Charles Arms - Director, Corporate Communications Mary Junck - Chairman and CEO Kevin Mowbray - Executive Vice President and COO Ron Mayo - Vice President and CFO Paul Farrell - Vice President, Digital Sales James Green - Vice President, Digital.

Avi Steiner - J.P. Morgan Andrew Galvan - Odeon Capital.

Welcome to the Lee Enterprises’ Fiscal 2015 Third Quarter Webcast and Conference Call. The call is being recorded and will be available for replay beginning later this morning at lee.net. At the close of the prepared remarks, there will be an opportunity for questions. Several analysts have been invited to participate.

Also participants accessing this call by webcast, may submit written questions throughout the website and they will be answered during the call as time permits. Otherwise, you will receive a response later. A link to the live webcast can be found at www.lee.net.

I will now turn the call over to your host, Charles Arms, Director of Corporate Communications..

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, Executive Vice President and Chief Operating Officer; and Ron Mayo, Vice President and Chief Financial Officer; Paul Farrell, Vice President of Digital Sales; and James Green, Vice President of Digital.

Earlier today, we issued a news release with preliminary results for our June quarter and year to-day. It is available at lee.net, as well as 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 will also report changes in comparable revenue and cash cost that exclude the impact of a change to fee-for-service arrangements with our carriers which requires a reclassification of delivery costs, resulting in a grossing up of both revenue and costs. This reclassification has no impact on operating cash flow or operating income.

And now to open our discussion is our CEO, Mary Junck..

Thank you, Charles, and good morning, everyone, and thank you for joining the conference call this morning. The third quarter was highlighted by continued strong Digital revenue growth, decreased cash cost and continued debt reduction from our strong free cash flow.

Total operating revenue was $157.5 million for the quarter, a decrease of 3.4% compared to the same quarter prior year. On a comparable basis, total revenue was down 5.1%.

April was the most difficult month in the third quarter and we are encouraged by a positive change in the overall revenue trends within the quarter as the month overlapped trends improved in both May and again in June.

This coupled with several additional sales initiatives this summer gives us optimism that we will see improvement in advertising revenue in Q4 as compared to Q3. Digital revenue continues to grow steadily.

Total Digital revenue including advertising, marketing services, subscription and digital businesses increased nearly 29% from the same quarter last year. Digital Ad revenue was up 6.5% for the quarter, driven by the strong Digital retail performance.

Mobile advertising revenue a component of our Digital Advertising revenue grew more than 23% from the same quarter last year. Our business transformation and cash cost reduction efforts were accelerated in the third quarter as we decrease comparable cash cost after excluding unusual matters 3.9% or almost $5 million.

We are again in the position to improve our cost guidance since we expect comparable cash cost in the fourth quarter to decrease between 5.5% and 6%. And we expect many of these cost reductions to flow through into fiscal 2016.

In the third quarter, we repaid $19.3 million in debt including the milestone of paying off the Pulitzer Notes almost two years early. In the last 12 months, Lee has reduced debt by $70 million. Now here is Kevin with more detail on the quarter..

Thank you, Mary. As Mary mentioned earlier, digital revenue continues to grow at double-digit pace. Total digital revenue including advertising, marketing services, subscriptions and digital businesses increased 28.6% in the quarter. Digital advertising revenue grew 7.3% year-to-date and has accounted for 19% of total year-to-date advertising.

Digital retail advertising increased 12% in the quarter and almost 7% year-to-date. Mobile advertising revenue grew 23% in the same quarter last year. Year-to-date mobile advertising is up 30.7%. Amplified digital packages and audience extension performed very well in the quarter, growing 56.9% over prior year.

Digital services grew 19.7% in the quarter, which was largely fueled by TownNews.com, a Lee Enterprise subsidiary that provides content management and web hosting for web, print and mobile products to Lee Enterprises properties as well as 1,500 other newspapers.

It also provides national advertisers with programmatic opportunities to digital advertising placement, campaign management and optimization. Year-to-date total operating revenue totaled $489.2 million at the end of the third quarter, a decrease of 3.5% on a comparable basis.

Our full access subscription model continues its positive impact as subscription revenue posted 3.4% increase in the quarter, that’s accounting for subscription related expense reclassification.

Note that this reclassification increases both print subscription revenue and other operating expenses with no impact on operating cash flow or operating income. Full access is now in place in substantial all of our Lee markets providing subscribers with continued access for Lee content across every platform, including digital, print and mobile.

Fairly more than 255,000 subscribers have activated their access for our digital content. Year-to-date subscription revenue is up 2.7% on a comparable basis. For the fiscal year, we expect subscription revenue on a comparable basis to increases as much as 3%. And finally a note on our continued digital evolution.

In September, we begin the launch on improved modern design for our desktop, mobile websites and apps. The design features faster load speeds with richer content display options and an improved reader experience, which we believe will translate into increased reader engagement, ad performance and ad revenue.

Also in August, we’re introducing new template that we designed for our print product in order to buy more powerful visual field as well as reduced production time. Now Ron will share some additional financial highlights..

Thank you, Kevin. The acceleration of cost reductions in the second half of 2015 is expected to have a favorable impact on cash cost in 2016. Those cost reductions are of course net of investments we continue to make in the business.

Operating cash flow totaled more than $35 million in the quarter, down 10.4% in the prior year but down 8.7 after excluding unusual matters. Our operating cash flow margins remain strong, achieving 22% in the quarter. As a reminder, the subscription expense reclassification has the impact of dampening our operating cash flow margin by 0.7%.

Operating income totaled $24.8 million in the quarter compared to $22.6 million in the same quarter a year ago. We reported earnings of $0.03 per diluted common share in the June quarter.

Excluding unusual matters and those of a substantially non-recurring nature, adjusted earnings per diluted common share totaled $0.09 in the quarter compared to a $0.11 a year ago. Year-to-date, debt was reduced $59.8 million, including the milestone of paying off the Pulitzer notes almost two years early.

As was discussed in an earlier release, this payoff is significant as it begins to simplify our capital structure and should result in a more rapid paydown of our debt under the first lien term loan.

In addition, our real estate monetization program continues with more than $15 million of real estate assets listed for sale, including the headquarters of the St. Louis Post-Dispatch, substantially all proceeds from real estate sales net of transaction expenses will be used to reduce debt.

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. This concludes our remarks. The team will remain on the line for any questions you may have. Operator, please open the line for questions..

Thank you. [Operator Instructions] We will now take our first question. Caller, your line is open..

Hi. It’s Avi Steiner from J.P. Morgan. Good morning. Two part questions to start, on the just reported quarter, we haven't seen this revenue trends this year or at least the magnitude of the decline and I’m just curios.

Can you one-time factor us the 0.2, or is this potentially smaller markets catching up to what the bigger markets have been seeing? That’s the first part of that question.

And then Mary, I think you talked about some new advertising initiatives that give you confidence that you'll see improvement in the fourth quarter and I’m wondering if you can elaborate on those and then I’ve got a couple of follow-ups? Thank you..

What I would say that the -- your first question is, we saw kind of the same trend across all of our markets. So, I do not think what you are implying here that smaller markets are catching up with some of the trends that other companies have seen in bigger markets. So it was kind of a common pattern across the company.

So that’s the answer to the first question. To the second question, we have, as I noted a number of initiatives underway, they actually started in Q3 and continued into Q4 and many of them we intend to continue into next year.

One of them, we talked about before and I will just highlight it and that is the Big Pitch program where we are laser focused on our largest local accounts and making really aggressive pitches to them to standout both in print as well as digital. And I think that’s a pretty good example.

The other thing that we’re working on already is our holiday packages, and we’re putting some pretty interesting twist on that to drive holiday spending in the first quarter of our fiscal 2016..

Okay. And then a quick question on the cost side. You’re indicating certainly a better Q4 and you’re talking about or you did talk about how some of the actions you’re taking now will help 2016.

Is it a little too early to give us kind of thoughts around the potential expense declines in 2016, and if not, specific quantitative? Can you give us a little bit of qualitative flavor? And I have got one more. Thank you..

With respect to the expenses, we are in the process right now of budgeting 2016. So what we’re saying now is that we -- in the last two quarters or our third and fourth quarter that we have substantially reduced our expenses.

And we will also see those savings in the first quarter of '16, the second quarter of '16, and to a lesser extent, obviously in the third and fourth quarter. So I would be cycling over those costs. But as we go through our budgets, we will be looking for additional cost efficiencies that we can gain out of the business.

So that’s one of the reasons we’re not giving any cost guidance for 2016..

Fair enough. And very last question for me. And thank you for the time. If you were to sell the St. Louis Post-Dispatch headquarters, does that -- the proceeds have to go to the second lien bank debt or the first lien, where do those proceeds have to be shown to first and then I am done? Thank you very much..

The proceeds, we can reinvest the proceeds and other assets, which is more probably unlikely that we will do that. So more than likely, the proceeds will all go towards paying down the second lien note at par..

I will turn it over. Thank you..

And we will take our next question. Carl your line is open..

Hi, good morning. Thank you. This is Andrew Galvan from Odeon Capital. I was wondering if you could talk a little more in detail about the revenue trends. And you can think about it maybe in terms of bringing it down by employment, automotive, real estate where declines were much sharper this quarter than previously.

Retail was some consistent with where it’s been and not quite -- step down quite as much as some of the other categories. Or if it’s more helpful, maybe we should talk about the Midwest and Mountain West where revenue declines were much sharper than elsewhere in the country. Thanks..

Well, let me lead up with a couple comments around classified. And classified in the quarter, as you read in the release, was not delivered -- disappointed with the results. And we put in the place a number of programs that we think will help us improve classified, particularly in automotive as well as employment..

True. And just to add a little bit of color to that would be changes in our sales organizational approach. We’ve invested in senior regional digital sales resources. We are taking select pricing opportunities in those categories and being smart about it.

We are devising new content strategies that better position our solutions to large dealers, employers, and realtors. And as we talked about on previous calls, we are continuing the rollout of our two new auto and home portals, which really serve the digital [senofi] [ph] for our dealers and realtors.

So we got a lot going on to reverse what we saw in the recent quarter..

Well, the automotive initiatives have been going on for a while, what accounts for the sharp step-down this quarter?.

Our digital growth has been where we wanted to be. We’re seeing a little bit more softness in trend and have a lot of programs ended.

Bulk print offerings that we’ll address that as well as continuing to feel our digital efforts, particularly in the more sophisticated digital offerings that include website, mobile site, keywords and targeted display, which is getting a lot of interest from our dealers and a lot of growth..

The other point I would make on auto is that we actually have performed pretty well in auto with our larger auto accounts meeting those that are the biggest auto dealers in our market where we’ve done less well in the smaller auto dealers. So there is vast difference that we saw in the quarter as well..

And so just the changes that we just described about what’s going on in auto, are those post the quarter or are you already -- we already blowing out some of those initiatives in Q3?.

We’re rolling out some of those initiatives at the latter part of Q3. We just recently bought in a new regional auto expert that focuses on digital. It goes into our newspapers and helps them develop both print digital programs in with our largest dealers and also the smaller dealers as well..

Okay.

And then regionally, what’s going on within Mountain West and the Midwest where things have been a little weaker?.

Well, in a couple of our markets, the energy markets as per billing this mark, we saw a softening of important advertising in those markets in automotive as well..

Yeah. Overall, those markets were much softer as the impact of employment within the energy industries that are there has affected not only employment advertising together but all of the advertising we’re getting there as markets have soften substantially..

Got it. Okay.

And if I’m understanding you correctly now, was your thinking is that in Q4 some of these initiative could lead to substantially better result on the revenue side than what we saw in Q3, just in terms of percentage?.

Correct..

Okay. All right. Thank you very much..

Thank you. Ladies and gentlemen, at this time we have reached the end of our question-and-answer session. I would like to turn the floor back to our management team for any closing remarks..

Thank you so much for joining us today. And we appreciate your time and your interest in Lee. Thank you again for joining us..