New Media Investment Group's (NEWM) CEO Mike Reed on Q2 2018 Results - Earnings Call Transcript

New Media Investment Group (NYSE:NEWM) Q2 2018 Results Earnings Conference Call August 2, 2018 10:00 AM ET

Executives

Ashley Higgins - IR

Mike Reed - President and CEO

Greg Freiberg - CFO

Kirk Davis - COO

Peter Newton - CEO, GateHouse Media

Analysts

Kyle Evans - Stephens

Leon Cooperman - Omega Advisors

Jeffrey Bernstein - Cowen

Operator

Good morning. My name is Imani [ph] and I will be the conference operator today. At this time, I would like to welcome everyone to the New Media Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]

Thank you. I would now like to turn today's call over to Ms. Ashley Higgins. You may begin.

Ashley Higgins

Great, thank you, Imani, and good morning, everyone. I’d like to welcome you to New Media's second quarter 2018 earnings call. Joining us today are Mike Reed, New Media's CEO and President; Greg Freiberg, our CFO; Kirk Davis; and Peter Newton.

I would like to call your attention to the earnings supplement that was posted to New Media’s website this morning. If you have not already done so, I would suggest that you download it now.

Before we begin, please let me remind you that statements made today are not historical facts and may be forward-looking statements. These statements, by their nature, are uncertain and may differ materially from actual results. We encourage you to read the forward-looking statements disclaimer in the presentation, as well as the risk factors described in New Media’s filings made with the SEC.

In addition, we will be discussing some non-GAAP financial measures during the call today and the reconciliations of those measures to the most directly comparable GAAP measures can be found in the earnings supplement.

Lastly, I would like to remind you that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase any interest in New Media. The webcast and audiocast is copyrighted material of New Media, and may not be duplicated, reproduced, or rebroadcasted without our consent.

With that, I’d like to turn the call over to Mike.

Mike Reed

Thanks Ashley and good morning everyone. Thanks for joining our Q2 earnings call today. And as Ashley mentioned, throughout the call, I'll be referencing the supplement that we posted on our website this morning.

Overall, I think we had a very solid quarter. Financial results were in line with our expectations led by solid revenue results, particularly our new business initiatives, which saw significant growth this quarter.

We also had a very active quarter on the acquisition front moving into some great markets. We made some key personnel changes that strengthened the senior management team and our capital structure remains very sound.

One headwind for us in the quarter, however, was the impact we saw from the rapid rise in newsprint costs. That was a bit of a setback. And this was driven by the new tariffs and we'll touch on this a bit later on the call.

So, I think we have a very good report to share with you this morning and to begin, I'm going to jump to slide two of that presentation. In the second quarter, we grew revenue 20.4% over the prior year to $388.8 million. This was driven by our acquisitions and the continued investment we have made in our new business lines, primarily UpCurve in GateHouse Live.

Our topline organic same-store revenue trend of negative 4.9%, however, was slightly behind our first quarter trend which was down 4.5%. This very slight decline was caused by a slip in traditional print advertising which declined 13.3% in Q2 as opposed to 12.3% in Q1.

Importantly, however, our Q2 trend was still materially improved from our 2017 performance, increasing 70 basis points over Q4 2017 and 150 basis points over Q3 2017. So, we still feel very good about the direction our revenue trends are heading in 2018.

Digital revenue in the quarter totaled $45.6 million and grew 35.5% to the prior year excluding the impact of ASC Topic 606. As a reminder, this accounting rule change went into effect at the beginning of 2018 and impacted how we recognize a portion of our IT services revenue earned through UpCurve Cloud.

Excluding that impact UpCurve, which now represents more than half of our digital revenue, grew to $24 million in the quarter, up 47.2% to the prior year. On an LTM basis, UpCurve now represents over $82 million in annual revenue. The business is really moving in a great direction. We'll touch on more on that business later in the call.

In addition to our strong digital revenue performance, we had an exceptional quarter for GateHouse Live and promotions with both categories growing revenue over 65% to the prior quarter. On a combined basis, revenue for the GateHouse Live and promotions categories was $13.4 million in Q2. This now is also becoming a very sizable revenue stream for us. We're excited about the future.

On the acquisition front, we have remained very active closing four deals in the second quarter for $117.8 million at an average multiple within our stated range of three and a half to four and a half times the sellers LTM as adjusted EBITDA. So, that's before synergies.

We also completed the sale of our GateHouse Media Alaska properties with a $2 million dollar. Those properties had a year-to-date EBITDA loss of $600,000. So, we are pleased to get that small group sold. We acquired this group as part of the Morris deal last year in Q4 and our intention from the beginning was to spin them because of their geographic distance and operating losses.

In the quarter, we successfully raised over $110 million in net proceeds from an equity offering. This allowed us to quickly close our Q2 acquisition pipeline and maintain liquidity for future investment. Our pipeline for opportunities remain strong.

Our capital structure remains sound as well. We closed the quarter with $113.3 million of liquidity including our revolver. Our net leverage stands at 1.9 times LTM EBITDA and we announced a Q2 dividend of $0.37 this morning, which annualize to a $1.48 per share.

I'll also reference some organizational changes we made during the quarter that we're excited about. Peter Newton has moved into the role of Chief Operating Officer for GateHouse Media. Prior to this role, Peter was the Interim CEO for UpCurve and also the Chief Revenue Officer for UpCurve -- sorry, Chief Revenue Officer for GateHouse Media.

Peter has been instrumental in helping us build the UpCurve business, but also to integrate the UpCurve business into the newspaper business, scaling it across the country.

We're really excited about the broader responsibilities Peter will have in GateHouse with the newspaper portfolio and excited about his contributions to the company on that broader basis.

Also Pekin Cannone who previously was the CEO of ThriveHive is now has been promoted to the CEO of UpCurve and we're very excited about that as well. Pete has done a fantastic job growing ThriveHive over the last few years and giving him the reins and the broader UpCurve business we think is going to lead to substantial growth in new revenue categories for our company.

So, we're excited about these changes for these two guys and the impact that they're going to have on our company in the future. We think this alignment of responsibilities best allows us to focus on all the initiatives we have underway and better positions us for success.

I'm going to turn to slide three to review the New Media portfolio. We operate today in and over 570 small to mid-size communities across the country. We now own 145 daily newspapers, making us the largest owner of daily newspapers in the United States and we have a focus on operating in small to mid-sized communities where we have more robust business opportunities in a less competitive environment.

Our newspapers are longstanding and dominant local news sources for their respective communities, which leads to very strong local brand recognition. We operate both the B2C and the B2B business in each of our markets.

Our B2C business provides unique hyper local news and information to each of our respective communities. Consumers pay for our content because of the relevance and value this non-commoditized and comprehensive local news has to them.

We believe this gives our consumer-oriented content business long-term viability and sustainability. At the end of the second quarter, we had nearly 2 million paid print subscribers to our daily newspapers and over 121,000 paid digital-only subscribers.

Our reach is now over 23 million people per week and we have over 41 million unique visitors to our websites each month. We were also recognized in the quarter for several journalism awards. In Florida, the Society for Professional Journalists announced our Florida properties as finalists for nearly 40 awards as part of their 2018 Sunshine State awards, including two of the three Journalists of the Year Finalists.

And in Ohio, Columbus Monthly was named The Best City Magazine for its Size and the Columbus Dispatch was named as The Best Newspaper and the Best Website by the Society for Professional Journalists. We are very proud of all of our journalists across the country and we are 100% committed to our local journalism efforts.

The strength of our reach and audience driven by our local content creates our B2B opportunity. New Media is able to leverage its longstanding in local communities and its status as a trusted local business partner to provide a variety of advertising and service-oriented products to small and medium-sized businesses or SMBs as we build out a robust local events business.

With over 5 million SMBs in our markets, we have a very large opportunity to meaningfully grow this side of our business, leveraging our unique in-market footprint.

Now, what I'd like to do is turn to slide four of the presentation if you're following along, then do a very quick review of our investment thesis and this is not new to any of you who have been with us for a period of time now.

Our investment thesis has three primary drivers. One, we own and operate businesses that produce strong cash flows. Two, we put that cash flow to work to grow the business organically and inorganically. And three, we consistently return capital to shareholders, creating very compelling overall returns.

The strength and longevity and scale of our portfolio of local media businesses is the foundation of this investment thesis. Over 80% of our media brands have been published for more than 100 years.

Our LTM as adjusted EBITDA is now $177.4 million with about 75% converting to free cash flow. Our CapEx requirements are low, generally only 1% of revenues and we do not expect to be a significant cash tax payer in the near-term due to more than $220 million in NOLs shielding future cash flows.

Our commitment to grow organically and inorganically can be seen from our track record of developing new revenue streams such as UpCurve and GateHouse Live as well as through our roughly $1 billion highly accretive acquisitions over the last four years.

Further, we leverage our local and regional printing and distribution capabilities to grow third-party commercial print and distribution contracts realizing extra revenue and cash flow from these local assets.

Lastly, we are committing to having a balanced capital allocation strategy, accessing the debt and equity markets when and where it makes sense for growth, while remaining committed to delivering a portion of our organic free cash flow back to shareholders via our dividend.

We also maintain a share buyback plan in the event that at a given time that is the most sensible use of cash. Our execution on this thesis has achieved a total return for shareholders since inception of about 87%. Further, the total return for shareholders over the last 12 months as of July 26, the end of our fiscal second quarter, was about 50.5%.

Now, let's turn to slide five to discuss the most important revenue categories for our company's future. As a reminder, these five areas are where our primary investments are focused.

In order to diversify our revenue streams, moving our business away from traditional print advertising and positioning ourselves for future steady organic revenue growth. We do not expect traditional print revenue trends to reverse. Therefore, growing these new revenue streams is a key component to the organic segment of our investment thesis.

We are very excited about performance in these categories over the first half of the year and particularly in the second quarter. So, let's drill in a bit more on each. GateHouse Live revenue grew 68.2% over the prior year quarter to $7.7 million.

The second quarter is an active quarter for us as our Best of Preps events are in full swing, celebrating high school athletes around the country at the close of their respective school years. Each event has a celebrity guest that the students get to hear from and take a picture with when receiving their awards.

Some of our guests in the second quarter were Pedro Martinez in Providence Rhode Island; Jason Witten in Sherman, Texas; and Grant Hill in Daytona, Florida. Overall, we completed 100 local events in the second quarter with 38 of those being Best of Preps events.

As I mentioned earlier, UpCurve had a fantastic second quarter, growing 47.2% after affecting the accounting change to the prior year. Both ThriveHive and UpCurve Cloud, the two main components of UpCurve saw not only strong revenue growth, but strong growth in active customers and licenses. We'll discuss more details on these businesses in a later slide.

Promotions also had a standout quarter, growing 65.7% over the prior year. This product generates both brand recognition as well as consumer data for its advertisers since it can be designed as a contest or quiz that is promoted in print, online, and via social media.

Its popularity also stems from the fact it can be customized for a single sponsor or shared across several sponsors allowing for lots of flexibility. We often run promotions in conjunction with GateHouse Live events, which brings sponsors additional opportunities over the lifecycle of the event. We are excited about the growth that we expect from these combined efforts as well as our expansion plans for promotions across our footprint this year.

The second quarter brought growth of 11% on an organic same-store basis to the prior year within our commercial printing business. We continue to reap the benefits of the new printing contracts that were closed throughout 2017 and we are actively closing new deals where we have capacity within our facilities.

In the second quarter, we closed over $1.5 million in new commercial print contracts and we have a pipeline we're working on right now for more than $10 million in additional opportunities.

Consumer revenue saw slightly weaker performance in the second quarter than we experienced in the first quarter. However, we remain confident in our ability to keep this line item stable. We have built a strong management team to lead this revenue category and we have made and continue to make significant investments into initiatives that will strengthen our consumer marketing and customer retention efforts in our local markets.

We are building an in-house agency that will handle marketing and retention for the local markets, allowing them to tap into expertise, ideas, and specialists that most of our markets could not afford on their own.

We are investing in and building this agency and have been for the last several quarters and we expect to see the results of that in the coming quarters and years. We also remain highly focused on growing our paid digital audience, which is now over 120,000 digital-only paid subscribers at the end of the second quarter.

As a reminder and as I've mentioned on previous calls, we do not expect the individual quarters for these revenue categories to necessarily match the full year targets that we show here on page five due to both seasonality as well as ramp time from investments we continue to make.

Now, let's flip to slide six and discuss UpCurve's performance in a bit more detail. As I mentioned earlier, second quarter revenue was $24 million, 47.2% to the prior year excluding the impact of the accounting change. UpCurve offers a suite of products and services that bring technology and automation to our SMB customers to support their growth, productivity, and efficiency. These products can be tailored to the needs of each SMB and an integrated à la carte or in various bundles.

We with two primary business segments today within UpCurve and they are ThriveHive and UpCurve Cloud. And ThriveHive grew revenue to $20.1 million in the second quarter, up 40.4% over the prior year. Active customers grew 33.4% in the quarter and we saw the automotive customer vertical become one -- become our largest contributor.

Our investment earlier this year in online automotive services has brought a robust video and data product to our already large dealership customer base. We are beginning to see the impact of this investment, which is both unique and very user-friendly, creating significant efficiency for dealers to both manage and market their inventory.

UpCurve Cloud revenue grew to $3.9 million in the quarter and that was up 749.1% over the prior year when excluding the impact of the accounting change. We fulfill and service nearly 115,000 licenses for both Sugar CRM and Google G suite and continue to see very low churn in this category for customers and importantly, over 65% of our revenue is recurring.

We remain a key partner of both Sugar and Google and are excited about our growing partnerships with Vonage offering voice-over-IP services and products score offering sales management and efficiency tracking to our SMB customers.

Now, turning to slide seven, we'll take a quick look at our recent acquisition activity, which has been quite robust. We completed four acquisitions in the second quarter for $117.8 million within our stated range of three and a half to four and a half times the sellers' LTM as adjusted EBITDA.

The Austin Palm Beach and Akron acquisitions were discussed on our first quarter earnings call. So, I'm not going to go back over the details of those three today. But the latest acquisition the Pueblo Chieftain is a newer one and we haven't talked about that.

That was a smaller deal for us, but one that fits very well into our acquisition criteria. It was a family-owned daily newspaper in Southern Colorado and it happens to be the oldest daily newspaper in the state, really serving all of the southern portion of the state. It has daily circulation of 27,000. We believe that all of these Q2 acquisitions will strengthen our overall portfolio and be highly accretive for our shareholders.

And if you turn to slide eight quickly, you can see the full record of our acquisitions since our spin. We have completed 29 local media acquisitions to-date for roughly $1 billion at an average of 4.1 times the sellers' LTM as adjusted EBITDA. In 2018, we have completed over $133 million in acquisitions across seven transactions.

As I mentioned, we have a $113.3 million in liquidity at the close of the second quarter. So, we are well-positioned to take advantage of further opportunities over the balance of the year in the first half of next year.

Please turn to slide nine now to allow me to do a brief update on our capital structure. In the second quarter, we completed an equity raise for $110 million in net proceeds. This was important. Though we are generating substantial free cash flow, accessing the equity markets allowed us to execute on the seven transactions that we have closed thus far this year and to get them closed in quick succession. And as a result positively, we'll see the benefit of these deals in the second half of 2018.

Also, in several of these acquisitions, New Media was not the highest bidder. But having a strong track record of closing and having available cash on the balance sheet, made us the preferred counterparty for the seller.

This morning, we announced our second quarter dividend of $0.37 per share, which is a $1.48 on an annualized basis. The dividend has been raised four times since our inception as a public company and cumulatively, we have paid out $5.70 per share inclusive of this dividend. As I mentioned earlier, total return over the last 12 months for our shareholders has been about 50%.

With our business thesis and compelling execution over the last four years combined with our exciting growth initiatives and our deal pipeline, we remain very optimistic about the future and believe we can continue to create meaningful returns for our shareholders.

Thanks to all of you on the call this morning for your continued support. And with that, I will turn things over to Greg for further discussion on our second quarter financial performance. Thanks.

Greg Freiberg

Thank you, Mike and good morning everyone. I'll now be speaking to page 11 of the supplement. And before I begin, I want to remind you that we adopted the ASC Topic 606 revenue from contracts with customers beginning last quarter. The standard impacted the revenue treatment of certain UpCurve Cloud services to net versus previously being reported at gross.

The prior year results do not reflect this adoption. Thus comparison is not on an apples-to-apples basis. So, when we speak about excluding the impact of ASC 606, that gives a representation of the results to the prior year on the same basis. This change affects UpCurve Cloud UpCurve in digital.

Second quarter revenue was $388.8 million, up 20.4% to the prior year on a reported basis and a decrease of 4.9% on an organic same-store basis excluding the impact of ASC 606.

The organic same-store performance took a 40 bps step backwards from Q1, but this performance is still 70 bps better than Q4 and 150 bps better than Q3. Excluding the first quarter, it's our best performance since the third quarter of 2016.

Traditional print revenues were $159.2 million and decreased 13.3% on an organic same-store basis. Within this category, pre-prints were down 18.2%, classified print was down 12.1%, and local print advertising was down 11.7%. All of those are on an organic same-store basis.

Digital, our consistently growing revenue category, increased 31.4% to $45.6 million. UpCurve is our largest component of digital and generated $24 million in the quarter, up 47.2% to the prior year excluding the impact of ASC 606.

Circulation, which comprises over 37% of New Media's total revenues, was $144.5 million, down 2.1% to the prior year on an organic same-store basis. We continue to invest in the development of a fully centralized consumer marketing agency and in growing our audience.

Our digital-only subscriber base in the second quarter grew to 121,300 customers. That includes 32,200 digital-only subscribers from 2018 acquisitions. Excluding those acquired subscribers, our growth in this category was strong at 51.9%.

Turning to commercial print distribution events in other, revenue in the quarter was $39.4 million, up 9.6% on an organic same-store basis. Within this category, commercial printing, which by far is the largest component, grew 11%, while events grew 68.2%.

As adjusted EBITDA was $48.8 million, an increase of $5.5 million or 12.7% to the prior year. These results were negatively impacted by an approximately 30% increase in newsprint costs due to tariffs recently put in place, which in dollar terms is about a $20 million annualized cost increase. To mitigate a portion of this, we're moving to lower weight newsprint, moving more buying to U.S. based mills, and passing through the tariff costs for third-party commercial print customers.

Free cash flow was $35.7 million, up to $2 million or 6% to the prior year. This represents a 73% conversion rate of our as adjusted EBITDA into free cash flow, demonstrating the strong and consistent cash flow generation that we produce.

Net income for the quarter was $11.7 million, an improvement of $33.4 million to the prior year. This is a solid operational quarter for us as you see in the numbers I just shared.

On a reported basis, revenue and EBITDA are up by double-digits to the prior year. We ended the quarter with $73.8 million of cash on the balance sheet and $39.5 million of available undrawn revolver.

During the quarter, we raised $110.6 million net proceeds from our equity raise in April and we dispersed $117.8 million for the acquisitions of Austin, Palm Beach, Akron, and Pueblo. We also disposed of our non-core and unprofitable operations in Alaska and monetized and a non-core web domain. Putting this all together, we have pro forma liquidity of $113.3 million, which is substantial liquidity to continue our pursuit of highly accretive acquisitions.

Debt outstanding at the end of the quarter was $416.3 at an average blended rate of 8.22%. Net leverage against our LTM as adjusted EBITDA is 1.9 times. We continue to find and execute on highly accretive acquisitions and we continue to successfully raise capital in support of our strategic plan.

We have net leverage just below our target of 2.0 times and we have significant liquidity and debt capacity available to continue executing on highly accretive transactions. We've now reported five consecutive quarters with as adjusted EBITDA and free cash flow ahead of the prior year.

Operator, we'd like to open the call for questions.

Question-and-Answer Session

Thank you. [Operator Instructions]

And we have our first question from the line of Kyle Evans with Stephens.

Kyle Evans

Hey, good morning.

Mike Reed

Hey, good morning Kyle.

Kyle Evans

Well I'm predictable and liable. I want to first spend a few minutes on circulation revenue, down to in the period the guide is up for one to down one. Is that guide still realistic for the year?

Mike Reed

Probably on the lower end of the range is realistic for the year. In the second quarter, Kyle, we had -- it wasn't a broad-based setback from one and a half to -- or 1.6 to 2.1. It was actually some shakeup we had in three markets and we're all over the work on those three markets. But it's not a reflection of a broader or fundamental thing in the company. It was more something that happened in three of our markets where we've had to make some changes and put some different plans in place.

Kyle Evans

If that's a common problem in those three markets, can you lay out what that problem is for us? Or is that something you prefer not to discuss?

Mike Reed

Yes, it’s a little to detail.

Kyle Evans

Okay. And maybe the unit volume and unit pricing trends that drove that down too?

Mike Reed

Very similar to what we discussed last quarter with down 1.6. We're less aggressive this year on pricing. We feel like we're doing the right things at the agency level at the central -- centralized level to have better consumer marketing efforts across the company to acquire new subscribers, as well as better retention efforts to retain a higher percentage of our current subscribers.

So, our focus has definitely shifted from that of pricing driving all the revenue growth to volume really being the primary driver. And so very similar, but very similar to the first quarter where pricing was -- pricing and volumes were kind of high single-digits mid to high single-digits.

Kyle Evans

Mid to high single?

Mike Reed

Yes.

Kyle Evans

Okay. And you mentioned that you've been building the centralized consumer marketing function for several quarters now. What's the outlook there? How much are we talking about in terms of absolute dollars of investment? And when do you expect to see it kind of hit a tipping point?

Mike Reed

Well, I'm going to turn it over to Kirk to get a thought from him as he sees more driver of this. But it started really in the second half of last year when we hired Denise from the New York Times to really help us build this agency and then she has really been doing the groundwork over the last, call it, two to three quarters and has really developed the plan and we're now starting to execute on that plan.

As far as the investment and timing, Kirk's a little closer to those numbers. I know it's in the millions, but one Kirk, do you want to give us a little more exact science on the investment and timing?

Kirk Davis

Sure. As of July 1, we were about 50% of our consumer revenue had been brought under our centralized management. And that will grow to 90% by the end of the year. So, this represent the phases of how we're bringing in properties being served by our agency.

With that said, we're still moving on other initiatives in the quarter. We're really bringing call centers into one high quality call center. Initial weeks of having done that, we are seeing about a [Indiscernible] improvement in our cancellation rate, meaning that we are addressing concerns of subscribers providing a better customer experience, resolving their problem, seeing 16% less defections.

In terms of the dollars, at this point we've earmarked about $5 million of investment on an annualized basis, which is a combination of dedicated staff and very specific roles, particularly, for example, with an expertise in subscriber acquisition through digital channels.

And then a lot of the money also is being devoted to external media, where it will leverage social, display, and page search, which is where a lot of our traffic comes to us from online is through search. So, all of these are kind of more than modern day marketing, tactics for consumer subscription building and we're [Indiscernible] about the progress. As we noted, we're 120,000 subscriptions and very excited about [Indiscernible] there. So, that's a little more color.

Kyle Evans

Great. One more on circulation and then I'll switch over to paper cost and get out of the way. Can you talk a little bit about whether or not there's any significant difference in volume or pricing in your larger markets or Providence Columbus, Austin Palm Beach versus your smaller?

Kirk Davis

There's a little more pricing opportunity today in our larger markets than our smaller markets. We see that for sure. And so more of our pricing increases are focused on our larger markets. However, the other thing that I think's worth noting Kyle is that with our acquisitions, we're able to deploy the pricing strategies we've had -- historically with our properties into these new properties. And as you as you know from previous calls that's using data to really drive pricing more in the neighborhood or household level.

And so we're able to apply those to our acquisitions and sometimes, we find acquisitions as well that where the family has not been active in price increases and so we have opportunities there. And to put a nail on that point, our same-store report of down 2.1% reflects the newspapers we've owned for a year. But our real same-store trend in the second quarter was actually down 1.4% when you include the papers that we've acquired within the last year and that reflects the revenue growth we've been able to achieve through some of the pricing efforts. And as you know, by our acquisition history the last year, many of those acquisitions are larger markets. So, I think that answers your question.

Kyle Evans

It does. Thank you. We'll switch over to the paper cost and then I'll get out of the way. The 30% number you mentioned in the release, is that the blended effect of the Canadian tariffs and price hikes by U.S. providers? And how much of the quarter has that cost increase given that you run with a month and a half inventory?

Mike Reed

Yes, it definitely had less of an effect on the second quarter than it will on the rest of the year as we do run with inventory, 30 to 45 days of inventory. And yes it's a blended impact on pricing from the tariffs and general price increases due to supply and demand.

Our 30% is reflective of the actual price per ton that we were paying a year ago at this time versus now. 30% is now what you should expect as actual cost increase going forward. There are lots of things Greg mentioned that we have done and we will continue to do. You can move to lighter weight basis -- lighter basis weight newsprint which lowers the volume of newsprint you buy.

There are page count reduction opportunities, especially for house ads that that can lower your newsprint consumption. Some of your consumption is tied to your circulation volume, so as those dip, you'll see less consumption.

And then we are actually moving most of our tonnage that we buy from Canadian suppliers to U.S. suppliers and so that we think will provide a little more price stability. So, we're doing a lot of things, Kyle, to mitigate the price increase we've seen driven by the tariffs.

I think worth noting there's hearings on the Hill in the fall here August and September. And we'll see what happens with the tariffs. There are more than 20 Congressmen who are behind eliminating the tariffs. But I don't want to make a promise that eliminating the tariffs will automatically lower prices, now that it's up. The supply/demand will have an impact on that as well.

But we're doing the things we need to do to mitigate the cost increase and so while I would say it's an obstacle and something we've had to deal with on a very, very quick basis. It's not something that scares us in the long-term or changes our view of anything in our investment thesis. It's just something we got to deal with in the interim, we'll deal with it. We'll get it behind us and go from there.

Kyle Evans

Is the $20 million number that Greg provided us with, is that adjusted for the lower way more U.S. producers and passing through on the commercial side?

Mike Reed

It's not.

Kyle Evans

It's not. So, that's a -- if we took the third -- roughly 5% of your revenues that is paper and increased 30%, that's what equals that %20 million.

Mike Reed

Yes, we spend about 70% on -- $70 million on newsprint right now. So, 30% of that is about $21 million. We'll do everything we can to mitigate that.

We saw about $2 million of cost bump in the second quarter. But that -- we really had very limited time to react to all of this this year. So, we'll -- as I said, we have a lot of things in motion to mitigate this--

Kyle Evans

How much--

Mike Reed

It stinks, but we're not worried.

Kyle Evans

Yes, it is unfortunate. How much play is in that $20 million annual number given the moves you have available, roughly speaking?

Mike Reed

We think we'll get it -- we'll get the actual dollar increase below 10.

Kyle Evans

Okay. Thank you.

Operator

Your next question comes from the line of Lee Cooperman with Omega Advisors.

Leon Cooperman

Thank you. In the last two years, October was a month where you bump a dividend like padding like a C Corp. [ph] Given the fact that cash flows run in 230 a share roughly in annualized rate and the dividend currently I guess about 148. I know you don't want to jump your board, but what is the prospect of a dividend bump come October? That would question number one.

Number two, you talked about UpCurve as a potential of freestanding operation spin. How far or near, is something like that in our future? And I guess I just want make sure I heard it correctly, it seems like you seem optimistic about the deal pipeline in terms what you're looking at? Those are three questions.

Mike Reed

Yes. I'll take the last one first Lee. Thanks because it's easy. Yes, the deal pipeline remains robust. We're looking at several pretty active and decent sized opportunities, so we're pleased with the pipeline.

The dividend free cash flow question. One thing Lee to think about as you mentioned, we're running at about 238 or 240 per share in free cash flow. We have done $250 million in acquisitions within the last nine months and almost half of that or $118 million was done just in the second quarter. So that 238 to 240 you cite really doesn't reflect all the stuff we've acquired. I mean 25% of all the acquisitions we've done since our inception have been within the last, call it, nine months. So, that's a lower number than what you'll see as we run out these acquisitions over the next several quarters.

Leon Cooperman

That would argue for a greater probability with distribution increase, assume that the acquisitions were accretive?

Mike Reed

Yes, the acquisitions are accretive and we believe our future acquisitions will be accretive and so we see that free cash flow per share number that you cited being moving obviously in the right direction for shareholders in the coming quarters as we realize the benefit of all the acquisitions we've done recently.

We do pride ourselves on the fact that we've had four consecutive years of dividend increases. If we do a bump again this October, it would be our fifth consecutive year. It's definitely a goal of ours, but I don't want to pre-jump the board. The Board will discuss it, but it's been a goal of ours -- it's been part of our business thesis Lee to do accretive acquisitions for shareholders and as we grow free cash flow, we also grow the dividend.

Leon Cooperman

Got you. And UpCurve?

Mike Reed

And so the UpCurve -- the UpCurve business is now just based on the Q2. On a standalone basis if you analyze, it's about $100 million a year growing at almost 40%. So, I think we will definitely look at all the options for that business as we've said on previous calls and we'll do what's best for our shareholders. It's taken about five years to build that business to where it is today. So, we're probably only -- we're actually much closer to the timeframe where we could figure out how to better position that company from a capital structure standpoint that would allow them to grow faster and also bring more benefit to our shareholders. It's hard to be more specific on timing than that, but definitely--

Leon Cooperman

You do a good job. I appreciate it. Thank you very much.

Mike Reed

Thank you.

Operator

Your next question comes from the line of Jeff Bernstein with Cowen.

Jeffrey Bernstein

Hi guys. Just a couple of questions for you. Can you talk a little bit about digital subscriptions? And what kind of strategies are you using there to grow that part of the business?

Mike Reed

Yes, I'll turn that over to Kirk for information on the strategies. What I would say is it's about a 120,000 digital-only subscribers today. The organic same-store growth is about 40% year-on-year. So, it's growing nicely. And we don't see that slowing down in actually the digital-only subscribers are now that it's a material number at 121,000 and growing at 40% to 50% clip. There is sizable growth there which is going to help mitigate print or declines which back to Kyle's question earlier on the call gives us confidence when we talk about the long-term future and our ability to keep this revenue category stable. We're seeing enough growth on the digital side that we will be able to weather any small print declines. But I'll turn it over to Kirk for more specifics on what we're doing to grow that category.

Kirk Davis

Thanks Mike. So, first when we talked about the centralization of our consumer marketing efforts across the enterprise. Basically that allows us to take the successes and the learnings from our most successful markets and quickly apply them across the portfolio.

So, to our talent and experience, we can bring a level of sophistication that just didn't previously exist in those markets. And further creating a more consistent customer experience that leverages [Indiscernible] of our customers, we're able to scale this experience not only for our paying subscribers, but for those that we determine have a higher propensity to pay, which not only improves retention, but also our ability to convert new paid subscribers.

And then we're just a bit more agile, but realizing our media spend strategy and customer in one sort of collaborative agency better equipped to pivot our strategy and retake advantage of the opportunities to optimize our strategy.

And I guess married up with that I would just point out that we are making a tremendous effort in in building our [Indiscernible] by growing the audience [Indiscernible] to serve our social and [Indiscernible] paid search strategies against.

So, very, very important in the digital subscription space obviously to have an increasingly larger addressable market of people who are interacting with our content and we're driving that aggressively and some of our recent acquisitions have really been greater funnel building capabilities, particularly Austin and West Palm Beach where they have really, really strong audience development hubs.

And over time, our goal will be to leverage more and more spend -- media spend into supporting all of our subscription revenue -- better content, more touch points with consumers, more e-mail products, and our news room becoming more sophisticated about the kind of content that drives most local traffic. So, that's sort of a better sense.

Jeffrey Bernstein

Is there anything to say about kind of demographics of the digital-only subs versus the traditional demographic and if they say there's sort of a hand off of subscription to the local paper or from the older generation to the newer generation?

Kirk Davis

What you definitely would see with our installed sort of home delivery subscriber base increasing trends of them engaging more with the content digitally, which we think is a really great migration benefit. So, you do see that.

But there's still very much like the home delivered product and the experience that comes with the advertising and the familiarity, their habit and such. Obviously, when we talk about our digital-only base, that's just folks who are doing nothing but strictly -- with our content digital means.

Our home delivery base is vastly activated on digital and interacts with content through the printed product and digital and that's huge -- to us. And increasingly they've become probably inclined to the digital drivers.

To your point, I'd say -- quantify this exactly, but our experience and we're getting increasingly more sophisticated is that we do reach and attract younger audiences through the digital subscription model. And that's a great benefit because it's always been somewhat of an elusive audience for us given the tradition of newspapers.

Jeffrey Bernstein

That's great. And then I just wanted to see if you guys could elaborate. You mentioned partnership with Vonage now in Propel business I guess and another company. I don't know if it was called Product score [ph] or what it was called exactly. Can you just talk to those two opportunities a little bit and the products?

Mike Reed

Yes, sure. Peter Newton, do you want to take those?

Peter Newton

Sure. So, -- we're reselling their voice-over-IP or Internet telephony services to small and mid-sized businesses. But not only selling just those services, we're also integrating Vonage with G Suite with Sugar CRM and with other platforms which is an important part of the value that we provide.

And along those lines Protoscore is a new productivity measuring and service platform. It's information from your [Indiscernible] platform like G Suite from your CRM platform like Sugar CRM and from your phone system compiles all of that and tracks it both for salespeople and for service and then benchmarks across your entire staff. Very valuable for call centers for larger salesforces service centers. So, we're seeing good early traction from that service as well.

Jeffrey Bernstein

Got you. And then I know the SMB market for a unified communications that that Vonage market is a great growth market right now. Do you have any idea what the penetration currently is in your in your customer base? What it's like?

Peter Newton

What the penetration is -- I'm sorry for overall unit license [Indiscernible]?

Jeffrey Bernstein

Of VoIP. Yes. Yes of Vonage or competitive VoIP products?

Peter Newton

I don't know the exact percentage, but I do know that it's relatively low. So, it's a huge opportunity for us.

Jeffrey Bernstein

Great. Terrific. Thank you.

Mike Reed

And you have to remember there that we're in more smaller and small mid-size and more rural markets and so obviously, the penetration there is lower than it is in your biggest metro markets.

Operator

Great. And we have no further questions at this time.

Mike Reed

Thanks everyone.

Operator

This does conclude today's conference call. Please disconnect your lines at this time and have a wonderful day.