Mary Junck - Chairman, President and CEO Carl Schmidt - VP, CFO and Treasurer Kevin Mowbray - VP and COO Paul Farrell - VP, Digital Sales.

Avi Steiner - JPMorgan.

Welcome to the Lee Enterprises Fiscal 2015 First Quarterly Webcast and Conference Call. The call is being recorded and will be available for replay beginning later this morning at lee.net. This is a listen-only call. Several analysts have been invited to ask questions at the end of the planned remarks.

If you are accessing this by webcast, you may submit type questions on your screen. Those questions will be answered during the call as time permits. Otherwise, you will receive a response later. Participants on the phone will not have the opportunity to ask questions.

And now I would like to turn the call over to your host, Carl Schmidt, Vice President, Chief Financial Officer and Treasurer..

Good morning and thank you for joining us. With me on today’s call are Mary Junck, our Chairman and Chief Executive Officer; Kevin Mowbray, Vice President and Chief Operating Officer; and Paul Farrell, Vice President, Digital Sales. Earlier today, we issued a news release with preliminary results for our December quarter.

It is available at lee.net as well as at major financial websites. As a reminder, our discussion today will include forward-looking statements that are based on our current expectations and are subject to certain risks, trends and uncertainties that could cause actual results to differ materially.

Such factors are described in our news release this morning and also in our SEC filings. Also during the call, we’ll reference certain non-GAAP financial measures. Reconciliations to the relevant GAAP measures are included in tables accompanying our news release.

We’ll also report changes in comparable revenue and cash cost that exclude the impact of a change to fee-for-service revenue arrangements with our carriers that requires a reclassification of some of our delivery cost resulting in a grossing up of both revenue and cash cost.

This reclassification has no impact on operating cash flow or operating income. Now, to lead our discussion is our CEO, Mary Junck..

Thanks, Carl. And thank all of you for joining our conference call to discuss our first quarter 2015 results. As noted in our release this morning, Lee is off to a strong start in fiscal 2015. Total digital revenue increased over 25% in the quarter and it’s our fifth consecutive quarter of double-digit growth and our audiences continue to grow.

While we were impacted by a sluggish print environment, we saw revenue growth in other areas, notably in digital advertising and subscription revenue. For the quarter, advertising and marketing services revenue totaled more than $115 million, down just over 5% while digital advertising revenue on a standalone basis increased more than 7%.

Mobile advertising revenue, a component of our digital advertising revenue increased by more than 32% from prior year. We are seeing positive effects from our full-access subscription model. Subscription revenue posted a modest increase in the quarter, exceeding previously announced guidance exclusive of the fee-for-service adjustments.

We are now in a position to set full-year guidance and we expect 2015 subscription revenue on a comparable basis to increase between 2.5% and 3%. Revenue totaled $176 million for the quarter, down less than 1% compared to prior quarter. On a comparable basis, total revenue was down 3.4%.

On the cost side, we continue to see the benefits of our business transformation. On a comparable basis, cash cost decreased more than 2%, exceeding our previously announced guidance. For the full year, we expect our cash cost on a comparable basis to decrease in the range of 0.5% to 1%.

All considered, the first quarter of 2015 was a solid start as we aim to make 2015 our seventh consecutive year of strong and stable cash flows. And with these cash flows we’ll continue to aggressively reduce debt.

As we’ve noted on numerous occasions, we are committed to aggressive debt reduction and expect to use substantially all of our cash flow toward that end. And now, here is Kevin with an audience update..

Thank you, Mary. As Mary mentioned, our digital audiences continue to grow. Mobile, tablet, desktop and app page views grew to 226 million in the month of December, an increase of almost 8% from the same period a year ago. Unique visitors totaled 28 million in the month of December, an increase of almost 8% from the prior year.

We began implementing our full access subscription initiative nine months ago and have rolled it out to 30 markets so far. As a reminder, our full access program provides subscribers with full access to our unique content across every platform, both print and digital.

Currently, more than 200,000 subscribers have activated their access to our digital content. We’re on track to complete the roll out to our remaining enterprises by the end of June 2015 quarter.

Full access is driving results as subscription revenue on a comparable basis increased during the quarter and for the full year as Mary noted we expect subscription revenue on a comparable basis to increase 2.5% to 3%. A couple of comments on digital advertising growth before I hand the microphone to Paul Farrell.

From an operational standpoint, we are keenly focused on driving digital advertising revenue and continue to build our expertise. For example, just this week, our reviewed-and-helped [ph] sharpen sales presentations for 25 of our largest local advertisers.

These so called big pictures showcase our huge local audiences and the full array of digital products we offer including banners, social media management, key words retargeting, website development and hosting.

Additionally, as we built our digital knowledge and expanded our product offerings, we’re increasingly viewed as the digital advertising expert in our markets. So far in FY 2015, we’ve made more than 300 pictures. Now, Paul Farrell will review some key initiatives to keep driving digital advertising revenue..

Thank you, Kevin, and good morning everyone. As Mary noted, Q1 was a very strong quarter for digital revenue. Total digital revenue increased more than 25% compared with the year ago. Digital advertising jumped 7.1% anchored by sizeable gains in most markets.

Mobile advertising grew by 32% as our sellers continue to leverage these rapidly growing mobile audiences. New ad formats and increasing advertising interest across all categories. Also, it is important to note that these significant mobile gains have been realized across our system.

Gains in our amplified digital suit of products were substantial and reflect the growing appetite for turnkey digital SMB offerings and more targeted display; display that is frequently aimed by the propensity to spend on a particular ad category, demographic, our audience visitation pattern.

Audience extension is an exciting capability for our local sales teams as the ability to sell and traffic digital media beyond our local desktop and mobile sites create the substantial short- and long-term growth opportunities.

Our company-wide focus on pitching our largest local customers with custom annual media programs has generated strong digital results and provided a terrific opportunity to showcase unique creative approaches for both branding and call to action customer strategies.

Finally, digital national revenue grew by more than 15% and was especially strong during the holidays. Big gains in this category reflect increase Lee’s ability to drive pricing for an unmatched and highly desirable local audience. On to you, Carl..

Thanks, Paul. For the December quarter, cash cost increased 1.6%. However, as Mary mentioned on a comparable basis, excluding the subscription-related expense reclassification, cash cost decreased 2.1%, exceeding the previously announced cost reduction range of 1% to 2%.

For the full year, we now expect our cash cost on a comparable basis to decrease 1.5% to 1%. Those cost reductions are of course net of the cost of investments we continue to routinely make in the business. Operating cash flow totaled almost $46 million in the quarter, down 6.8% from the prior year.

This trend has improved from the last quarter of 2014. Our operating cash flow margins remain strong, totaling over 26% in the quarter, down slightly from the prior year. Operating income totaled $37.5 million in the quarter, down from $40 million in the same quarter a year ago.

The subscription expense reclassification has the impact of dampening our operating cash flow margin. And it was about a 0.8 percentage point effect in the quarter. We reported earnings of $0.18 per diluted common share in the December quarter.

Excluding unusual matters and those of a substantially none recurring nature, adjusted earnings per diluted common share totaled $0.22 in the quarter. Debt was reduced $20.3 million in the December quarter, including $32 million borrowed to pay 2014 refinancing cost that has since been repaid.

Debt has been reduced over $80 million in the last 12 months. Our debt at the end of the quarter, net of cash on hand, was 4.8x adjusted EBITDA for the last 12 months. To reiterate what Mary said, we remain committed to aggressive debt reduction and we expect to continue to use substantially all of our cash flow towards that end.

Since the end of the quarter, we’ve repaid debt an additional $12.3 million. We’ve added more detail to the table in our release, I believe it’s on Page 11, showing the debt levels of the various tranches both as of the end of the quarter and where it stands today. That concludes our remarks. One final note.

We expect to file our 10-Q with the SEC tomorrow. And as always, it will include additional information on our results and expectations. Now we’re ready for questions. Operator, back to you..

Thank you. At this time we will be conducting a question-and-answer session. [Operator Instructions] One moment please while we pull for questions. And please state your company prior to asking your questions and your line is now open. You may proceed with your question..

Hi, good morning. Thank you for taking my question.

Regarding the advertising sales trend, just looking underneath the service at some of the end markets, can you talk a little bit about automotive sales which continue to be weak and whether you think oil prices could assist that; and then also, classified employment [indiscernible] which have been really strong?.

Yes, regarding automotive, we’ve put a team together that we recently had in looking at the product and packages that we have sold across all of our enterprises. And one of the things that we had developed is a new suit of products aimed at driving digital results for auto dealers. In addition to that, we’re beginning to launch regional concept.

We will have experts going into the market to pitch more digital products to auto dealers. And on top of that, we recently, about three months ago, brought in about 15 new digital elite specialists that specialize an array of more sophisticated digital products aimed at car dealers so we expect that number to get better in the coming months..

Great. And then on employment, it’s a pretty good number.

What’s driving that?.

Well, on employment, we have always had a keen focus on that. One of the things we like to tell everybody is we’re number in the Monster [ph] Consortium and that was just communicated this past quarter. So it’s something that we’ve focused our teams on and have become very skilled the last several years at selling Monster [ph] products.

And we think we’ve got the right products in place to drive that revenue and that’s what you’re seeing..

And the only other thing I’d add on automotive is although we aren’t satisfied with our performance in automotive, the trend has improved and we are moving in the right direction..

Good.

And how have the trends started or in the first month of the year, let’s say, how did the year started off?.

You mean, January?.

Yes..

We’re actually still compiling January results. Our 544 period for January didn’t end until last Sunday. So we don’t have January yet. So sorry about that..

All right.

And then, just on the reclassification, can you talk a little bit of why you decided to make this change?.

Yes, from a tactical perspective, our prior agreements with carriers in the markets that we’re changing now entitle them to a share of the revenue that we’re collecting. And the full access initiative from our perspective, the change in the price that’s related to full access is related to providing access to the digital content.

And of course, carriers don’t deliver the digital content. And so we didn’t feel like it was appropriate to share that revenue with carriers. And so the relationship has been altered now to the new contracts that we have.

In the future if we raise prices, it’ll be independent of how we compensate carriers but under the old arrangements that wasn’t necessarily the case..

And so just one more sentence on that, as a way to look at it is we went from a wholesale-retail arrangement with our carriers to a pay-per-piece arrangement..

Got it. And so - oh, okay, I got it. All right. And then, just a last question, on debt, you’ve done a nice job of paying down the Pulitzer notes.

Any idea or I guess maybe, how you think those can be paid off in full?.

Well, I guess, what I would say about that is we’ve noted both Carl and I, and we’ve said this a lot of times that we’re devoted to using our substantial cash flow to pay down our debt. You can use your own judgment since you have our cash flow and know our debt, how long that might take. That’s not something that we’re projecting publicly.

But rest assured that we’re devoted to paying down our debt as fast as we can do it..

Yes, Mary is right. And I would only add to that, factually, the Pulitzer notes have been reduced $36 million in the last 12 months end of December. And the balance today is $15 million [ph]. So all things sort of continuing as they are, it shouldn’t be a long time..

Got it. And I appreciate it. Thank you very much..

I thought that was pretty specific. Okay..

Yes..

Thanks. Okay. Other questions..

Thank you, guys..

Yes. You’re welcome..

Thank you..

Thank you. We’ll go next. Please state your name and your company. Your line is now open. You may proceed with your question..

Hi, it’s Avi Steiner at JPMorgan. A couple of quick questions. Just one on the cost side; you had a pretty good performance this quarter, well, your go-forward guidance is a little bit light of that.

And I’m just curious, you mentioned investments, were there any one-timers you can call out or how would you think about those cost going forward?.

Yes, I mean, the investments, there is a mix of continuing and one-time but that seems to always be the case. We added it up for the board for our meeting a few months ago and identified something like $15 million in 2015 of investments that we’re making. But we consider those to be, you know, sort of ordinary course of business investments.

And that wasn’t inclusive of some of the things we’re doing. It was just sort of easily identifiable categories. I don’t know how that $15 million splits into recurring and non-recurring but our point is that we’ve been making those investments all along.

The digital business wouldn’t be growing to the extent it had if or has, it’s still present tense, if we hadn’t been making those investments. We wouldn’t have been able to do full access without a number of improvements in systems and call center capability and it goes on from there.

So we didn’t want to give the message that we’re only reducing cost. We feel like we’re reinvesting in the business for both the short term and the long term. The reason that the guidance for the full year is less than Q1 is that we’re cycling against changes from prior year and that’s the number we feel comfortable with.

We - I would also say that we continue to be focused on business transformation as an ongoing initiative just as we are with digital revenue or anything else and we continue to look for opportunities to keep our cost structure in line and help us maintain that high level of cash flow..

Excellent. And then I missed a couple of things on the call. One, just timing around the full access subscription model when that gets fully implemented and I think you guys gave a paying sub [ph] number but I missed that and I want to know how the sub number compares to where we were last quarter. Thanks..

So we have launched in 30 markets thus far and we’ll be fully launched by the end of June 2015 quarter. And we spoke to the 2.5% to 3% increase in revenue that we’re communicating for the fiscal year. We have about 200,000 activated digital subscribers to date..

I’m sorry.

What was that number?.

200,000..

And do you have a quarter-ago number just to get a sense of trend?.

The December quarter was up 0.3%..

And one other comment I would make on our pay-per-digital [ph] access program, we started it last May, the first two markets that launched were Madison and St. Louis, but the way the revenue flows through is as the subscription expires or comes due, that’s when the subscriber receive the rate increase.

So as time goes on, the revenue stream get stronger and that’s what where we saw in this quarter and we’ll see going forward..

Understood.

And maybe a one big picture question as you approach the full pay down of the Pulitzer notes and several newspaper peers are becoming standalone entities away from diversified media companies, do you think or do you see an opportunity for consolidation and maybe how Lee would participate in that in any way, shape or form?.

We are periodically or, I guess more than periodically, we are routinely asked about our view of consolidation and here is what I think.

I think that consolidation can work if what’s getting consolidated has a bigger oomph than the two or three parts are consolidated and I think the key there is a platform or management that can run a great organization.

At this point, in Lee, we are very happy with where we are and our concept is to keep that paying down our debt, keep driving digital revenue and keep moving forward as being the leading provider of local news information and advertising in these great local markets that we serve.

The other point that I would make however is that we are happy that there are more publishing companies out there because we think it raises the profile of the industry and by that helps Lee long term..

That’s great. I think I’m done. One last thing for me, I still plan on talking to you for a bit, Carl, I want to wish you a best of luck in the next chapter..

Thank you. Appreciate it..

Well, don’t wish him luck yet because he’s here until the end of June. So we don’t want to prematurely be shoving him out the door..

Yes, I’m handcuffed to the table..

That’s right..

[Operator Instructions].

Okay, we have two questions or a few questions over the Web. The first question is, what is the cash position today after the additional $12.3 million debt pay down. We didn’t put that number in the press release on purpose because we don’t compile cash on a daily basis with any degree of specificity as we do with the 10-Q.

So that number isn’t available other than at the end of each quarter. Another question is, can you provide an apples-to-apples measure of daily circulation, I noticed there is a change in measurement method.

We have - the press release indicates we have 1.1 million daily, 1.5 Sunday, the Sunday number is up a tick from the September quarter when I think we reported 1.4 million, but those are not necessarily comparable. We do not have a comparable measure today.

The AAM measures have been changing pretty much every year for a while now and so rather than compare things that aren’t comparable we have just decided for the time being anyway until it settles down to give just the aggregate numbers..

Kevin is very involved with the AAM Board which is the new name for the old Audit Bureau of Circulation. You might just mention some of the categories of circulation that are now being tracked. That makes it hard to, at this point, to have a year-over-year comparison of print circulation..

Exactly. So the way that they look at print circulation has pretty much stayed the same. What’s changing is the definition of a paid digital subscriber and how often someone accesses digital content. And those rules are under review by the Alliance of Audited Media as we speak.

I expect a full and final recommendation to the NAA at the end of the month of March and that’ll be reviewed at the NAA annual meeting at the end of March. So I would say at our next quarterly earnings call, we could speak specifically to that..

Okay. I think that does it for questions..

Great. Well, thank you so much for joining us today on this call. We appreciate your time this morning and we really appreciate your interest in the company. This is our third conference call and we would be happy to take any feedback to help improve these calls in the future. Thank you so much..

That does conclude today’s conference. Thank you for your participation..