a good portion of that that relates to the cost of sales of those digital products, and so as the digital revenues go up, the cost of providing those revenues go up and those are the general costs.

Craig Huber - Huber Research Partners

Okay. Thank you.

Operator

(Operator instructions) Again, your question comes from Craig Huber from Huber Research Partners. Your line is now open.

Craig Huber - Huber Research Partners

Sorry, I guess since nobody else has any questions right now, I do want to ask if you could just maybe talk a little bit further about what you’re seeing in the second quarter for advertising trends for print and digital as best you can. I know the Easter effect there, if you could help us that would be helpful. Thank you.

Pat Talamantes

Sure, Craig. So, obviously the guidance that we’ve given for the second quarter calls for retail to get better in the second quarter. That obviously incorporates Easter, and so we do expect some improvement there.

Digital, we continue to be very confident on in terms of particularly digital-only, and that’s why we continue to have that outlook for the full year of double-digit digital-only growth. So, I would say between those two, the second quarter sets up fairly well for us, but we’ll have to see as we get further into the quarter and past this Easter shift what May and June holds.

But again, we’re very focused on the digital side of the business as you know so well. Print is going to do what print is going to do. We’ve got some strategies there to try to improve that also. But it’s really heartening for us to see how hard -- given how hard we’re working on the digital revenue line to see the improvement there.

Craig Huber - Huber Research Partners

And then, Pat, I mean the cash you guys are building up here obviously at some point you want to pay down some debt here. Can you help us at all with what sort of the timing of that when you guys might start to pull in some of this cash, particularly if the last big piece of Classified Ventures does get sold as some of the trade press is talking about out there?

Pat Talamantes

So I’m enjoying having the interview this morning and I appreciate all your questions. In terms of the cash question, let me take the last part of it first. We have talked about our Internet investments several times over the last few years, including on the last call, so I don’t want to comment on rumors or speculations that appeared in the media in the last couple of months.

As it regards the $188 million in pro forma cash that we have on the balance sheet, I think it’s a very strong thing for us to have, that level of liquidity on the balance sheet, and we’re very heartened by the fact that the bond market is so confident in our future that we’re getting closer to the point where all of our bonds are trading at or above par. Not quite there yet in the outer maturities, but we’re getting close.

So it’s great to see the bond market so confident in our future after some years where maybe they weren’t so much. But I don’t know Elaine is there anything you want to add in terms of what we’re looking for in terms of the usage of our cash?

Elaine Lintecum

Yes, I would say that in light of the two more significant transactions that have been reported on Apartments.com and Anchorage, we will have some tax payments that are coming up that we’ll have to make. I would also point out that the second quarter and the fourth quarter are large payments as it relates to interest on the 2022 bonds given when they were issued.

So, we had some uses of cash there and then otherwise, I think, as you pointed out, bond prices are starting to trade up. So, we’ll continue to watch the market and in the meantime we’ll execute our strategic plans, and if that means holding cash for some period of time, we’ll be patient. So, we’ll look at reducing debt through bond repurchases when it makes economic and strategic sense given the other things that we’re doing.

Craig Huber - Huber Research Partners

My last question please. The Anchorage newspaper sell, when are you expecting to basically discontinue that, take it out of your operations and the numbers you report?

Elaine Lintecum

It will be reported as a discontinued operations in the quarter that it closes, so that’s in the second quarter and at that point the second quarter and year-to-date numbers will pull out the Anchorage numbers and it will be reported that way going forward.

Craig Huber - Huber Research Partners

And then, Elaine maybe I should ask you, the revenues and the EBITDA margin for the Anchorage paper, can you talk a little bit about that?

Elaine Lintecum

I think we disclosed that in the 8-K. I think it was about $27 million in 2013 revenues and about $5 million in EBITDA.

Craig Huber - Huber Research Partners

Great. Thank you very much.

Pat Talamantes

Thank you, Craig.

Operator

And your next question comes from the line of Matthew Dodson for JWest LLC. Your line is now open.

Matthew Dodson - JWest LLC

Can you just talk a little bit about the pension? We make a pension contribution this year, and then on the 14th you just - we’ll pay them off when they come due, is that correct?

Elaine Lintecum

Yes. We have a $29 million, this is Elaine, we have $29 million of 2014 notes that will come due in November and we’ll pay those off. In terms of the pension contribution, we made a $25 million contribution at the beginning of this year and we’re comfortable that that $25 million will cover what will ultimately be determined to be a required contribution to the pension plan.

At this point, on an IRS basis, we’re about 87% funded based on the end-of-the-year results and of course the $25 million contribution will only help that. And on a GAAP basis, we’re about 83% funded and again the $25 million contribution will also assist in that.

Matthew Dodson - JWest LLC

And then, can you discuss at all from a standpoint of where you guys want to get either to debt-to-cap or a coverage basis where you would potentially start to issue a dividend or give money back to shareholders?

Pat Talamantes

Yes. Thanks. We don’t have any internal targets on debt-to-cap or typically in the media business, kind of a debt-to-cash flow kind of figure in terms of what we think is safe or not safe or that sort of benchmark.

I would say that in terms of issues of return of capital that’s a topic that the Board looks at all the time and just have to consider that at the same time that it considers the operating trends of the business, as well as the needs for investment in the future of the business given that we’re in the middle of a digital transformation and we have to make sure that that happens and happens well, that’s a significant consideration also.

So, I would say at this point we don’t have any benchmark either for leverage or when we would consider putting in place a dividend, but these are above topics that the Board routinely looks at and considers.

Matthew Dodson - JWest LLC

The other question I would have is just relative to the capital structure, I mean, because of the bonds are so far out, you don’t have any real call dates. I mean we should -- the high-yield market is really strong, we shouldn’t expect you to try to refinance any of those debt, right, because you don’t really have the ability to, is that correct or not?

Pat Talamantes

Elaine, do you want to comment on that?

Elaine Lintecum

Yes. I would say we don’t have a need to. We have, as you pointed out, we have a maturity schedule that runs out quite long. We have plenty of liquidity on our balance sheet, and so we feel confident that the near-term debt, which is the 2014 that you and I just spoke about and the 2017 debt, we have ample cash flows, we have nothing else coming due until 2022 and that gives us a lot of flexibility to use our cash flows for debt reduction overtime and for strategic purposes as well.

Matthew Dodson - JWest LLC

Got it. And then just the last question is relative to the digital transformation, have you put or will you put any targets out over the next couple of years where you think digital will be as a piece of your revenue, and then if you’re able to achieve those goals, how that changes your margin structure, because it should be pretty positive I assume.

Pat Talamantes

Yes. So, we would hesitate to put out targets because of course it depends on two factors, right? It depends on where we are with digital but it also depends on where we are with print. And so putting out forecasts probably doesn’t make a lot of sense for us to do. As I mentioned, this quarter digital and direct marketing together, which is direct marketing being a business that has grown for four consecutive years, is at 41.6% of our total advertising.

If you look at the percentage now of print to total revenues, so print advertising to total revenues, that number is now under 40% of our total business. So, over 60% of our business is actually now growing. And I think you have seen the impact on our business and on our margins from those digital and direct marketing and circulation pieces being so good.

And so, we do have strong margins as we’ve talked about before. And so, I think you’re kind of seeing it now. I don’t know that you have to wait. I don’t know that you have to wait for a forecast in a couple of years, but we know we’ve got longer to go, but I just would hesitate to put out a forecast on that.

Matthew Dodson - JWest LLC

The last question, maybe I could ask the question better is, as digital and circulations, which is a bigger piece of your business, now starts to grow or continues to grow and continues to become a bigger piece of your business, can you help us understand kind of the incremental margin for, if you get a dollar in digital and circulation, kind of what you drive to that as opposed to print?

Pat Talamantes

Yes. The issue with the incremental margin on print is that for small changes in print advertising, those are high-margin dollars and so when print is declining, that’s a lot of cash flow that we have to offset. Margins from the incremental reader or a piece of circ volume are very high. On the digital side, it really depends on the product that you’re talking about.

Our digital products have very good margins, but incrementally there are costs associated with them and we’ve highlighted that a little bit as we’ve talked about our expense lines and why our expense line is moving.

Our impressLOCAL product is very strong. It has costs associated with it when we have revenue associated with audience extension products and we are buying inventory on other people’s websites and selling that into our markets. That has a fair amount of incremental costs as well.

The incremental banner ad on our websites has very high margins. So, that business is relatively complicated. So, I guess I would point you back down -- back to the print business, the print business continues to be a very profitable piece of our business to the extent that print declines, that’s a lot of cash flow that we have to makeup. So, the fact that we’ve been growing so nicely in all these other areas has helped us offset a lot of the decrease in profitability associated with declines in print.

Matthew Dodson - JWest LLC

Got it. Okay. Thank you so much.

Operator

And your next question comes from the line of Dennis Leibowitz from Act II Partners. Your line is now open.

Dennis Leibowitz - Act II Partners

Thanks. I had a couple of questions. One, you cited weather, I don’t know if you can innumerate, but actually it was, but I noticed the sequential deterioration in the areas you suggested, the Southeast and Midwest and wondered since the winter is over, if you started to see improvements in those regions? That was my first question.

Pat Talamantes

Mark, would you just kind of talk about winter in the Southeast. I don’t know whether we’re going to be able to quantify it as much as you would like, but Mark will give it a try.

Mark Zieman

I think you’re on the right track. Southeast is about 29% of our revenues, so it’s a large region for us which makes us sad when it’s completely covered in snow. Our ad revenue was down [8.6] (ph) in Southeast in the first quarter as you saw and this was a region that was particularly hard hit in the first two months by bad weather, in fact several of our markets there had multiple days of store and school closings and difficulty delivering the paper for several days due to ice and snow, which as you know is not that common in that part of the country.

So, we saw hits in department stores and health and consumer electronics and entertainment and the retail categories, saw similar hits in classified, which is down 11.2 with slumps in real estate and employment, but, as you suggested, the good news is that as the weather eased, our performance improved from about 2 to 4 points worth than the company average in January, February. It’s actually better than the McClatchy average in March. So, we saw about a 4 point improvement over the course of the quarter as the weather, bad weather eased.

Pat Talamantes

And Mark just if I could camp on, so in Florida, where it didn’t snow, at least as far as I know, how do we do in Florida?

Mark Zieman

And that’s a good comparison, because Florida continues its come back and led all the regions down only 2.4% in total ad revenue for the quarter. It was also the company leader in Q4 and Q1 a year ago and this quarter posted growth in classified and direct marketing. Classified performance once again led by real estate, up 7.5% from 2013, auto was up and even employment was up over last year.

So, the real estate market is booming in Florida. Now things have turned around there in a strong fashion. And without the weather impact, it did pretty well and without the weather impact in the Southeast in March, that region bounced back as well.

Dennis Leibowitz - Act II Partners

Okay. The second question I had and I was cut out for a minute. I think this might have been asked, but on your investments related to new initiatives, you said $2.8 million, can you give us what the comparable figure was and what you expect that to be for the year?

Pat Talamantes

It was about $1 million increase this year over last year.

Dennis Leibowitz - Act II Partners

Okay. And can you give some idea of what it would be for the year and how that would compare?

Elaine Lintecum

I think for the year, we had indicated it would be about $13.5 million this year and I think it was a little less than $2 million in total in 2013.

Dennis Leibowitz - Act II Partners

Okay. All right. Thank you.

Pat Talamantes

Thank you.

Operator

And your next question comes from Michael Kupinski from Noble Financial. Your line is now open.

Michael Kupinski - Noble Financial

Thanks for taking the question. And I have to apologize if you’ve addressed this in the past, but I was wondering if you can identify for us what either the amount or just the -- what you guys might consider to be non-strategic assets and maybe give us some thought about what the value of non-strategic assets might be at this point if you were to monetize? And then if you do have plans to monetize them, like what timeframe would you like to monetize these assets?

Pat Talamantes

Let me answer it this way. At this point, we really don’t have any non-strategic assets. All of our -- going through the last few years as we have and being so on top of the balance sheet as you don’t get back to trading above par, doing nothing and just sitting on your hands, so we’ve been doing a lot and so at this point, I don’t think we have anything that’s non-strategic.

We just have a lot of great assets and we like our portfolio and properties and it’s not like we’re looking to do more. I think over the last couple of months, some things came together and we acted on that. But at this point, we don’t have any organized program for doing too much and I think I’ll just leave it at that.

Michael Kupinski - Noble Financial

Okay. Fair enough. That’s all I had. Thank you.

Pat Talamantes

Thank you.

Operator

And your next question comes from the line of Jeremy Burton from PineBridge Investments. Your line is now open.

Jeremy Burton - PineBridge Investments

Hi, I apologize as well. I missed a bit of the call earlier. So, forgive me if I’m repeating anything. I have two questions. One is quick, what was the amount of pension and benefit expense in the first quarter of 2014? I think it was $3 million in the prior year.

Elaine Lintecum

Yes. It was about $1.2 million in the first quarter of this year and you’re right, it was about $3 million last year.

Jeremy Burton - PineBridge Investments

And that’s in the compensation expense line?

Elaine Lintecum

It is.

Jeremy Burton - PineBridge Investments

Okay. And then so my other question is on the other operating expense line, the line on the financials, on the non-GAAP financial statement, the $110.9 million. I mean, even if you back out the 4.3 of the incremental fee-for-service and then I guess the 1.0 million of incremental digital spend, it’s still an increase. I guess just my back of the envelope of $6.7 million in the quarter, which, I don’t know, it seems a little higher than I guess I would have thought. Could you maybe talk about some of the other stuff that went into that?

Pat Talamantes

Well, I guess our -- my perspective on this would be we’re managing for a full year and this is not a company that’s going to manage quarter to quarter. And so we have plans for investments and spending for a full year. In any given quarter, we could have, you all would consider to be a good expense performance or not so good expense performance, but over the course of the year, we’ve given the guidance that we expect cash expenses to be down in the low-single digits. So, it just doesn’t make a lot of sense to us to parse individual line items within cash expenses within individual quarters.

Jeremy Burton - PineBridge Investments

Okay, understood. And sorry, one last thing, the $1.2 million of benefit expense, is that a good run rate to think about for the year?

Elaine Lintecum

Yes. In general, I think so.

Jeremy Burton - PineBridge Investments

Okay. Thank you.

Pat Talamantes

Thank you.

Operator

And your final question comes from the line of Craig Huber from Huber Research Partners. Your line is now open.

Craig Huber - Huber Research Partners

Sorry, just one more follow-up please. I appreciate your time here. I believe last quarter, at quarter end, you had 32,400 digital only subs, I’m just curious what that number was at end of the first quarter.

Pat Talamantes

Yes. At the end of the first quarter, it was 35,700, Craig. And I think as we look forward into the rest of ‘14, one of the things that’s in our mind is continuing to work on the threshold on the free page views on our websites to see if there’s not a way to continue to balance traffic there with digital-only subscriptions and maybe find ways to increase that number overall.

Now, that’s just, the 35,700 is just from the -- our Plus Program. And those are the new ones that we started talking about this time last year. In total, including other digital-only subscription products, that number is 67,000 inclusive of the Plus Program 35,700 if that makes sense.

Craig Huber - Huber Research Partners

Yes it does. Thank you.

Operator

And there are no further questions; I turn the call back over to Mr. Kimball.

Ryan Kimball

I appreciate everyone joining the call today. Pat, do you have anything?

Pat Talamantes

No, that’s it.

Ryan Kimball

Great. Thank you everybody.

Operator

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

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